Hat Trick Letter – květen 2011

Co je po světě v běhu

Four important events and developments are in progress.

1) Introduction of New Nordic Euro, a currency for Central Europe usage that cuts out the crippled insolvent Southern European nations known as the PIGS. They have been beneficiaries to $300 to $400 billion per year of German generosity. The PIGS nations refuse to revert to their older native currencies every bit as much as the European bankers refuse to permit defaults by the PIGS nations on their debt or major writedowns.

2) The supposed end of QE2. The USFed has no intention of ending the heavy debt monetization. Instead, they are prepared to lie and deceive, to continue the bond purchases in more secrecy, even to extend the purchases to a Global QE that includes buying all that Japan sells during its natural and economic crisis. The Japan woes have only begun.

3) An Arab announcement that heralds an end to exclusive US$ payments for oil, which would bury the Petro-Dollar after almost 40 years since the 1973 Embargo. However, the Arabs must tread lightly and play the delicate game, since large arms purchases from US defense contractors continue without end, even increase.

4) A Russia-Europe Accord for trade settled outside the USDollar. Russia is the source of tremendous natural resources, and the site of a complete turnaround in financial wealth development. They are making stronger ties with Europe, in particular Germany.

Krach Řecka – co by to znamenalo

A GREEK GOVT BOND DEFAULT IS ASSURED, AS GERMANY PUSHES THEM OVER THE EDGE. THEY ARE FED UP WITH THE ENTIRE SOUTHERN RIM OF BANKRUPT EUROPEAN NATIONS. THE BACKLASH OF REALITY WILL BE THE IMPACT TO EUROPEAN BANKS WHEN THE GREEK DEBT IS RESTRUCTURED, AS IN MASSIVE WRITEDOWNS. LAST WEEK A RESTRUCTURING PLAN WAS REJECTED, IN A CLASH BETWEEN BANKERS AND POLITICIANS. THE BANKERS FEAR A CASCADE OF BANK FAILURES, LARGE EURO CENTRAL BANK LOSSES, AND A CREDIT DERIVATIVE MELTDOWN

A soft restructuring, also referred as reprofiling, involves a pure lengthening of maturities for existing bonds without changing the principal and the interest rates. The big European banks, led by Germany, wish to avoid a chain reaction of claims linked to Credit Default Swaps, which would be forced to pay up. They are an equal scourge in Europe and hidden motivation for many decisions. The cold reality is that any debt restructuring would have a direct impact on Greek banks. Their capital would be instantly wiped out. The banks would become dead credit engines, with grave implications to the Greek Economy. The German offices of the EuroCB are concerned that allowing Greece to renege on some of its obligations would create similar expectations by Portugal and Ireland, other members of the extended PIIGS pen. In other words, default would have rippled effects in contagion. The EuroCB is caught in a trap. They would stand to lose also, since they have purchased Euro 76 billion worth of bonds from fiscally stressed countries in the past year, as buyer of last resort. In an intriguing survey, 85% of international investors surveyed by Bloomberg recently said Greece will probably default on its debt, with the majority predicting the same fate for Ireland and Portugal. The Greek Govt debt is zooming skyward. It will reach 166% of GDP by next year, the highest for any country in European history, soon to rival Japan. See the Bloomberg article (CLICK HERE). Any restructure of Greek Govt debt would remove their bonds from usage as collateral with the Euro Central Bank. Greece would be totally isolated, but free to revert to their native currency and a stern devaluation. The cascade effect would be profound, extending to the big European banks. My belief is that the CDSwaps might renege and not pay out, as the shadow banking system is corrupt to the core. They are a true Ponzi Scheme protected in the US and Europe.

Rejection has begun from the upper periphery, regardless of the core in Europe. Norway is a unique nation, with great wealth accumulated from North Sea oil operations. They, like Germany, are lenders in Europe. The nation of Norway will halt all further financial aid payments to the embattled debt soaked Greece. The Oslo Parliament cited the unfulfilled obligations from past bailout rescue deals. Norway is a member of the European Economic Area, and a solvent European nation. They urge an initiative to let the chips fall where they may, with Greece serving as the first chip to fall. The other PIIGS nations are all lined up to follow Greece on the insolvency path to default, just a matter of time. See the Zero Hedge article (CLICK HERE). After enough creditor rejection and futility to roll over debt, Greece will eventually face the inevitable and revert to the Drachma currency, then devaluate it 30%, maybe over 50% eventually. What is preventing it is NOT the Greeks but rather the big EuroZone banks that stand to lose huge. Some banks will fail, maybe many banks, even very big banks.

THE CASCADE OF EVENTS FOLLOWING THE GREEK GOVT DEBT DEFAULT WILL BE TRULY AWESOME TO WATCH. THE POWERZ WILL ATTEMPT TO HOLD IT TOGETHER, BUT ALL HELL WILL BREAK LOOSE. THE MOMENTUM OF THE CASCADE WILL BE POWERFUL AND GROW FAST. THE ONLY QUESTION IN THE FOREFRONT IS WHAT CONSTITUTES A DEFAULT TO TRIGGER THE IMPLOSION PROCESS? THE RIPPLES WILL SPREAD ACROSS THE P.I.I.G.S. NATIONS AND TO THE MAJOR EUROPEAN BANKS. REVERSION TO OLD CURRENCIES WILL BE ALL THE RAGE, COMPLETE WITH DEEP DEVALUATIONS AND PROUD NATIONALISM TAKEN TO THE STREETS. RIOTS AND PROTEST WOULD MIX WITH DEFIANCE AND NATIONAL PRIDE IN A BIZARRE DISPLAY, A CAULDRON OF CHAOS. THE WILD CARD IS THE CREDIT DEFAULT SWAPS AND THEIR UNPREDICTABLE PATH OF DESTRUCTION IN THE FALLOUT ZONE. GOLD WOULD AND WILL SOAR.

…a co se děje v eurozóně

THE EURO CENTRAL BANK RELIEVED PRESSURE ON THE USDOLLAR BY INDICATING NO RATE HIKE AT THE NEXT MEETING. THE USDOLLAR RESPONDED VERY WELL, IGNITING A RALLY OVER 3%. BUT HIGHER PRICES WILL RESULT, ALONG WITH A POSSIBLE GOLD PRICE BREAKOUT. DISTRESS IN PORTUGAL AND GREECE CONTINUE. GREEK GOVT DEBT SUFFERED A BROAD DOWNGRADE, AND TALK OF BOTH BANK LIQUIDATIONS AND A FORCED GREEK EXIT FROM THE COMMON EURO CURRENCY HAVE INCREASED. THE COMPROMISE COULD BE A GREEK DEBT RESTRUCTURE. PRESSURE FOR PORTUGAL TO SELL SOME GOLD BULLION HAS COME, BUT A FIGHT OF BUYERS COULD ENSUE. THE CHINESE WORK IN THE BACKGROUND, USING THEIR LEVERAGE. A BAILOUT OF SPANISH DEBT AND THEIR BANKS IS NEXT ON THE AGENDA, AS SPAIN REMAINS THE BIG ENCHALADA IN THE EUROZONE. THEIR SITUATION FESTERS WITHOUT ANY SEMBLANCE OF TOUGH DECISIONS MADE. THE NEW NORDIC EURO IS ON TRACK, BACKED BY A GOLD COMPONENT. $$$

Since the beginning of year 2011, the Euro currency has risen from 130 to 148, and in the last two weeks fallen back toward the 140 level. The Euro turndown occurred as a direct result of the Euro Central Bank indicating not to hike interest rates a second time at the next official meeting. Speculators had pushed the Euro upward with gusto, sensing a USDollar death spiral not visible from inside the US Dome of Perception. The US, Europe, and Japan are taking turns in lifting the other currencies in the grand Competing Currency War. The solid signal of no EuroCB rate hike helped turn the USDollar upward from the perilous support at the 73 level, were it was staring at the abyss. Brussels and their German directors provided the impetus in relief. Active efforts are complemented by market efforts. Distress in Greece and Portugal over sovereign debt, amply publicized, worked to push down the Euro exchange rate at the same time. The EuroZone economy is harmed by a rising Euro currency. German exports are at risk, and have been protected by the monetary decision. More rate hikes should be anticipated by the EuroCB later this year. The EuroZone price inflation is still rising, kept down actually by a higher Euro exchange rate. So the lower Euro will work to lift price inflation, even as the adjustable rates will rise and render damage to banks like in Spain burdened by a mountain of mortgage loans on the books. Slow growth or flat growth is the norm. The Euro Central Bank is under great pressure. Bailout out nations of Greece, Portugal, and Ireland have suffered massive bond yield increases, the Greek’s over 20%, which have resulted in old bonds to lose up to half their value. More bailouts are in progress. The IMF is to share in the heavy losses. Trichet was stubborn and defiant, referring to future rate hikes but without debt restructure. Meanwhile, the Gold price in Euros is on the verge of a major breakout above the 1075 Euro mark. The Europeans bowed to US pressure, during a time when USGovt deficits are alarmingly high, and the budget deliberations seem fruitless. The Americans argue endlessly over $38 billion, when the deficit exceeds $1500 billion. As a team, the two major branches fail the reality test.

The insolvent European big banks must be purged and liquidated in an orderly manner, according to Timo Soini writing in the Wall Street Journal Europe. The True Finn party leader was aggressive and almost hostile in his words, describing the banks as suffering from gangrene, both public and private. He urged amputations to save the body. He called the repairable potential of the sovereign debt condition in Greece, Ireland, and Portugal a grand lie, whose official version takes the people of Europe for idiots. In a remarkable display, the Wall Street Journal edited, censored, and republished the article, scrubbing all negative comments by Soini. He must have ruffled some important bankers who do not favor liquidation and prefer to mold the citizenry into placid idiots.

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