90 seconds at 9 am

90 seconds at 9 am: US stocks and NZ$ slide as former Greek PM reveals 'Grexit' preparations and bailouts for Greek banks suffering bank runs; Facebook hits US$31

23rd May 12, 9:01am by Bernard Hickey

Here's my summary of the key news overnight in 90 seconds at 9 am, including news US stocks slumped in their last hour of trade this morning after former Greek Prime Minister Lucas Papademos revealed Greece was preparing to exit the Euro.

He told DJNewswires in his first interview since inconclusive Greek elections that are being held again on June 17 that a 'Grexit' would be castastrophic for Greece and cost the European financial system up to 1 trillion euros.

He also confirmed that Greece's government is planning to inject 18 billion euros in coming days into Greek's banks, which have lost 23 billion euros in deposits in the last six months as depositors fearing an overnight return to a devalued Drachma pulled their money out. See more here on the bailout at the New York Times.

Papademos also said the governments finances had further deteriorated in recent weeks and may run out of cash before the June 17 elections. US stocks closed flat, having earlier risen on better economic data. See more here at Bloomberg.

The New Zealand dollar, which often rises and falls in tune with appetites for 'risky' assets, fell back below 76 USc overnight to a low of 75.4 USc.

Meanwhile, Fitch downgraded Japan's foreign currency credit rating by 2 notches from AA to A+, warning Japan's government debt to GDP would hit an astonishing 239% by the end of the year. See more here at Business Insider.

By way of comparison, Fitch also rates New Zealand at AA, yet New Zealand's public debt to GDP ratio remains well below 30% of GDP. Despite that, New Zealand's 10 year bond yields are trading around 3.5% and Japan's 10 year bond yields are under 0.9%.

What happened to the bond vigilantes threatening to punish indebted countries with high debts?

They asleep at the wheel in some countries and begs the question: why not borrow when the markets aren't punishing you for high debt?

No chart with that title exists.

We welcome your comments below. If you are not already registered, please register to comment

Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.

43 Comments

by Andrewj | 23rd May 12, 9:32am 1337722353

Japan's fiscal death is a warning to the West Fitch Ratings has downgraded Japan two notches to A+, citing a surge in public debt since the Lehman crisis and the lack of any plan to restore fiscal probity.

http://www.telegraph.co.uk/finance/financialcrisis/9283417/Japans-fisca…

by Christov | 23rd May 12, 10:07am 1337724436

Bank of Japan officials will today announce whether they will take additional steps to spur growth and counter deflation after the yen rose last week to a three-month high against the dollar, dragging on the nation’s exports. Seven of 14 economists surveyed by Bloomberg News said they expect the central bank to bolster monetary stimulus by July, while none predicted action today.

http://www.bloomberg.com/news/2012-05-22/japan-rating-cut-by-fitch-on-leisurely-efforts-to-tame-debt.html

Crank up the presses...?.......the path to political suicide in Japan ,it truly a forked one, but the inevitable lean on the sharp end of the sword the journeys end.

A big deal to the NZD...?..............................HUGE...June and July.

by Andrewj | 23rd May 12, 9:36am 1337722609

We all know we are in a mess. The problem is, our choices for what to do to rectify it and move forward to something better, seem as futile as each other.

We can sit back and tell ourselves that our leaders corrupt, incompetent and venal as they seem to be, actually do know what to do and do have our best interests at heart. Good luck with that, if that is your choice.

http://www.golemxiv.co.uk/2012/05/a-way-forward-a-modest-proposal/

by Kate | 23rd May 12, 10:08am 1337724509

our choices for what to do to rectify it and move forward to something better, seem as futile as each other.

Perhaps I look at it rather simplistically - but I think what am I doing individually from the perspective of my own family and then translate that to what our Government should also be doing. I'm spending my energy and capital on initiatives that:

1. Make my lifestyle more self-sufficient - food and energy-wise.

2. Reduce my dependence on oil.

3. Direct my expenditure/investment with a Maslow's hierarchy of needs perspective.

4. Invest in assets with a high degree of liquidity.

5. Maintain cash reserves.

6. Accept that business-as-usual is an historical concept and act on that acceptance.

7. Participate/invest in activities that strengthen civil society.

8. Think locally.

9. Express distain for those who betray humanity through their adherance to the neo-liberal status quo.

10. Expose and oppose oppression by the corporatist welfare state.

by steven | 23rd May 12, 10:37am 1337726233

8b When marmite is available again, bin vegemite.

Oh wait that will tank the OZ economy............

;]

regards

by scarfie | 23rd May 12, 12:47pm 1337734048

No sorry Kate, you must be a loon to be worrying about all that. Maslow....sounds awfully close to Malthusian. Totally on the wrong path, you should be looking at investment properties as that is the sure path to set all the ills straight.

by Kate | 23rd May 12, 3:18pm 1337743088

lol - No way ... I'm hand spinning alpaca fiber as we speak and gonna get out my sledgehammer and head into town soon :-). Hope I don't encounter the British troops.

by Kate | 23rd May 12, 9:42am 1337722949

What happened to the bond vigilantes threatening to punish indebted countries with high debts?

That's a very good question.

by Stephen Hulme | 23rd May 12, 10:19am 1337725164

Not a lot Kate other than ZIRP and Repurchase Agreements.

Collateralised Treasury borrowing via triparty agreements @ 25bps or less to finance 30 year bonds @ 2.87% in size never causes anyone to upset such a happy arrangement.

Sustainable carry trades by their nature mean buying only and a posirtive yield curve . And favourable dual ownership accounting rules of the RP'd asset encourages the turning of a 'blind eye' - regulators included.

by Kate | 23rd May 12, 10:40am 1337726416

If I get your meaning: symbiotic parasites feeding off the same host.

by Stephen Hulme | 23rd May 12, 10:52am 1337727124

yep

by steven | 23rd May 12, 10:40am 1337726422

I dont think they threaten to punish as such, I think they act decisively ie they run for the exit enmass. So one day you have <7%, 2~3months later >7% and your economy is bye bye as no private investor has skin in the game.

regards

by Andrewj | 23rd May 12, 9:45am 1337723109

‘Cranky Extremists’ – The Bully-boy Chorus begins.

http://www.golemxiv.co.uk/2012/05/cranky-extremists-the-bully-boy-choru…

by Andy Rodgers | 23rd May 12, 10:02am 1337724171

Great link.

by Andrewj | 23rd May 12, 10:03am 1337724189

Jamie Dimon Complains More, As JPMorgan Chase Losses Eclipse $30 Billion

http://www.huffingtonpost.com/mark-gongloff/jamie-dimon-jpmorgan-chase_…

In fact, CNNMoney suggests the losses may have already hit $6 billion or $7 billion, citing traders in the derivatives market, where JPMorgan and its enormous bets are still trapped, being eaten alive by hedge funds.

by steven | 23rd May 12, 10:45am 1337726736

LOL, eaten alive....I hope so.....until I then wonder what the fallout will be on the inocent...then I might want to cry. This is really criminal if not treasonous IMHO.....

regards

by Kate | 23rd May 12, 10:51am 1337727062

The 1% version of Lord of the Flies.

by scarfie | 23rd May 12, 12:51pm 1337734264

Well I did make the call several months ago that the 1% would turn on itself and become the 0.1%. Has to really as the pool of resources can support less and less of them :-)

by Stephen Hulme | 23rd May 12, 11:00am 1337727621

Yes, but no one is prepared to call time. But we really need to do so immediately, as malinvestment is rampant and needs to be corrected with proper risk paramertes and penalties for abuse of others property.

by Andrewj | 23rd May 12, 9:51am 1337723471

Facebook sharehplders get Zukered

http://www.telegraph.co.uk/technology/facebook/9283513/Facebook-opening…

by Andy Rodgers | 23rd May 12, 9:54am 1337723699

"What happened to the bond vigilantes threatening to punish indebted countries with high debts?"

Bernard - The vast majority of Japanese bonds are held by the Japanese. There is very little foreign ownership of their bonds. Why would you lend money to the Japanes Gov't for 10 years to get a 0.9% yield?

by Andrewj | 23rd May 12, 9:59am 1337723949

What happens if the Japanese Government can no longer get local funding?

by Andy Rodgers | 23rd May 12, 10:13am 1337724788

It's fu&#@ed!

by steven | 23rd May 12, 10:20am 1337725244

and soon....its BBs are retiring so guess what they will not only not continue buying bonds, but be selling them. At that point 0.9% has to head north.....whats the GDP to debt? 210%? so that equates to 9% not 0.9%....?

regards

by Christov | 23rd May 12, 10:15am 1337724950

Yes indeed A.J. once again they will just change the rules on offshore investors....I like this little piece I read a while back...lucky I kept it for today.

.Back in the 1970s and ’80s, analysts in the West considered Japan’s bureaucrats near supermen as well. Now the stodgy Japanese bureaucracy is considered one of the main impediments to an economic revival. Chinese bureaucrats today suffer from the same problem that led Japanese bureaucrats astray — they believe the economy can be managed by fiat. The tools of classical economics — getting prices right — are secondary. Why guide an economy with abstract measures like interest rates when you can just tell the banks what to do?

by Andy Rodgers | 23rd May 12, 10:45am 1337726723

Christov - Thanks for the link, very interesting reading. Perhaps John Key should read it.

by David George | 23rd May 12, 10:42am 1337726540

More to the point; why would the Japanese Government borrow the money from it's people, pay interest and have to (possibly) pay it back? It can just take the money from the people - it's called tax. I read somewhere that now the tax revenues just cover the Governments interest bill. Crazy times.

And the bond vigilanties can't compete with the central banks thin air "money". We're in Never Never land don't cha know.

by Andrewj | 23rd May 12, 10:08am 1337724484

Sorry about the information overload, been a hard frost here and Im putting off going outside.

>>>

The Prime Minister insisted failure to provide clarity could prove disastrous for the world economy, and told the Greek people that fresh elections must decide once and for all whether the country stays in the eurozone.

The message came as his Cabinet colleague Ken Clarke said the European banking system was already "in tatters".

Mr Clarke warned that Britain was "heavily exposed" to potential problems and could be among the next targets for market speculation.

http://market-ticker.org/akcs-www?post=206295

by Kate | 23rd May 12, 10:12am 1337724767

been a hard frost here

Oh dear, expecting another set of twins here any day now - might need to cut a carpet square for the bottom of the goat house, eh? Last year one of the girls delivered two days before the snowfall.

:-)

by Andrewj | 23rd May 12, 10:14am 1337724896

so you are about to begin milking? At least its a way to warm your hands in the morning.

by Andy Rodgers | 23rd May 12, 10:14am 1337724873

Andrewj- no need for an apolgy, your links are much appreciated. Please continue.

by steven | 23rd May 12, 10:18am 1337725088

yes, excellent links.

regards

by FatCatWatch | 23rd May 12, 10:26am 1337725561

So the Facebook IPO has tanked… good job. And Mark Zuckerburg is laughing all the way to the bank while greedy speculators who thought it might keep "growing" at 25%PA have egg on face….. This is the best ever! There is the real economy made up of, property, bricks, mortar and food run by real people, and then there are the Wall Street finance monsters. The sooner this world is run by Engineers again the better.

by Andy Rodgers | 23rd May 12, 10:50am 1337727049

"The sooner this world is run by Engineers again the better."

As a Civil Engineer, I totally agree. However one of the traits of Engineers is to tell the truth and provide workable, but probably unpopular, solutions. I don't think the vast majority of people want this.

by scarfie | 23rd May 12, 10:53am 1337727239

Worthwhile read on Australia here from George Friedman. Part economic but mostly geopolitics. Certainly better than his articles about Mexican Drug Cartels :-)

The first is the example of Japan. Japan appeared to be a permanent, dynamic economic power. But during the 1990s, Japan shifted its behavior, and its appetite for Australian goods stagnated. Economic relationships depend on the ability of the customer to buy, and that depends on the business cycle, political stability and so on. A strategy that would have created a unique relationship between Australia and Japan would have quickly become unsatisfactory. If, as we believe, China is in the midst of an economic slowdown, entering into a strategic relationship with China would also be a mistake, or at the very least, a gamble.

Read more: Australia's Strategy | Stratfor

by Andrewj | 23rd May 12, 12:00pm 1337731202

This is about crime in the States. Its going to big a big political issue soon.

http://market-ticker.org/akcs-www?post=206319

by Christov | 23rd May 12, 1:00pm 1337734836

Don't think it was so much about crime A.J. as a percieved imbalance of reporting leading to an outrage, on crimes, such as ( murder ) perpetrated on the Anglo community by Afro Americans.

The intent is to incite a backlash...against who..?

Obama...? for mentioning a hot potato...it did the boys memory some justice, but little to revive his wellbeing.

The Media, ...?responsible for the extreme imbalance in reporting this case as opposed to the many examples presented........I'll bet you their not black journalists....but liberal Americans trying to show how very intergrated they are....they are the very ones who never want to see an elephant in the room even though the drapes are bulging in a ridiculous manner............ al a Helen C.

Afro America........? for representing a high statisical crime rate that appears to be in line with their socio ecomonic statisical achievement levels.

Sheet they should go to Mexico....it's just another day when somebodys baby is murdered...but that's ok ,cause it's mainly hispanics killing hispanics, so it's bereft of racial motive or causal effect....and everything is shit everyday anyway ...right..?

No one will touch this politically (save right extremists n crackers)...not now.. not ever...because accusations of racism are now considered to be not far below pedophila in the damnation stakes.

I think John Donne tried to put that little bone of contention to bed with " any mans death diminishes me for............."

For the record , a background on the accused and his particular ethnic leanings might go some way to dousing this little bonfire.

by mgdwalker | 23rd May 12, 12:37pm 1337733475

Bernard, a partial answer to why the bond vigilantes are not forcing bond rates up in US, UK, Japan and Eurozone (ex peripheral countries) can be found in Richard Koos April 2012 paper.

Here is an excerpt from Koo's paper:

With very few viable borrowers left in the private sector, fund managers who must invest in fixed income assets without foreign exchange risk have no choice but to lend to the government, which is the last borrower standing. Although deficit hawks pushing for fiscal consolidation often talk about “bond market vigilantes,” the fact that 10-year bond yields in the U.S. and U.K. today are only around 2 percent—unthinkably low given fiscal deficits of nearly ten percent of GDP—indicates that bond market participants are aware of the nature and dynamics of balance sheet recessions. Indeed bond yields in the U.S. and U.K. today are equivalent to Japanese bond yields in 1997.

Available as a pdf. Type in the title of Koo's presentation as your search:

The world in balance sheet recession:

causes, cure, and politics

Richard C. Koo (Nomura Research Institute, Tokyo)

by Gummy Bear Hero | 23rd May 12, 3:12pm 1337742734

For those investors who bought shares in Facebook ( NYSE : FB ) ...... it's down to $US 31 per share ...........

...... take heart , you're only 20 % in the red in the first three days of trading ..... it's not 100 % , you havn't totally lost face ......

by Wolly | 23rd May 12, 3:43pm 1337744597

Pump an dump Gummy...same thing going to happen with the SOE sales....

by Gummy Bear Hero | 23rd May 12, 3:55pm 1337745357

.. the proof will be in the balance sheets & the profit & loss accounts of the SOEs , Wolly ...

Facebook was pitched at a greater market capitalisation than McDonalds ....... but unlike McD's , has a tiny revenue base , and a miniscule profit ...... a one billion dollar profit is a tadger , when your mkt. cap. is 100 times that ..

by Christov | 23rd May 12, 4:27pm 1337747246

Hey don't look to me GBH....I would have thought 8 to 10 dollars at list....but the crazies take over and what do ya get........ a fizzer that burns the firestarters...dear oh dear.

by julianer | 19th Jul 12, 5:41pm 1342676477

He also long-established that Greece's administration is preparation to inject 18 billion Euros in approaching days into Greek's bank break up facebook status, which have lost 23 billion euros in abandon in the last six months