Cyprus Applies for Bailout
It was already known last week that Cyprus would need a bailout as well and it has now officially become the fifth nation to apply for one. Once again a bank needs to be saved. Somehow, Fitch appears to have gotten wind of this as well, as it once again proved how timely and swiftly it can react to new developments on the credit front by downgrading Cyprus about five minutes before its bailout application was delivered in Brussels. Holders of Cypriot bonds be forewarned! Something might not be right down there!
„The Cypriot government has issued a statement confirming that it has officially made an EU bailout bid, citing heavy exposure to debt-stricken Greece. This makes it the fifth state within the currency union to ask for help.
The request comes just days before a deadline to recapitalize one of the country’s largest banks.
“The purpose of the required assistance is to contain the risks to the Cypriot economy, notably those arising from the negative spillover effects through its financial sector, due to its large exposure in the Greek economy,” the government's statement said.
Government spokesman Stefanos Stefanou wouldn't reveal how much Cyprus would ask for, saying the amount is subject to negotiations. The 27 EU leaders are meeting in Brussels on Thursday and Friday, where the subject will be discussed.
Analysts estimate the sum is likely be around €5 billion ($6.2 billion), but could be as high as €10 billion ($12.5 billion). It is a fraction of the bailouts given to other EU countries, with the latest sufferer Spain asking for as much as €100 billion ($125 billion) for its banks.
Earlier, US ratings agency Fitch downgraded Cyprus to "junk" status. The move was prompted by the amount of rescue money that would be needed to bail out its Greece-exposed banks. The ratings agency estimated that the country will need another €4 billion to recapitalize its banking sector.
What would bondholders ever do without Fitch?
Credit Market Charts Update – Is Slovenia the Next Bailout Candidate?
Below is our customary update of credit market charts, including the usual suspects: CDS on various sovereign debtors and banks, bond yields, euro basis swaps and a few other charts. Charts and price scales are color coded (readers should keep the different price scales in mind when assessing 4-in-1 charts). Where necessary we have provided a legend for the color coding below the charts. Prices are as of Monday's close.
Not surprisingly, CDS spreads and bond yields in the euro area and neighboring countries edged higher again on Monday. CDS on Greece reached a new post-PSI high of 12,145 basis points. The next default and/or bailout seems all but certain. Slovenia is meanwhile already waiting in the wings as the euro area's likely bailout candidate number six.
„Slovenia is seeking private investors to boost capital at its banks, including Nova Ljubljanska Banka d.d., and hopes to avoid turning to international lenders for a “last resort” bailout, Finance Minister Janez Sustersic said.
“We are working to avoid a bailout for Slovenian banks as this would be a bad signal at the moment — it’s a solution of last resort,” Sustersic told reporters in Luxembourg today on the side lines of the meeting of euro region finance ministers. “If possible — and I think it is possible — we would get private investors for that, partially now and the rest by the end of the year so that such aid won’t be necessary.”
Nova Ljubljanska Banka d.d., Slovenia’s biggest financial services company, needs 500 million euros ($627 million) to improve its capital ratio by the end of the month and would need “much more” cash to start lending to companies and support economic growth, Sustersic said earlier this month.“
At least that sounds comparatively cheap.
5 year CDS on Portugal, Italy, Greece and Spain – click chart for better resolution.
5 year CDS on France, Belgium, Ireland and Japan – click chart for better resolution.
5 year CDS on Bulgaria, Croatia, Hungary and Austria -Croatia, a casus corbis? – click chart for better resolution.
5 year CDS on Latvia, Lithuania, Slovenia and Slovakia; Slovenia is also battling with a less than solid banking system. Luckily the bailout application is regarded as a 'last resort' – click chart for better resolution.
5 year CDS on Romania, Poland, the Ukraine and Estonia – note that Estonia enjoys the second lowest sovereign CDS spread of the entire euro area right after Germany – click chart for better resolution.
5 year CDS on Germany (white) , the US (orange) and the Markit SovX index of CDS on 19 Western European sovereigns (yellow) – click chart for better resolution.
5 year CDS on Bahrain, Saudi Arabia, Morocco and Turkey – click chart for better resolution.
Three month, one year, three year and five year euro basis swaps – heading in the wrong direction again – click chart for better resolution.
Our proprietary unweighted index of 5 year CDS on the senior debt of eight major European banks (BBVA, Banca Monte dei Paschi di Siena, Societe Generale, BNP Paribas, Deutsche Bank, UBS, Intesa Sanpaolo and Unicredito) – white line, compared to 5 year CDS on major US banks (Morgan Stanley – red line, Goldman Sachs – orange line, Citigroup – green line) as well as Credit Suisse – yellow line – click chart for better resolution.
10 year government bond yields of Italy, Greece, Portugal and Spain – the yields of the usual suspects are heading higher again – click chart for better resolution.
Austria's 10 year note yield (green), UK gilts yield (yellow), Ireland's 9 year note yield (white) and the price of the Greek 2 year note (orange line – prior to the PSI deal break this showed the yield) – click chart for better resolution.
5 year CDS on Australia's 'Big Four' banks, long term. This looks suspiciously like a continuation formation – click chart for better resolution.
Lastly, a chart we pinched from the Short Side of Long, that compares the Philly Fed index to the US stock market. As can be seen, negative divergences between the two tend to bode ill for stocks – click chart for better resolution.
Addendum: Finally, Some Good News from South America
After nationalizations in Argentina, the imposition of unreasonable mining taxes in Ecuador and growing resource nationalism in Bolivia and strikes in Chile, there is finally a piece of good news emanating from South America: Bolivia legalizes the growing of pot, and thereby pushes a knife deep into the senseless and brutal drug war's black heart. (link: http://www.reuters.com/article/2012/06/24/us-uruguay-marijuana-idUSBRE85N0HN20120624 )
"The leftist government announced plans last week to legalize the marijuana market as part of a drive to stop rising crime, arguing that the drug is less harmful than the black market where it currently trades.
The use of cannabis and other drugs is already legal in Uruguay, one of Latin America's safest countries and a trailblazer on liberal lawmaking. The reform being sent to Congress would legalize and regulate its sale and production.
Meeting the smoking needs of the nation of 3.3 million people will require annual production of about 29.8 tons, the government estimates, and the drug will be cultivated in a plantation of roughly 100 hectares (247 acres).
It is not yet clear whether the drug would be grown by the state or by private contractors under license.
Planting should begin in September if the law passes Congress swiftly as expected – despite some opposition from rightist lawmakers, a government source said. Harvesting would start six months later, said Julio Calzada, secretary general of the National Drugs Board.
"By regulating the marijuana market in the way we're proposing, we're going to undermine the development of trafficking of other drugs," Calzada told Reuters on Saturday.
Calzada said cannabis would carry a sales tax, the proceeds of which would fund rehabilitation programs for addicts. State-grown marijuana could also be used for medical purposes.
Pro-legalization groups welcomed the proposal by the government of President Jose Mujica, a former guerrilla fighter, but they are calling for it to allow personal cultivation too.
"As far as we're concerned, legalizing marijuana is an attack on the drugs trade, which is sustained by the policy of prohibition," said Martin Collazo from the Prolegal group.
And it's actually a leftist government doing that! Wonders will never cease. Of course the Great Commissar up North was none too pleased:
"U.S. President Barack Obama made clear to Latin American leaders at the Summit of the Americas in Cartagena in April that he opposes the legalization of drugs."
Tough titties, as they say. Some of them evidently weren't listening.
Addendum: Hinde Capital's 'Eyes Wide Shut', Part Two
Here is Hinde Capital's 'Eyes Wide Shut' report on the UK economy, part 2 for download (pdf)
Part One can be downloaded here.
Charts by: Bloomberg, The Short Side of Long
Dear Readers! We are happy to report that we have reached our turn-of-the-year funding goal and want to extend a special thank you to all of you who have chipped in. We are very grateful for your support! As a general remark, according to usually well informed circles, exercising the donation button in between funding drives is definitely legal and highly appreciated as well.
Bitcoin address: 1DRkVzUmkGaz9xAP81us86zzxh5VMEhNke
One Response to “Cyprus Officially Keels Over, Plus Credit Market Charts”
Most read in the last 20 days:
- Alan “Bubbles” Greenspan Returns to Gold
Faking It Under a gold standard, the amount of credit that an economy can support is determined by the economy’s tangible assets, since every credit instrument is ultimately a claim on some tangible asset. […] The abandonment of the gold standard made it possible for the welfare statists to use the banking system as a means to an unlimited expansion of credit. — Alan Greenspan, 1961 He was in it for the power and the glory... Alan Greenspan gets presidential bling...
- End of an Era: The Rise and Fall of the Petrodollar System
The Transition “The chaos that one day will ensue from our 35-year experiment with worldwide fiat money will require a return to money of real value. We will know that day is approaching when oil-producing countries demand gold, or its equivalent, for their oil rather than dollars or euros. The sooner the better.” Ron Paul A new oil pipeline is built in the Saudi desert... this one is apparently destined for the Ghawar oil field, one of the oldest fields in Saudi Arabia...
- Writing on the Wall
Time to Sell... Maybe BALTIMORE – Yesterday, the S&P 500 hit a new all-time high. And the Dow just hit a new record close as well. If you haven’t sold yet, dear reader, this may be one of the best times ever to do so. It's still flying... sorta. Meet Bill Bonner's tattered crash flag Image credit: fmh We welcome new readers with a simple insight: Markets are contrary, pernicious, and downright untrustworthy. Just when the mob begins to bawl most loudly...
- A Fully Automated Stock Market Blow-Off?
Anecdotal Skepticism vs. Actual Data About one month ago we read that risk parity and volatility targeting funds had record exposure to US equities. It seems unlikely that this has changed – what is likely though is that the exposure of CTAs has in the meantime increased as well, as the recent breakout in the SPX and the Dow Jones Industrial Average to new highs should be delivering the required technical signals. The bots keep buying... Illustration via...
- The Central Planning Virus Mutates
Chopper Pilot Descends on Nippon Readers are probably aware of recent events in Japan, the global laboratory for interventionist experiments. The theories of assorted fiscal and monetary cranks have been implemented in spades for more than a quarter of a century in the country, to appropriately catastrophic effect. Amid stubbornly stagnating economic output, Japan has amassed a debt pile so vast since the bursting of its 1980s asset bubble, it beggars the imagination. A...
- Destination Mars
Asset Price Levitation One of the more preposterous deeds of modern central banking involves creating digital monetary credits from nothing and then using the faux money to purchase stocks. If you’re unfamiliar with this erudite form of monetary policy this may sound rather fantastical. But, in certain economies, this is now standard operating procedure. The “Tokyo Whale” Haruhiko Kuroda explains his asset purchase madness with a few neat little slides. Photo credit:...
- America Has Become a “Parasitocracy”
Dread and Denial So, let’s return to the discussion you can’t have with your congressman, your mailman, or your barmaid. It’s the important one. It concerns what the Fed is really up to. Eight years after achieving independence, a State modeled after the British merchant state was established in the US. It took a while for the Deep State to consolidate itself within it, a process that was accelerated greatly in the run-up to and aftermath of WW I. Illustration by Ana...
- Fat People for Trump!
Alphas and Epsilons BALTIMORE – One of the delights of being an American is that it is so easy to feel superior to your fellow countrymen. All you have to do is stand up straight and smile. Or if you really need an ego boost, just go to a local supermarket. Better yet, go to a supermarket with a Trump poster in the parking lot. The protest vote attractor with the funny hair. Image credit: Liberty Maniacs Trigger warning: In the following ramble, we make fun of...
- Long Term Market Perspectives
Methuselah Tree When looking for a good theme for this post I pondered for a while and then decided to use a picture of a bristlecone pine, which are widely considered to be the oldest living trees in the world. Ye olde bristlecone Photo credit: Kosta Konstantinidis You can find them near the Nevada/California border and if you wind up traveling in the area then I strongly recommend that head over to Bishop and from there head up high up into the White...
- EU Sends Obsolete Industries Mission to China
“Tough Negotiations” The European press informs us that a delegation of EU Commission minions, including Mr. JC Juncker (who according to a euphemistically worded description by one of his critics at the Commission “seems often befuddled and tired, not really quite present”) and European Council president Donald Tusk, has made landfall in Beijing. Their mission was to berate prime minister Li Keqiang over alleged “steel dumping” by China and get him to cease and...
- Gold is not Going to $10,000
One Cannot Trade Based on the Endgame The prices of the metals were down again this week, -$15 in gold and more substantially -$0.57 in silver. Stories continued to circulate this week, hitting even the mainstream media. Apparently gold is going to be priced at $10,000. Jump on the bandwagon now, while it’s still cheap and a bargain at a mere $1,322! All aboard... or maybe not? It all depends on what one wants to achieve – there's many a slip 'twixt the cup and the...
- The Real Reason the “Rich Get Richer”
Time the Taskmaster DUBLIN – “Today’s money,” says economist George Gilder, “tries to cheat time. And you can’t do that.” It may not cheat time, but it cheats far easier marks – consumers, investors, and entrepreneurs. Tempus fugit – every action humans undertake has to take time into account. In the economy, interest rates serve as the signal and regulator of the inter-temporal structure of capital. In an unhampered free market economy, they tell...