Tuesday, June 5, 2012 - Waiting for Euro-Failure - by Sinclair Noe

DOW + 26 = 12,127

SPX + 7 = 1285
NAS + 18 = 2778
10 YR YLD +.03 = 1.56%

OIL - .23 = 83.75
GOLD – 1.40 = 1617.90
SILV +.27 = 28.63
PLAT + 10.00 = 1444.00

So, the G-7, the Group of 7 countries conferred on the Euro-zone's debt crisis; Spain announced it was losing access to credit markets; the situation appears bad. So, the G-7 finance chiefs came riding to the rescue. And they achieved almost zero.

Spain had a real estate bubble. Spanish banks are loaded down with bad debt. The premium investors demand to hold its 10-year Spanish debt over the German equivalent hit a euro era high last week on concerns it will eventually have to take a Greek-style bailout. Today, Spain's treasury minister said Spanish banks should be recapitalized through European mechanisms, in other words the Spanish banks need a bailout and Spain can't bail them out; this was a significant departure from the previous government line that Spain could raise the money on its own. And then Spanish government sources said ehhh, we're not sure about a bailout. And the G-7 did almost zero.

Observers of the G-7 conference say that there was talk about a bigger solution, a bigger response from the politicians in the form of a stronger economic union; and the talk was that it would probably take a few months to figure it out, maybe a few years; and it doesn't look like there is a quick fix.

The ECB holds its monthly rate-setting meeting on Wednesday and European Union leaders meet on June 28-29 to discuss a strategy for overcoming the crisis.

The G-7 meeting turned out to be the G-Zero meeting.

We have been told for many months that the Federal Reserve and the US Treasury and the European Central Bank and the IMF and all the big shot politicians were on top of the crisis. They now had the experience of the Lehman Brothers collapse and they have assigned multitudes of very smart boys and girls to address the Euro-crisis. No worries, everything is under control. The political and financial leaders continue to insist that solutions will be found to keep the system working. Italy likes the idea of euro-bonds. Germany is hesitant to put its credit rating on the line for such bonds. Spain is trying to act like they don't need help when everyone knows they are getting desperate. And don't forget Greece, which would like to stay in the Euro without being squashed by the Euro. Robert Zoellick, president of the World Bank, recently said the Euro-zone is approaching a “break the glass” moment, when somebody finally pulls the fire alarm.

Here is the problem; when it gets hot you turn on the AC, and if it isn't cooling the house or it's making funny noises, you call the repairman and you hope he can figure out the problem and you hope he won't rip you off. You have to trust the AC repair guy. Well, there are all these very smart boys and girls in the Fed and the ECB and the IMF and other places of power and they have been called in to fix the AC. We can hope they are competent, intelligent, informed, honest, and not working on some hidden agenda. Unfortunately, there is a good chance they are not competent and working at cross purposes, and that the problems in Europe are going to get real hot, real quick.

We know that past performance is no guarantee of future results, however this might be a good time to consider the track record of the smart boys and girls in positions of authority. Where shall we start?

How about the Nobel prize winning economists who created Long Term Capital Management, the speculative hedge fund that imploded and was bailed out in 1998? How about the traders that ran Enron? How about the accountants at Arthur Anderson that vouched for the psycho traders at Enron? Or how about WorldCom or Global Crossing or Chrysler or Government Motors or MF Global or Bernie Madoff? How about the banks that can track a debit card purchase of a cup of coffee half way around the world but can't figure out how to refinance a mortgage or modify a loan? How about all the economists who still haven't figure out that we have been in a depression for the past few years? How about Ben Bernanke, who thought the subprime problem didn't represent a serious threat to the economy and everything was fundamentally sound? How about the efficient response to Hurricane Katrina? How about the smart boys and girls that trusted the levees? How about Detroit? How about the Emergency Financial Managers in Benton Harbor or Flint? How about the lies that put hundreds of thousands of our bravest heroes in harm's way in Iraq? And how about the politicians who were too damn smug to do squat about the debt ceiling even if it meant a whack to the country's credit rating? How about Murdoch hacking into dead teenager's telephone to deliver the news? And how about Bank of America failing to tell the truth about Merrill Lynch? And how about Bear Stearns and IndyMac and Countrywide and Washington Mutual and Northern Rock and a few hundred others? And how about JPMorgan and the London Whale?

And don't forget Lehman Brothers. And don't forget the three page hand scribbled note that stole hundreds of billions from the US treasury; the crisis that threatened to jump up out of nowhere and threatened to destroy the global financial system in its entirety and leave you with malfunctioning credit cards. Who knew?

And then remember that none of those folks that threatened to destroy the economy, none of them has gone to jail – much less been indicted. And the rules haven't been changed to prevent future problems. And nothing has changed except the Too Big to Fail Banks have grown bigger and more dangerous.

And don't forget Greece. The birthplace of democracy which is now run by Vichy ECB technocrats. A new poll by Stern shows half the Germans surveyed want Greece out of the Euro, while 80% of the Greeks want to stay in the Euro. They point fingers at one another and nobody remembers to point the finger at Goldman Sachs which scammed the system years ago and started the ball rolling into a debt death spiral.

And remember about a week ago when the head of the World Bank warned financial markets faced a rerun of the Great Panic of 2008 and that Europe was in the danger zone. And then the rumors started swirling that Pimco, JP Morgan, and other financial companies were canceling summer vacations for employees so they could prepare for a major 'Lehman type' economic crash projected for the coming months. Who knows?

And so today the G-7 met and did G-Zero. I'm shocked, shocked I tell you.