Bernard Hickey details the key news overnight in 90 seconds at 9 am in association with Bank of New Zealand, including news that European and US stock markets celebrated a deal reached after a 10 hour summit of European leaders that is designed to solve the European sovereign debt crisis.
The New Zealand dollar surged over 82 USc on the 'europhoria', which saw many investors put their money back into riskier assets in the hope a European solution might boost global economic growth, commodity prices and profits.
The Eurostoxx 50 index of Europe's biggest listed companies rallied 6%, while the DAX index of Germany's largest stocks rose 5.3%.
The Dow was up 321 points or 3.2% in the last half hour of trade, making October the best month for US stocks since 1974. Oil and gold prices rose. See more here at Bloomberg.
European leaders ended their summit at 4 am European time with an announcement of a broad outline of a deal, but without many of the details, which have yet to be finalised.
Banks have agreed to a 50% haircut on their Greek bond holdings, which means they will have to book losses and then find fresh capital to replenish their accounts, or reduce their lending elsewhere to bring their capital backing ratios back into line. See more here from Bloomberg.
The details of a deal to recapitalise the European banks was not finalised.
European leaders also agreed to increase the buying power of the EFSF (European Financial Stability Fund) from 440 billion euros to 1 trillion euros, but the details of how this might be done were also not finalised. They could either use the 440 billion euros to provide insurance against losses on stressed sovereign bonds, or use the 440 billion euros as the basis for an investment fund that would be topped up with outside investment from others.
French President Nicholas Sarkozy is scheduled to fly to China shortly to ask for its investment in this bailout fund, although China is expected to demand European concessions in other areas, including reduction of pressure for China's currency to rise. See more here from Reuters.
Europe has yet to solve the basic problem at the heart of its economy. It has a single monetary policy to go with its single currency, but does not have a single fiscal policy to go with it. That means governments are able to run deficits and borrow in an unsustainable way from others in the currency union.
Most experts agree Europe will need to find a way to control the budget policies of all eurozone members in a unified way before it can solve its sovereign debt crisis. See more here from Alan Wheatley at Reuters.
The deal announced yesterday does not tackle this issue. Some criticised the deal for being long on intentions and short on detail. Felix Salmon at Reuters described it as a 'half baked deal'.
Meanwhile, some rare good news from America's economy, which grew at an annualised rate of 2.5% in the September quarter, which was in line with economists forecasts but was above the 0.4% rate from the previous quarter.
(Updated with detail, links)
41 Comments
Actually banks have not agreed to take 50% losses on Greek bonds....the pollies have said they must...and the Italian bond values fell ....the market has seen the future.....
" Sarkozy is scheduled to fly to China shortly to ask for its investment in this bailout fund"...correction....."to beg for"
I wonder if the Beijing bosses have finished compiling the list of artifacts and priceless objects stolen and or smashed and burned by French troops when they stormed and destroyed one of the Chinese palaces a short 80 odd years ago......
You've got to laugh, Wolly, these haircuts have been decreed to be voluntary. Compulsary but voluntary. We are now, officially, living in Never Never land, up is down and black is white.
The reason for this inversion of reality? To avoid triggering credit default swaps. This is like insurance to cover default, and was created by the finance geniuses to cover just this sort of eventuality. Trouble is, when TSHTF they're completely useless, there's no money to pay out. Another complete and utter f#(k up by the liars and looters in the banking "industry".
I would hold till maturity and see just how volutary they are. Then the CDS still has meaning, it's kinda like not claiming on insurance so you can keep your no claims bonus. Private institutions do not have to accept the haircut, but they believe the lie that this is the only haircut they will have to take. The debt is snowballing, google greek bailout and follow the growth from 09 to present, started at about 40bln, the highest estimate I have heard now is 5trl. Hello peonage
Wolly, yeh they will take losses, but what do you think the one trillion Euro bailout fund that the Europeans agreed to is for? To compensate the banks for their losses of course, haha. The banks lose nothing as usual haha.
That's one Trillion that does not exist....where will it come from!.....The wee frog is off to Beijing to beg for a trillion....he better take with him, a plane stuffed with Chinese priceless art stolen by French troops in the 1930s..! At best he will be presented with a list of French property to be put up as security for any loot.
They will QE is ,Wolly. But NONE of it will reach ' main street'. Main Street spent it over the last 4 decades and this 'new' money will go to recapitalise the banks that will use it to replace the defaulted debts from those decades of spending...the bill being presented to the public via taxes and job cuts etc. The next few decades are likely to be... austere.
Nicholas Arrand,
"The next few decades are likely to be... austere."
Yes, the future will undoubtedly austere for most of us, but for a very few, it couldn't be brighter. For one thing, water will be the big investment cashcow of the future. I expect to see a globally integrated market for fresh water within 25 to 30 years. Once the spot markets for water are integrated, futures markets and other derivative water-based financial instruments — puts, calls, swaps — both exchange-traded and OTC will follow.Read more: http://www.businessinsider.com/willem-buiter-water-2011-7#ixzz1bbSr0bm1
Which is why privatization of any core assets is completely out of order. And don't give me any nonsense about minority stakes.
What does a water bubble look like?
Like a minority stake!
Actually water will start to be priced but that will be in order to focus people on its use. We may see domestic tradeable quotas being introduced at some point also, which will enable us to better manage our water use (note the use of the words "us" and "our"!).
This will come as a shock to you raf but water already is priced....it is also traded!
Just you go play the 'buy a farm game' and you will learn how water is incorporated into the land price and so too the rates stolen by councils. Which means it is also incorporated into the food price cycle. Just ask farmers in Northland about the value of reliable rainfall....!
Yeh Wolly, it will be, which is why farming organizations are so keen to load the investment cost of water infrastructure onto the public. So they can gain even greater windfall capital gains, when they sell off to the Chinese. Remember Conor English's writeup about water storage?
http://www.interest.co.nz/rural-news/53353/water-storage-critical-nzs-big-future
"Water storage will enable “more fish and less drought” and build resilience into our economy and environment. In the city you don’t have to wait for the rain to fall before you have a cup of tea. In the city, we have access to water at the right place at the right time. In the city we store water, we bank it, we save it on a rainy day so we can use it when it isn’t raining. So why not do more of the same in the country?"
And an article by Colin James The Government's most likely solution - a Crown company like that for ultra-fast broadband fibre-laying, capitalised from the proceeds of selldowns of state-owned enterprises and operating in public-private partnerships to get projects under way and then sell them on to farmers. http://www.stuff.co.nz/national/politics/4977530/Eyes-on-NZ-as-China-sucks-own-water-dry
Hey no worries anarkist.. Labour will make the farmers pay for the water they use based on the cost of getting it plus the theft by govt plus gst on top...and you will pay the higher price for Dairy and meat and grain and veg and fruit...and bread. Way to go....and the overseas buyers will say no way too dear cut price no buyeee ....brilliant Labour policy....usual rubbish like all their other stupid ideas.
The poor old farmers are SO hard done by.
"Labour will make the farmers pay for the water they use based on the cost of getting it plus the theft by govt plus gst on top...and you will pay the higher price for Dairy and meat and grain and veg and fruit...and bread."
Wolly, I doubt it. The Labour Party are as much the slavish servants of foreign corporate interests as the National Party. Take the buyout of NZRail from Toll New Zealand. I remember reading at the time of the deal, that big customers of Toll's Rail operations were begging the then Labour government to buyback the railways, because of poor service provision and infrastructure investment. The article specified which companies were lobbying the government, but I can't find it on the 'net. This is the closest thing to it.
"NZPA has been told by some in the sector that large rail customers and the state owned enterprise that owns the tracks - Ontrack - have been urging Dr Cullen to buy the company, which is 100 per cent owned by Toll Holdings of Australia."
http://www.nzherald.co.nz/politics/news/article.cfm?c_id=280&objectid=10480050
Here we are Wolly, the article I told you about where the rail users were lobbying the government to buyback TranzRail.
The Rail Freight Action Group - which comprises some of New Zealand's largest exporting companies - has been lobbying politicians to gain support for a Government buyback of the national rail network.
The group - Carter Holt Harvey, Fletcher Challenge Forests, BHP New Zealand and state-owned Solid Energy - wants rail freight to be a robust and cost-efficient part of the future transport mix.
http://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=2697110
Yes ...so?
Um, well it kind of overturns your understanding of the Labour Party as the feckless enemy of capitalism. They just as beholden to corporate interests as the National Party. They're just more likely to engage in spin to deceive the gullible proles. Rich pricks! blah blah blah. Its all empty rhetoric. Actions speak louder than words.
"Actually water will start to be priced but that will be in order to focus people on its use. "
Raf, that indeed will be the pretext, that privatized delivery of infrastructure services are more efficient, but instead the real reason as it is for other services like electricity, roads, telecommunications, hospitals etc, because its an oppurtunity to make windfall profits, due to a captive market. Servile European and American governments are campaigning on the behalf of their water infrastructure development corporations to impose obligations on Third World nations to open up their water markets to "investment", actually rather capture. Look at what happened in Bolivia.
In the General Agreement on Trade in Services (GATS) negotiations currently underway in the World Trade Organisation (WTO), the European Union has asked 72 WTO member states to open-up water delivery and waste water management to international competition. Liberalisation of water markets through the GATS talks would not only help Europe-based water TNCs to expand further. Bringing water supply under WTO disciplines may effectively make privatisation irreversible and close off the development of participatory and co-operative models. The EU’s aggressive promotion of the narrow commercial interests of EU-based water corporations, spells disaster for the worlds poorest.
http://www.waterjustice.org/analysis.php?componentID=2&articleID=50
Cochabamba protesters shut down the city for four days, going on strike and erecting roadblocks throughout the city. Residents protest the privatization of their municipally run water system and Aguas del Tunari's rate hikes, which have doubled and tripled their water bills. Aguas del Tunari had informed Bolivian officials that water rates would increase only by 35 percent, to cover the cost of expanding water delivery and to upgrade the city's water infrastructure.
http://www.pbs.org/frontlineworld/stories/bolivia/timeline.html
And our governments are trying to rationalize the action here, by using deceptive and misleading justifications.
"The Wellington City Council has admitted council documents and statements about Wellington’s water use contained errors and misleading statements...The Council also said it did not know the origin of statements about Wellingtonians’ consumption of water being twice that of the national average that appeared in a Dominion Post article in November last year that also featured pro-metering comments by mayor Kerry Prendergast."
http://www.righttowater.org.nz/26%20march.doc
“New Zealand business interests, cheered on by their overseas peers,have been lobbying since the mid-1990s for the commercialisation of water including metering. Metering is a usual first step towards involving private sector in the management and distribution of water. The potential profits available to businesses managing household water supply are huge,” says Ms McMillan.
http://www.righttowater.org.nz/Not%20about%20conservation.doc
Unintended consequences!
"The European Union’s ability to write down 50 percent of banks’ Greek bond holdings without triggering $3.7 billion in debt-insurance contracts threatens to undermine confidence in credit-default swaps as a hedge and force up borrowing costs.
As part of today’s accord aimed at resolving the euro region’s sovereign debt crisis, politicians and central bankers said they “invite Greece, private investors and all parties concerned to develop a voluntary bond exchange” into new securities. If the International Swaps & Derivatives Association agrees the exchange isn’t compulsory, credit-default swaps tied to the nation’s debt shouldn’t pay out.
“It will raise some very serious question marks over the value of CDS contracts,” said Harpreet Parhar, a strategist at Credit Agricole SA in London. “For euro sovereigns in particular, the CDS market is likely to remain wary.”
This approach may undermine confidence in credit-default swaps as a hedge and force banks to look at other ways of laying off risk,"
http://globaleconomicanalysis.blogspot.com/
It's the "force up borrowing costs" bit that ought to wake punters up.....the cost of the scam solution and CDS rort will be dumped into the market as higher refi costs on existing debt and a decline in demand for new debt..so leading to an overall decline in economic activity dependent on the once cheap credit....leading to fiscal holes and an inability to finance sovereign debt in Italy France Spain.........get the message!
What value now the CDS product?......an insurance product backed up by ...nothing!
So why would you, as a bank or a stonkingly wealthy person, buy piigs sovereign debt when you have NO security and certainty of total loss. The only buyer of this filthy dangerous debt will be the ECB..................... Banks will not go within a merkyl of it...
Next episode in the demise of the EMU and the euro is timed for November...oh we are almost there...must get a ticket to the show.
Phil Goff can keep his god damned hands out of my pocket. Fortunately he can't get at it because I'm an economic exile. Won't be voting this time round - all the polies of all persuasions are are an equally clueless shower of....
I'm just waiting for the global reality bomb to finally go off - sick of the waiting. Hopefully, after a decade or so of chaos we might just find ourselves able to rebuild something a whole lot better.
Oh another ship has just run a ground at tauranga...umm lets hope they can tow this one back to port.
"The key point is the situation is under control,"....I can't stop laughing...calm weather...calm seas...how do the idiots manage it...maybe it's Labour's election launch!
This ship just ran aground.. By any chance, the captain name is Phil?
No, Winston....
regards
Could also be Norman - he's sneaky fella..
"Although funding needs for 2011 have been "mostly addressed", the EBA said the market for longer-term funds was currently closed "due to increasing concerns over the sovereign situation and banks may find it difficult to address their funding needs in 2012".
http://www.independent.co.uk/news/business/news/euro-leaders-look-to-the-future-2376849.html
crisis averted....recovery is here...Tui......
If you thought it was going to be tough paying back your exisitng debt, heres another trillion to pay back, that should make it a lot easier to pay back. Or would you like more, where did that financial engineer scurry off to?
Would someone please enlighten me as to ...
Quantum redn in Greek debt outstanding with 50 % write-off ?
Quantum of new loans to be dished out to Greece to finance current deficits ?
Thus future debt levels going forward and how different this is from the situation today.
I really am struggling as to how this is a solution - just the appearance of a solution which bond markets will see through in about 2 secs starting now.
You are right it is madness, and I'm struggling to understand the dancing, although there was a trillion mentioned somewhere, "the market can remain mad longer then you can remain solvent".
63% of voters support retirement at 65 in the Herald poll which asks:
At what age should you become eligible for national superannuation? So how do we account for the reader poll result on this site?easy answer - self interest
bugger the long term wellbeing of economy and society, its all about me
Correct MIA - After the decades to playing split the human beings into as many silo's and self interest groups as possible, sports teams, race, sex, orientation, religion etc, and combining it with the policies to destroy jobs, finances, & the general well being of NZ. It has become so easy to control the voters minds now, and it is concerning at looking to try and find the way forward to connect with people so that perhaps they will begin to understand there is a greater cause than "its all about me"
The old divide and conquer technique is as powerful as ever, and the masses, and even he minions are simply not even aware of what has been done to them...
Anarkist - great posts about the Infrastructure and targeting by the foreign interest theives to get their hands on what is left in NZ. JK et al including any other party in the mix are and have been complicit to the breakdown and inpoverishing of their own country..
Where is that rope!
Europe's rescue euphoria threatened as Portugal enters 'Grecian vortex' http://www.telegraph.co.uk/finance/financialcrisis/8854267/Europes-resc… Highest rateed comment,
gra12
I live in Alicante Spain and travel extensively within the Iberian Peninsula. The "Crisis" has had a noticeable effect in both Portugal and Spain with an incredible exodus of foreign nationals including many thousands of Brits and other migrant workers returning back to their homelands, businesses are closing down everywhere with to rent and for sale signs in abundance. There is a real feeling of despondency amongst the youth and crime is rising.With one huge exception. The Chinese.
There are in almost every city and town throughout Spain, especially, literally dozens of huge super stores with a new one opening weekly selling absolutely everything from a screw to perfume and racks and racks of clothes etc. They are also opening lots and lots of huge, 500+ seater self service buffet Wok restaurants,
Where the heck is the money coming from for these super stores and super-sized restaurants.
I know that the Chinese Leaders were in Madrid recently and agreed to buy most of the last debt issue, but did they buy the country.
Look what is happening in many African countries where the immigrant Chinese population is rapidly overtaking the Native Africans.
They are very active in buying and expropriating the natural resources of the counties.
We in Europe should be aware, this form of economic dominance can be highly dangerous.
ref: France begging China to be treated like spain.
Time to pay the piper.............Chinese just doing what the bankers have done for centuries...extend you credit and then take your assets when you can't pay.
Works every time.
Yes, they will own the French and Italian banks very soon. Funniest century ever. Think I'll hang around for the laughs. How soon before the Chinese naval visit to the Med takes place. Maybe Cameron could sell them Gib.
Yes, just goole Chinese invasion. Doesn't involve expensive high tech armoury and no more bloodshed. Same results at the end. Something the American could have done few years ago. Don't laugh too soon though - Fiji is the next target!
Hu is coming to a store near U
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