Greece Has Defaulted: Here Is Where We Stand

Tyler Durden — Sat, 10 Mar 2012 00:33:56 +0000

After reading this, everyone should have a fairly good grasp of what happened not only today, but ever since the great (and quite endless) European financial crisis took center stage, and what to look forward to next...

From Chindit13

In a nutshell---okay, a coconut shell---this seems to be where we are:

1) Greece was able to write off 100 billion euros worth of debt in exchange for a 130 billion rescue package of new debt, of which Greece itself will receive 19%, or about 25 billion, so that it can continue to operate as an ongoing concern. Somehow Greece is in a better position than before, with more debt and less sovereignty and still---by virtue of sharing a common currency---trying to compete toe-to-toe with the likes of Germany and the Netherlands, kind of like being the Yemeni National Basketball team in an Olympic bracket that includes the US, Spain and Germany. At least a "within the euro" default prevented bank runs in Portugal, Spain, Italy et al.

2) As a result of the bond haircuts, Greece has many pension plans that can no longer even pretend to be viable, at least according to the original contracted scheme, but pensionholders still working can take heart in the fact that their current wages will be cut, too.

3) CDS buyers will have to sweat bullets, jump through hoops, and be forced to endure every cliche known to man, but they might end up getting something for all their trouble, provided their counterparty is solvent and that counterparty itself is not heavily exposed to an insolvent party or a NTBTF institution, otherwise known as a Lehman Brothers. Expect the legal profession to be the prime beneficiary of this "event", as any new CDS contract will be at least a hundred pages of boilerplate longer in the future.

4) Good luck to any less than AAA rated sovereign who wants to issue debt from now on out. That contracts can now be unilaterally abrogated, as Greece' bonds were with the retro-CACs, bodes ill for attractive pricing from here on out. Peripherals in the EU will suffer most, as they face the added indignity of being subordinated to the ECB at any point the ECB chooses to exercise its divine right of seniority. The thing that used to be called the risk free rate no longer exists. Bill Sharpe take note.

5) One hundred billion euros worth of perceived wealth evaporated. That can not be a good thing for a Eurobanking system already capital short, as it raises leverage (quick back of the envelop calculation) by about 6% across the board. It also will not make the interbank market any more trusting, thus increasing the likelihood of perpetual LTRO. LTRO lll looks to arrive sooner than QE lll.

6) With the drawn-out Greek event and the LTRO, Europe might believe it has firewalled the system for at least three years and limited damage to Greece and Portugal (who will likely undergo a similar default by the 3rd quarter). LTRO-provided liquidity, it is hoped, will lower market rates enough in Spain and Italy so that those countries can meet sovereign bond obligations and both service existing debt and issue new debt. When the LTRO expires in 2015, "hopefully" something called organic growth will have taken over in countries imposing severe austerity measures on their public sectors, so that debt servicing becomes easier. Organic growth obviously is something that comes in a can, a can which has been kicked out to 2015.

7) As Europe now speaks increasingly of greater EU financial integration, Sarkozy's poll numbers will be the victim and a less EU friendly individual will likely win the upcoming election. Since France and Germany fortunately have a long and storied history of being the best of friends, and no one in either country would ever pander to nationalist sentiments, this shouldn't present a problem.

8) Given how much angst was caused by the drawn out Greek affair, the Spanish leader knows he has enormous leverage with EU leadership and he can continue to do what he has been doing with regard to ignoring the deficit targets demanded/suggested by the EU. The EU might well bark at him, but they cannot afford to bite at this time. Muchos gracias, Greece.

“A harder Default To Come”

testosteronepit — Sat, 10 Mar 2012 00:18:52 +0000

Wolf Richter www.testosteronepit.com

“We owed it to our children and grandchildren to rid them of the burden of this debt,” said Greek Finance Minister Evangelos Venizelos about the bond swap that had just whacked private sector investors with a 72% loss. While everyone other than the bondholders was applauding, the drumbeat of Greece’s economic horror show continued in its relentless manner.

In central Athens, a stunning 29.6% of the businesses ceased operations, up from 24.4% in August; in Piraeus 27.3%, a 10-point jump since March. The whole Attica region lost 25.6% of its businesses. “This worsening of the survival index in the commercial sector ... shows that resistance is waning,” said Vasilis Korkidis, president of the National Confederation of Hellenic Commerce. And fourth quarter GDP was revised down to -7.5% on an annual basis. The Greek economy has shrunk about 20% since 2008.

Unemployment is veering toward disaster: 21% in December, announced Thursday, was horrid enough, but youth unemployment rose to a shocking 51.1%, double the rate before the crisis. A record 1,033,507 people were unemployed, up 41% over prior year. Only 3,899,319 people had jobs—a mere 36.1% of a total population of 10.8 million!

No economy can service a gargantuan mountain of debt when only 36.1% of its people contribute (by comparison, the US employment population ratio is 58.6%, down from 64.7% in 2000). Hence, another bout of red ink. The “cash deficit” at the end of 2011 hit €24.9 billion, 11.5% of GDP, far above the general budget deficit. Government-owned enterprises, such as the public healthcare sector, couldn’t pay their bills. Total owed their suppliers: €5.73 billion.

Yet, forcing down the deficit is one of the many conditions that the bailout Troika of EU, ECB, and IMF have imposed on Greece. And: "If the Greek people or the Greek political elite do not apply all of these conditions, they exclude themselves from the Eurozone," said Luxembourg’s Finance Minister Luc Frieden. All of these conditions. Then he added the crucial words: "The impact on other countries now will be less important than a year ago." Read.... Firewalls In Place, Markets ready: Greece Can Go To Heck.

Under pressure to cut its healthcare budget, the government reduced the prices that the industry can charge state-owned insurers. So wholesalers are selling their limited supply outside Greece, while out-of-money state-owned insurers delay payments to pharmacies and hospitals, which then can’t pay their wholesalers for the medications they do get. Wholesalers turn off the spigot. And the system locks up.

Even Health Minister Andreas Loverdos conceded that there were shortages, but that they were limited to lower-priced medications. Of the 500 most common drugs, 243 have disappeared from the shelves, including antibiotics. The Panhellenic Association of Women with Breast Cancer, for example, received many complaints from patients who claim they weren't treated due to lack of oncology drugs. And the world’s largest pharmaceutical companies are worried that Greece might not be able to pay them at all.

A bright spot: tourism. In 2011, receipts rose by 9.5% over prior year as the Arab Spring scared tourists away from destinations such as Egypt and Tunisia. In October, receipts jumped 15%. Alas, in December they declined 4.9%. And that reversal has now infected 2012. Tourist arrivals so far this year are down 10.7% in Athens and 6.7% for the country. Greece's last growth industry has hit the skids.

With unemployment climbing, production and consumption tanking, businesses shutting down, and tourism nose-diving, there is only one way for tax revenues: down. Budget deficits will be worse than promised. Greece’s debt—now largely to taxpayers of other countries—will continue to balloon. The standard of living of the vast majority of Greeks will get slammed, though the elite that are negotiating these deals will do just fine.

“We still don’t have a solution for Greece, so there will be a harder default to come,” predicted Charles Wyplosz, director of the Geneva-based International Center for Money and Banking Studies. Yet, in a bitter irony, Germany—the country where tax dodging is a national sport—decided to send 160 employees of its Ministry of Finance to Athens to fix the tax collection system. For that whole debacle that will endear the already reviled Germans even more to the Greeks, and for just how long a tax dodger can abuse the courts, read.... Final Bout of Spastic Greco-Teutonic Wrestling.

Chris Martenson Interviews Robert Mish: Front-Line Evidence That We are Nowhere Near a Gold Bubble

Tyler Durden — Fri, 09 Mar 2012 23:54:26 +0000

Submitted by Chris Martenson

Robert Mish: Front-Line Evidence That We are Nowhere Near a Gold Bubble

Robert Mish has been a precious metals dealer for nearly 50 years and knows what a gold bubble mania looks like. We are nowhere near that stage, in his opinion.

Instead, he sees a US populace largely unappreciative of holding precious metal as a store of wealth, and engaged in a slow process of dis-hording their gold and silver to eager foreign buyers who are more than happy to take the bullion back to their shores.

In terms of where we are on the gold mania spectrum, he sees us at a "2" out of 10.

But he foresees a very rude awakening ahead as the populace eventually wakes up to the increasing damage our over-debted global economy is doing to the purchasing power of world currencies. Because when the general investor finally realizes the protection the precious metals offer against currency debasement, much of the retail supply will already be out of the system in very tight hands, and largely overseas.

Moreover, when supply gets tight, there will be more challenges to obtaining physical bullion during a buying mania than there were during the last one in 1980. There are many fewer local sources to exchange bullion these days as much of that business is now transacted by online vendors dependent mail delivery to ship product, which are more vulnerable to supply chain disruptions.

And be sure you're aware of how the form you hold your bullion in will affect the price you get during a buying frenzy, when refining capacity is overwhelmed. You may find you gold or silver sells at a hefty discount because it's not in a preferred format for trade.

On What A True Gold Mania Looks Like

The phone calls were ringing so much we could not answer them. We had to just put all our lines on hold so we could service the customers, and our own customers we wanted to service first.

We world come in to open at nine in the morning and there would already be a line out the door and down the block. Sometimes the line was mostly buyers, sometimes there were sellers. We would run out of metal. We would run out of anything. And we would have to divide the line into two lines. We would take the sellers in first, get some product, and sort it before the buyers were let in.

And people were not very discriminating then; they were panicking. By the time it peaked in January 1980, there were people out there who did not even understand free market economics or precious metal economics, they were just buying because it was fashionable or because it was going up forever. Those are more the makings of a bubble, today most people are coming in to sell.

On Today's Typical Seller

The typical seller today is really the opposite of who they were 30, 40, 50 years ago. People used to save either through a bank account to keeping some coins around, putting away silver dollars when they came back from Reno or Lake Tahoe. They would be buying some interesting furniture or jewelry and then they had income in excess of their expenses. Today, so many households are stressed having expenses greater than their income or servicing a lot of debt that they are starting to sell the things, the heirlooms that they so prized before. So we are seeing people sell their Rolex they do not want anymore or cannot afford to keep, their old jewelry, their parent’s jewelry and belongings that they inherited. The coins they collected when they were a kid, it is sad in a way because what we are seeing is the dis-hoarding of a culture.

On Today's Typical Buyer

Well in the United States, the typical buyer is perhaps someone who has taken the Crash Course and has studied what is happening to our nation and understands that they have to protect themselves from the coming inflation and social ramifications of that inflation and the debt burdened economy. Big money is buying but for every one buyer there has got to be five sellers here and I am sure that is similar among my colleagues around the country, maybe even more so. Because over here we are in a wealthier area and I still have more sellers than buyers.

A lot of it is going overseas. A lot of the coins that came to America over the decades, over the generations, either through the fact that we had the money to buy them or through immigration or through the spoils of war, it is all going back now to the home countries. Especially if it is a home country, where their economies are rising and the people are saving rather than spending.

Just last night we had two visitors from China, colleagues of mine in Shanghai, they flew here just to see me, and they flew back the next morning. They cannot get enough coins in China; they are buying everything back that came here when the people in China could not buy their own coins. Next weekend I have more visitors coming. Coin shows, which have been all over America, are now appearing all over the world. There are now major coin shows in gathering marts in Singapore, Tokyo, Beijing, Hong Kong. It used to be once a year, now it is three, four times a year. Big auctions that used to be held in the United States are now organizing in Hong Kong and other countries.

So we are seeing a movement back in the opposite direction and it is sad [for the US market]

On The Importance of Physical Form

Chris Martenson: So you mentioned refinery problems. What is a refinery problem?

Robert Mish: A refinery problem is where dealer buys the scrap gold and the scrap silver and his refiner cannot get it processed for several weeks or months. And that squeezes his cash flow so he has to pay less and less to the public.

Chris Martenson: So if I walk in with a bag of junk silver, it is 90% silver, it has always been trading well. But if we are in a real heyday, your refiner says "I am backed up 11 weeks. I can take that in 11 weeks". Meanwhile prices are gyrating. You are going to look at me and say what?

Robert Mish: I am going to say "Mr. Martenson, I wish you had come in here with pure tradable silver or something that is exchange ready."

The marketplace determines the choice for medium of exchange. If you have silver in any other form; if it is in odd form such as coins, broken spoons and knives, or whatever and I have to have it refined in order to get it back in a marketable form, it is going to suffer a discount. And that discount is going to be greater the longer it takes to turn that around.

Chris Martenson: So anything that has to cycle through a refinery has that refinery risk. What was the discount that got applied at its most maximum in the 1980’s?

Robert Mish: In the 1980s, when we were about eight weeks backlogged and not everyone even had a refiner relationship and had to rely on other dealers who did, it got to about a 30% discount for having the wrong form of silver versus the right form.

Click the play button below to listen to Chris' interview with Robert Mish (runtime 28m:19s):

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No More QE? Bill Gross Isn't Buying It, As Total Return Fund MBS Holdings Surge To New All Time High

Tyler Durden — Fri, 09 Mar 2012 23:22:03 +0000

The Fed may be using the WSJ to spread rumors of sterilized QE, but Bill Gross ain't buying. According ot the latest update from the world's largest bond fund, the firm lowered its holdings of cash and synthetic Treasury exposure to 38% of total from 41% (even as AUM increased from $250.5 billion to $251.8 billion), while hiking MBS to 52% of AUM: not the highest relative exposure ever, but at $131 billion in Mortgage Backed Debt, certainly the highest in absolute terms. Margin cash declined slightly from $87.7 to $78.1 billion, but one thing that appears to have increased even more is Gross' conviction that QE 3, or to borrow a recent euphemism, THE NEW QE, is coming and it will be all about mortgage backed debt. Of secondary note is that after extending the effective duration of its holdings to an all time high 7.58 years in October 2011, the fund has rapidly cut duration and was at 5.68 at last check as holding in the 1-3 year bucket saw a substantial jump: indicating the ramp up in short duration MBS paper.

The Fed Cannot and Will Not Be Unleashing QE 3 Next Week...

Phoenix Capital Research — Fri, 09 Mar 2012 23:16:05 +0000

QE 3 isn’t coming folks. The Hilsenrath article a few days ago was just a leak to prop the market higher. And it falls well within the Fed’s latest scheme: to prop the market up verbally rather than actually engaging in monetary policy.

Going back to July 2011, the Fed has largely resorted to verbal or symbolic intervention rather actual monetary action. In terms of actual actions, since that time the Fed has:

Promised to extend its Zero Interest Rate Policy (ZIRP) through late 2014.
Had various Fed officials promise that the Fed was ready to “act” anytime the market took a dive.

#1 is completely and totally meaningless. ZIRP is a trap and it’s a trap that the Fed cannot escape for three reasons:

US commercial banks are sitting on over $200 TRILLION in interest rate based derivatives.

In 2011, the US made $454 BILLION in interest payments. And that’s with interest rates at or near 0%. According to the Congressional Budget Office, the estimated interest that will be due on the US’s debt load by 2015 will be $533 billion: an amount equal to 1/3 of all federal income taxes collected that year (assuming the economy grows). Imagine what happens if rates rise.

US Corporations currently owe $7.3 trillion in debt (an amount equal to roughly half of the US’s GDP). Any rise in interest rates means corporate payouts increasing dramatically and corporate profits shrinking.

So promising to extend ZIRP is ultimately pointless. It’s the same thing as saying “I promise to keep breathing until I die.” The Fed has to and will maintain ZIRP until the financial system implodes and interest rates soar as investors demand reasonable rates of return in exchange for the risk they take for investing in various bonds.

As for the Fed’s secondary policy (verbal intervention whenever the markets roll over) it is Chicago Fed President Charles Evans who clamors most for more easing.

Is QE3 Right Around The Corner?

(August 30 2011)

So much for no QE3, at least if Charles Evans gets his way.

Chicago Federal Reserve President Charles Evans was on CNBC just a few minutes ago, and comments from Evans made it sure seem like an additional round of quantitative easing is on its way.

http://www.benzinga.com/media/cnbc/11/08/1890663/is-qe3-right-around-the-corner#ixzz1oHCdaaE2

Bernanke Managed Expectations Like A Champ: QE3 Is Around The Corner

(November 2 2011)

Dissent, though, jumped from hawks to doves as Chicago Fed President Charles Evans wanted more accommodation; along with a reference to lower inflation, these two suggest Bernanke has managed to save his last bullet, and will probably bring out the quantitative easing in coming months.

http://www.forbes.com/sites/afontevecchia/2011/11/02/bernanke-managed-expectations-like-a-champ-qe3-is-around-the-corner/

Federal Reserve Could be Laying the Groundwork for QE3

(December 6 2011)

Chicago Fed President Charles Evans gave a speech at Ball State on December 5, and within it he detailed some of the actions that the Fed could take to support its dual mandate of promoting maximum employment and fostering price stability. Although Evans did not specifically mention asset purchases, he said that without action the Fed could fail both parts of its dual mandate.

http://www.totalmortgage.com/blog/mortgage-rates/federal-reserve-could-be-laying-the-groundwork-for-qe3/14934

Evans is the President for the Chicago Fed. Chicago is the second largest financial center in the US (after NY). So this guy is simply pushing for his “constituents” in calling for more monetary accommodations from the Fed. He is, in a sense, playing “good cop” for his cronies in the financial industry while other more rural based Fed Presidents (Kansas, Dallas) play “bad cop” saying there should be no more easing and that the Fed might even need to raise rates.

Indeed, compare Evans’ statements with those of Dallas Fed President Ken Fisher from a recent speech in Texas.

I am personally perplexed by the continued preoccupation, bordering upon fetish, that Wall Street exhibits regarding the potential for further monetary accommodation—the so-called QE3, or third round of quantitative easing. The Federal Reserve has over $1.6 trillion of U.S. Treasury securities and almost $848 billion in mortgage-backed securities on its balance sheet. When we purchased those securities, we injected money into the system. Most of that money and more has accumulated on the sidelines: More than $1.5 trillion in excess reserves sit on deposit at the 12 Federal Reserve banks, including the Dallas Fed, for which we pay private banks a measly 25 basis points in interest. A copious amount is being harbored by nondepository financial institutions, and another $2 trillion is sitting in the cash coffers of nonfinancial businesses.

Trillions of dollars are lying fallow, not being employed in the real economy. Yet financial market operators keep looking and hoping for more. Why? I think it may be because they have become hooked on the monetary morphine we provided when we performed massive reconstructive surgery, rescuing the economy from the Financial Panic of 2008–09, and then kept the medication in the financial bloodstream to ensure recovery. I personally see no need to administer additional doses unless the patient goes into postoperative decline. I would suggest to you that, if the data continue to improve, however gradually, the markets should begin preparing themselves for the good Dr. Fed to wean them from their dependency rather than administer further dosage.

http://www.dallasfed.org/news/speeches/fisher/2012/fs120305.cfm

It’s clear here that Evans, a financial center Fed President is the Wall Street “good cop” while Fisher, a Dallas based Fed President is the “bad cop.” One pushes for the market to rally, the other tries to cool inflationary expectations.

And yet, for all this talk and hype, QE 3 is nowhere to be found. And it won’t be showing up anytime soon unless a full-scale Crisis hits. The reason for this is that the political landscape in the US has changed dramatically with the Fed becoming more and more politically toxic: GOP Presidential candidates began taking swipes at the Fed early on in the candidacy race and it became increasingly clear that the Fed would be one of the primary political issues for the 2012 Presidential election.

As a result of this, the Fed (with the exception of those Presidents who represent financial centers, namely Evans for Chicago and Dudley for New York) began to shift into damage control mode.

This included:

Suing Goldman Sachs (the firm considered to have the closest ties to the Fed) so as to distance itself from its Wall Street darlings
Shifting the blame for the Financial Crisis as well as the terrible state of the US’s finances onto Congress’s shoulders
Launching a PR campaign to portray Ben Bernanke as an all around good guy (opening the Fed to Q&A sessions with the press, staging town hall meetings with the public, and getting editorials written in the Wall Street Journal on how Bernanke is just an ordinary guy like the rest of us).

In light of this, it is clear that that the bar for QE 3 had been raised dramatically. As a result, since early autumn 2011, I’ve been writing that the Fed would NOT unleash QE 3 without a Crisis hitting first.

So don’t bank on QE hitting next week. Which means… the Fed will disappoint, and we will get a market correction. All the macro and technical signs point towards something bad coming this way. The red flags are literally everywhere. And judging by the significance of them, we could very well be heading into a full-scale Crisis.

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Within its nine pages I explain precisely how the Second Round of the Crisis will unfold, where it will hit hardest, and the best means of profiting from it (the very investments my clients used to make triple digit returns in 2008).

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Good Investing!

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The European Bailout-And-Borrow Train Has Run Out Of Track

Tyler Durden — Fri, 09 Mar 2012 22:24:50 +0000

The first instinct of any card-carrying Eurocrat is to reach for his wallet, or as clear-thinking MEP Daniel Hannan points out, someone else's wallet. His prophetic words with regard the bailout-and-borrow bandwagon, that Europe remains on, running out of track are so critical that they bear repeating as he remains incredulous that his fellow MEPs still see the one solution to a debt crisis as yet more debt...

Did BP Cause Damage to the Gulf Sea Floor … Which Is Leading to Ever-Larger “Natural” Oil Seeps from the Macondo Reservoir?

George Washington — Fri, 09 Mar 2012 21:52:08 +0000

In June of 2010, BP officials admitted to damage beneath the seafloor under BP’s Gulf Macondo well.

Nmerous scientists have speculated that the blowout and subsequent clumsy attempts by BP to plug the well could have created new seeps, and made pre-existing natural seeps bigger.

We have repeatedly noted that the Macondo oil reservoir may still be leaking.

American reporter Dahr Jamail reports in a must-read article at Al Jazeera:

Al Jazeera has spotted a large oil sheen near the infamous Macondo 252 well.

In September 2011, Al Jazeera spotted a large swath of silvery oil sheen located roughly 19km northeast of the now-capped well.

But now, on February 29, Al Jazeera conducted another over-flight of the area and found a larger area of sea covered in oil sheen in the same location.

Oil trackers with the organisation On Wings of Care, who have been monitoring the new oil since mid-August 2011, have for months found rainbow-tinted slicks and thick silvery globs of oil consistently visible in the area.

“This is the same crescent shaped area of oil and sheen I’ve been seeing here since the middle of last August,” Bonny Schumaker, president and pilot of On Wings of Care, told Al Jazeera while flying over the oil.

Schumaker has logged approximately 500 hours of flight time monitoring the area around the Macondo well, and has flown scientists from NASA, the US Geological Survey (USGS), and oil chemistry scientists to observe conditions resulting from BP’s oil disaster that began in April 2010.

When Al Jazeera flew to the area on September 11, 2011, the oil sheen was approximately 25km long and 10 to 50 metres wide, at a location roughly 19km northeast of the Macondo 252 well.

On the recent over flight, the area covered in oil sheen was approximately 35km long, and ranged from 20 to 100 metres wide in approximately the same location. At times, fumes from the oil filled the aircraft, even at an altitude of 350 metres.

Schumaker, a career physicist with NASA who retired in 2011, is deeply concerned because she has spotted oil in the same location now at least 15 times since last August.

Edward Overton, professor emeritus at Louisiana State University’s environmental sciences department, examined data from oil samples taken from this area last September and confirmed that the oil is from the Macondo reservoir.

Experts believe the oil is likely to be from a seep in the seabed, but there is debate about what caused the seep, as many believe it may well have been caused by BP’s blowout well and the failed attempts to cap it during spring 2010….

Overton, who is also a National Oceanic and Atmospheric Administration (NOAA) contractor, told Al Jazeera in September, “After examining the data, I think it’s a dead ringer for the MC252 [Macondo Well] oil, as good a match as I’ve seen.”

He explained that the samples were analysed and compared to “the known Macondo oil fingerprint, and it was a very, very close match”.

While not ruling out the possibility that oil could be seeping out of the giant reservoir, which would be the worst-case scenario, Overton believed the oil currently reaching the surface was probably from oil that was trapped in the damaged rigging on the seafloor.

However, given the fact that the oil sheen has existed in this area since at least as early as August 2010 and is continuing, the likelihood of it being residual oil from the Deepwater Horizon or damaged rigging is now slim.

Other scientists remain concerned that the new oil could be coming from a seep from the same reservoir the Macondo well was drilled into. The oilfield, located 64km off the coast of Louisiana, is believed to hold as much 50 million barrels of producible oil reserves.

Natural oil seepage in the Gulf of Mexico is a common phenomenon and can cause sheens, but the current oil and sheen is suspect due to its size and location near the Macondo well.

“From what I’ve seen, this new oil and sheen definitely seemed larger than typical natural seepages found in the Gulf of Mexico,” Dr Ira Leifer, a University of California scientist who is an expert on natural hydrocarbon oil and gas emissions from the seabed told Al Jazeera. “Because of the size and its location, there is a greater concern that should require a larger public investigation.”

***

New Orleans attorney Stuart Smith, who litigates against major oil companies, believes the burden of proof about where the oil is coming from lies on BP.

“Our worst fears have proven true,” Smith said of the seep. “We have a chronic leak scenario caused by the Macondo well, and it is time for the feds and BP to come clean and tell the American public the truth. Unless/until the government and BP explain in a verifiable manner what the source of this oil is, in my opinion any thoughts of settlement are way premature.”

***

[US Coast Guard Captain Jonathan Burton] said after seeing footage from the submersible of BP’s cap, he does not believe the Macondo well, or the relief wells BP drilled to stop it, are leaking, and he feels the oil is from natural seepage.

“Research shows the Macondo area is ripe for seeps, and I think that’s what we’re looking at here, and it’s coming from the same reservoir,” Burton said.

***

Burton, who was somewhat defensive for BP, added that he thinks that “the seep was there all along”, and “doesn’t know why BP has been silent on it.”

Coast Guard Lieutenant Eric Brooks, also present in Al Jazeera’s meeting with Captain Burton, later provided a link to [images of natural seeps] …. However, the figures shown on the website itself are for areas quite far west and south of the area in question. ”

***

“We can tell you that we recently sent a remote operated submarine down to inspect the Macondo well cap and the relief well cap,” Mueller, added, “Both are intact and show no evidence of any oil leak. So no oil is leaking from the Macondo well.”

But experts believe that is exactly the problem, since the work BP conducted to cap the gushing well could have caused oil to begin seeping from the reservoir in an area away from the capped well.

Leifer remains concerned that the seep, given its proximity to the Macondo well, could be oil in the reservoir that entered a layer of mud and has migrated into a natural pathway that leads to the seabed.

“I see these new observations [of the seep] as the canary in the coal mine that indicates something could be changing at the seabed and should not be ignored and hope it goes away,” he said.

Given Overton’s findings that the oil does appear to be from Macondo, Leifer added, “It’s not necessary to be alarmist, but this is something that deserves setting an alarm off to investigate”.

Of Captain Burton’s comments about the oil coming from the Macondo reservoir, Smith had this to say:

“What is significant in my mind, as an attorney, is that a US government official admitted this is Macondo oil, and to me, absent BP producing evidence this seep existed prior to their drilling, they therefore must have caused it.”

Leifer’s concerns are that if the seep increases in volume, “It could be a persistent, significant, continuous oil spill again, and that would require BP to go back and re-drill, and block off the pipeline even deeper than they already did, or else they would be liable for whatever the emissions are, forever, because it’s not going to stop for a very long time”.

Dr Ian MacDonald, a professor of biological oceanography at Florida State University who uses satellite remote sensing to locate natural oil releases on the ocean surface, confirmed that there are natural seeps in this region of the Gulf of Mexico, but believes more investigation is necessary in order to determine the cause and source of this particular site.

“The question for science is: Are the rates of seepage consistent with what they were prior to the blowout?” MacDonald told Al Jazeera. “Is the amount of oil we’re seeing now unusual with respect to historic levels? Can this oil be traced back to these formations?”

***

[Leifer said] “There is natural migration in the area around Macondo, and one of the sites we’ve studied is MC118, about 18km away,” but added, “The concern is not that human activities caused a fault, but by creating pathways outside the [well] casing, they are allowing oil to travel along the well pipe then migrate horizontally until it intersects an existing vertical fault migration pathway, then reach the sea bed.”

His concern, shared by other scientists, is the possibility that the volume of oil flowing from the seep, if it is related to the Macondo area, could increase with time.

“We should be having sonar works done of that area, and the public needs to be informed of the findings,” Leifer said. “That survey should be repeated every three or six months to confirm that the seepage is not becoming larger and more widespread.”

***

“I don’t understand why we’re seeing so much more oil out there right now than we’ve seen in the past,” MacDonald said. “We need to dig in and investigate and see what is going on.”

Smith agreed, and took it a step further.

“We demand a National Academy of Science investigation into this seep,” and added, “BP has had six months to come up with evidence to prove they did not cause this seep. Considering that Al Jazeera and Associated Press have reported this [seep], you’d think BP would produce evidence they did not cause it.”

The possibility that brings the greatest concern is that oil is leaking from the reservoir straight out of the ground. This situation could be impossible to stop, because the vent would increase in size over time due to the highly pressurised reservoir.

Washington’s Blog interviewed one of the world’s leading experts on oil leaks in 2010, Robert Bea. Dr. Bea noted that we may never be able to fully stop BP’s oil leak:

Few people in the world know more about oil drilling disasters than Dr. Robert Bea.

Bea teaches engineering at the University of California Berkeley, and has 55 years of experience in engineering and management of design, construction, maintenance, operation, and decommissioning of engineered systems including offshore platforms, pipelines and floating facilities. Bea has worked for many years in governmental and quasi-governmental roles, and has been a high-level governmental adviser concerning disasters. He worked for 16 years as a top mechanical engineer and manager for Shell Oil, and has worked with Bechtel and the Army Corps of Engineers. One of the world’s top experts in offshore drilling problems, Bea is a member of the Deepwater Horizon Study Group, and has been interviewed by news media around the world concerning the BP oil disaster.

***

WB: Is it possible that this fractured, subsea salt geology will make it difficult to permanently kill the oil leak using relief wells?

Bea: Yes, it could. The Santa Barbara channel seeps are still leaking, decades after the oil well was supposedly capped. This well could keep leaking for years.

Scripps mapped out seafloor seeps in the area of the well prior to the blowout. Some of the natural seeps penetrate 10,000 to 15,000 feet beneath the seafloor. The oil will follow lines of weakness in the geology. The leak can travel several horizontal miles from the location of the leak.

[In other words, the geology beneath the seafloor is so fractured, with soft and unstable salt formations, that we may never be able to fully kill the well even with relief wells. Instead, the loss of containment of the oil reservoir caused by the drilling accident could cause oil to leak out through seeps for years to come. See this and this for further background].

***

WB: I have heard that BP is underestimating the size of the oil reservoir (and see this). Is it possible that the reservoir is bigger than BP is estimating, and so – if not completely killed – the leak could therefore go on for longer than most assume?

Bea: That’s plausible.

WB: The chief electronics technician on the Deepwater Horizon said that the Macondo well was originally drilled in another location, but that “going faster caused the bottom of the well to split open, swallowing tools”, and that BP abandoned that well. You’ve spoken to that technician and looked into the incident, and concluded that “they damn near blew up the rig.” [See this and this].

Do you know where that abandoned well location is, and do you know if that well is still leaking?

Bea: The abandoned well is very close to the current well location. BP had to file reports showing the location of the abandoned well and the new well [with the Minerals Management Service], so the location of the abandoned well is known.

We don’t know if the abandoned well is leaking.

WB: Matthew Simmons talked about a second leaking well. There are rumors on the Internet that the original well is still leaking. Do you have any information that can either disprove or confirm that allegation?

Bea: There are two uncorroborated reports. One is that there is a leak 400 feet West of the present well’s surface location. There is another report that there is a leak several miles to the West.

[Bea does not know whether either report is true at this time, because BP is not sharing information with the government, let alone the public.]

Postscript: Self-described “petroleum industry geohazards engineer” BK Lim has picked up the conspiracy theory mantle from Simmons, claiming there were three leaking wells. We haven’t read Lim’s statements, and so offer no comment on his credibility.

Short Greek Bonds vs Long Apple: No Contest

Tyler Durden — Fri, 09 Mar 2012 21:43:52 +0000

One may be surprised to learn that in the past 6 months NASDApple is not the best performing "asset class." Sure, it has generated a respectable 43% return since last September when the Greek 1 Year bond crossed a 100% yield for the first time ever (or a cash price of 54). That was also the time when many were saying to buy Greek bonds as there was no chance the yield could tumble much further (probably the same ones who said to buy AAPL). As it turns out, now that the saga of Greece is officially over, and its existing debt is being "retired" at a final price of about 19 cents of par, here is the final tally: shorting Greek bonds since September 2011 has generated 63%, while being long Apple returned 43%. And that's with virtually every hedge fund and their mother entering the Apple hedge fund hotel. So yes - sometimes going against the conventional groupthink does generate the best results. Now if only one could short the "new" Greek bonds at par, the return would be 80% in a millisecond as the bonds will break for trading under 20 cents.

There's more. All the banks that buy New "Fresh Start" Greek bonds at under 20 cents will be able to immediately turn around and repo them to the ECB. What cash equivalent will they get in return? Why just ask Jens Weidmann: he will be delighted to tell you. In other words, the ECB is about to provide another €25+ billion handout to Europe's insolvent banks, or an instantaneous 400% return, once again courtesy of the Greek "default" smokescreen, where the grand prize of course is the full confiscation of the Greek 100+ tons of gold.

Germany Wants New European Constitution: "There Are New Centers Of Power In The World."

Tyler Durden — Fri, 09 Mar 2012 21:16:49 +0000

Germany wants to "reignite a debate over creating an EU constitution", Reuters reports, "to strengthen the bloc's ability to fight off financial troubles and counter-balance the rising influence of emerging economies". Guido Westerwelle noted that Germany EU leaders "need a new constitution... as there are new centers of power in the world." A key change that Germany wants for instance is an amendment to incorporate tighter regional oversight of government spending and allow the EU court of Justice to strike down Spain's a member's laws if they violated fiscal discipline. Here comes the 'Pro-Quo' to the Greek Bailout 'Quid'!

Reuters: Germany wants new debate on EU constitution: minister

(Reuters) - Germany wants to reignite a debate over creating an EU constitution to strengthen the bloc's ability to fight off financial troubles and counter-balance the rising influence of emerging economies, Germany's foreign minister said on Friday.

...

"We have to open a new chapter in European politics," Westerwelle told reporters on the sidelines of a meeting of EU foreign ministers in Copenhagen. "We need more efficient decision structures."

...

"I think we have to reopen the debate about a European constitution again," he said. "We have a good treaty, but we need a constitution ... There are new centers of power in the world."

German government sources said representatives of several EU member states would likely meet in the next few weeks for talks.

Driven by public frustration over financial bailouts for debt-stricken states, Germany has fought hard over the last year to amend the EU's Lisbon Treaty, a watered-down version of the 2005 constitution proposal.

German Finance Minister Wolfgang Schaeuble had said in November that his country wanted to see changes to the EU's Lisbon Treaty by the end of 2012 in order to lay the foundation for a common fiscal policy in the bloc.

Germany argued that change was needed to enshrine tougher fiscal discipline and safeguard the bloc from further financial troubles.

For example, it wanted an amendment to incorporate tighter regional oversight of government spending and allow the European Court of Justice to strike down a member's laws if they violated fiscal discipline.

But Britain vetoed the plan in December in a row over safeguards for its financial sector.

As First Greek CDS "Anstalt" Appears, A Question Emerges: Did Banks Not Square Off Margins?

Tyler Durden — Fri, 09 Mar 2012 20:25:39 +0000

The irony is not lost on us that Bloomberg is reporting that KA Finanz, an Austrian bad-bank supported by the Austrian government, faces as much as a €1 billion need for funding to cover its exposures to Greek CDS (coughcreditanstaltcough). In a statement this morning, which we noted in a tweet, the bank noted "activation of the CDS with an assumed loss ratio of about 80% would mean an additional provisioning charge of EUR 423.6 million". KA Finanz's total amount of Greek CDS exposure is around EUR1bn. What is shocking and should be of great concern is that we have been led to believe that very little net cash will change hands on the basis of the $3.2bn net aggregate market exposure. This was based on the now false premise that variation margin was maintained and transferred throughout the process (as we note below from recent IMF filings). What appears to have happened is that dealer to dealer variation margin has been, let's say, less rigorous as perhaps all collateral was netted up across all exposures (or simply ignored on the basis of government backstops). The far bigger question then is: are banks simply marking ALL sovereign CDS at par, and not paying off cash to other dealers? Remember it only takes one counterparty in the chain to turn net into gross and quality collateral seems tied up a little right now at the ECB (or with margin calls).

And then this from KA Finanz' 2011 Interim Statement:

Supplementary to the measures already taken by the European Union and the IMF (International Monetary Fund), the measures now initiated are expected to permit a sustainable stabilisation of the Greek budgetary situation. Moreover, statements made by the International Swaps and Derivatives Association (ISDA) suggest that the measures described above will not trigger a credit event of credit default swap (CDS) portfolios. In view of these circumstances and given the measures already taken and now extended by the European Union, KF does not expect – from today’s point of view – a default of loans and advances to the Republic of Greece.

KF’s total direct exposure to the Greek state amounts to EUR 818.6 million; moreover, the bank holds government-guaranteed bonds of EUR 164.6 million and government bonds of EUR 636.2 million. The issue of programme participation only arises for securities maturing by 2020. As of 30 June 2011, this portfolio represents a book value of EUR 311.5 million, of which EUR 303.1 million is, however, locked in until maturity in repo-type TRS (total return swap) funding positions. Under civil law, these positions have been sold to third parties against inflow of liquidity; the underlying risk remains with KF through a CDS structure.

So it does. And surprise, Surprise: so until the bank assumed there would be no CDS, it decided not to daily variation margin its exposure. And only now it has to? But, but, ISDA said "what was decided today was anticipated and had been decided for quite a while." Did KA not get the memo to pay its counteparties when it had to at the end of trading every single day?

Surely KA is all alone in flagrantly circumventing the primary requirement in posting cash shortfall margin.

Surely.

Oh, and congratulations Austrian taxpayers, you are the latest ones on the hook to pay US hedge funds and banks for the privilege of Greece defaulting.

ISDA CDS Trigger Decision Is Unanimous

Tyler Durden — Fri, 09 Mar 2012 19:53:39 +0000

EMEA DC Statement

March 9, 2012

In light of today’s EMEA Determinations Committee (the EMEA DC) unanimous decision in respect of the potential Credit Event question relating to The Hellenic Republic (DC Issue 2012030901), the EMEA DC has agreed to publish the following statement:

The EMEA DC resolved that a Restructuring Credit Event has occurred under Section 4.7 of the ISDA 2003 Credit Derivatives Definitions (as amended by the July 2009 Supplement) (the 2003 Definitions) following the exercise by The Hellenic Republic of collective action clauses to amend the terms of Greek law governed bonds issued by The Hellenic Republic (the Affected Bonds) such that the right of all holders of the Affected Bonds to receive payments has been reduced.

The EMEA DC has resolved to hold an auction with respect to the settlement of standard credit default swaps for which The Hellenic Republic is the reference entity. To maximise the range of obligations that market participants may deliver in settlement of any such credit default swaps, the EMEA DC has agreed to run an expedited auction process such that the auction itself will take place on March 19, 2012. In light of this expedited auction process, market participants should submit any obligations that they would like to include on the list of deliverable obligations to ISDA as soon as possible.

Full determination:

ISDA Finds Greek Credit Event Has Occurred Reports Bloomberg

Tyler Durden — Fri, 09 Mar 2012 19:47:35 +0000

Total confusion around this, as there is no formal Press Release from ISDA yet, but since this one comes from Bloomberg, let's assume they have double checked their data. From Bloomberg:

ISDA EMEA DETERMINATIONS COMMITTEE: RESTRUCTURING CREDIT EVENT
ISDA SAYS CREDIT EVENT HAS OCCURRED WITH RESPECT TO GREECE
COMMITTEE DETERMINES AUCTION TO BE HELD ON MARCH 19
ISDA EMEA: AUCTION TO BE HELD ON OUTSTANDING CDS TRANSACTIONS

This despite refutations from ISDA 15 minutes ago that no decision had been reached. Of course, if this is a spoof PR that has gotten half the media world confused, the farce will be 100% complete.

And now preparations for the physical CDS auction begin (for a primer see here from 2009). Furthermore, there are those who point out that Greece has just over $3 billion in net CDS outstanding, so it should all be contained. Well, Lehman had $7.2 billion. Ended up requiring a $20 trillion bailout of capitalism.

Three Charts Of Equity Complacency Pre-ISDA

Tyler Durden — Fri, 09 Mar 2012 19:17:50 +0000

Equities have drifted sideways at their highs for the last few hours. Meanwhile, credit markets have sold off, Volatility and implied correlation have pushed higher, and broad risk assets (CONTEXT) has leaked lower. Complacency, or do stock momo algos know something everyone else doesn't?

Equities vs Credit...

Equities vs Vol...

Equities vs CONTEXT (broad risk)...

Charts: Bloomberg

Guest Post: Our "Let's Pretend" Economy: Let's Pretend "Job Growth Is Best Since 2006"

Tyler Durden — Fri, 09 Mar 2012 19:12:35 +0000

Submitted by Charles Hugh Smith from Of Two Minds

Our "Let's Pretend" Economy: Let's Pretend "Job Growth Is Best Since 2006"

Instead of just swallowing Ministry of Propaganda swill, let's examine actual data. If we do that, we find job growth is mostly smoke and mirrors.

The Ministry of Propaganda and its media minions are announcing that "job growth is on a tear" and the "best growth since 2006." How about we look under the hood of the employment euphoria? Here is an example of the Ministry's work: Best U.S. employment growth in 12 years Almost all the data agree — labor market’s on a tear.

Over the past six months, the number of people who are employed has risen by 2.3 million — an average of 385,000 per month. That’s the best growth since early 2000, when the dot-com bubble was in full flower.

Since August, the unemployment rate has fallen by 0.8 of a percentage points, to 8.3%. For adults over 25, the jobless rate has fallen to 7%.

In other words, people who generally work full time so they don't have to share a bunk in a flop house or live in their parents' basement are almost fully employed, as 'full employment" typically generates an unemployment rate of 5% just due to churn.

Best since 2000. Oh really? Let's look at the data as presented by the St. Louis Federal Reserve (FRED). Let's start with a measure of the workforce, what the Feds politely call the non-institutional population. Note that it rose by 33 million since 2000:

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Meanwhile, back in reality, the number of jobs (full-time, part-time, temp, etc.) rose by 4 million since 2000:

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Even more telling is the number of full-time jobs--the kind you can actually live on-- which "skyrocketed" back to the number of jobs in 2000, around 115 million. As Zero Hedge reported, the number of part-time jobs (and recall that can mean 2 hours a week or 20 hours a week) has skyrocketed to 28 million. If you haven't tried living on a part-time gig in America, I recommend it for an "on the ground" taste of the "best job growth since 2000." The Part-Time Economy (Redux).

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How do you add 33 million people to the workforce while the number of full-time jobs hasn't budged in 12 years and claim "job growth is on a tear"? First you arbitrarily subtract 20 million people from the workforce. Call them "discouraged" or "marginally attached," whatever, just don't call them what they really are which is jobless.

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Another way to view reality rather than spin is to look at the civilian-population employment ratio, a measure of what percentage of the populace has a job of some sort: Here we see that it is back to the recessionary levels of the early 1980s. For 64.5% of the populace to have some sort of job as in 2000, we would need an additional 14.5 million jobs. That's about 6 years of 200,000 jobs added a month, but then the workforce will rise by between 12 and 17 million in those years so you better add 400,000 jobs a month if you want the participation rate back to 2000 levels.

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If "job growth is on a tear" you'd expect real incomes (adjusted for inflation) to be on a tear, too--but then you'd be wrong, as real income is declining:

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According to Conference Board data, those actually seeking work are reporting jobs are hard to get--numbers that are at recessionary levels.

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Scroll back through the charts; honestly, is this a "job market on a tear"? Real earnings are falling and the number of jobs you can actually live on remains stuck at 115 million--all the "added jobs" are marginal: marginal hours worked, marginal security (temp), marginal pay (part-time=low pay and no benefits).

Would we as a nation be better off dealing with the truth rather than believing fantasies that prop up the Status Quo and the Fed's dearly beloved measure of the economy, the stock market? How often does accepting illusion help us navigate real life? Short answer: never.

Papademos Speaks - Point And Counterpoint

Tyler Durden — Fri, 09 Mar 2012 18:52:02 +0000

The fearless ECB-plant leading the Greek people on an unelected basis has spoken. Here are the key points and counterpoints:

1. PAPADEMOS SAYS DEPOSITS NOW CAN RETURN TO GREECE

-> They can... but they won't because as the Greek gold is confiscated, so will the Greek private deposits. In the meantime:

2. PAPADEMOS SAYS UP TO GREEKS TO DETERMINE THE COURSE OF COUNTRY

-> Yes indeed.

That. And all those successful referendums...

3. PAPADEMOS SAYS GREEKS MUST NOT WASTE THIS GREAT OPPORTUNITY

-> Great opportunity indeed: Total Greek debt pre-restructuring: $1.20 Trillion; Total Greek debt post-restructuring: $1.233 Trillion.

Congratulations Greece - you now have more debt than ever in history following this historic "restructuring", but at least your new foreign overloards have a first lien on everything and then some as the Troika's DIP alone is well 130% of GDP. Including your gold.

Friday Humor And Headline Of The Week

Tyler Durden — Fri, 09 Mar 2012 17:56:59 +0000

And for today's piece of non-fiction uber-humor we have....

U.S. COUNTER-SUES BUFFET'S NETJETS OVER UNPAID TAX LIABILITIES

Perhaps the GOP can offer to match Buffett $2 for every $1 in tax that NetJets is found to have not paid. One wonders: did NetJets pay less tax than Buffett's secretary?

And here is how one "builds" equity value:

FEDERAL GOVERNMENT COUNTERCLAIMS FOR MORE THAN $302 MILLION

Why by not allowing cash to leave the family of course. Luckily endless hypocrisy is free.

European Sovereign Ratings Update - You Are Here

Tyler Durden — Fri, 09 Mar 2012 17:45:27 +0000

Given various talking-heads' comments on today's PSI deal (which as noted actually increased Greece's gross debt load), we thought a 'map' of the current ratings across the European Union was worth resetting some perspective.

Chart: Morgan Stanley

FBI Director: I Have to Check to See If Obama Has the Right to Assassinate Americans On U.S. Soil

George Washington — Fri, 09 Mar 2012 17:31:58 +0000

Fox News reports:

FBI Director Robert Mueller on Wednesday said he would have to go back and check with the Department of Justice whether Attorney General Eric Holder’s “[criteria] for the targeted killing of Americans also applied to Americans inside the U.S.

***

“I have to go back. Uh, I’m not certain whether that was addressed or not,” Mueller said when asked by Rep. Tom Graves, R-Ga., about a distinction between domestic and foreign targeting

Graves followed up asking whether “from a historical perspective,” the federal government has “the ability to kill a U.S. citizen on United States soil or just overseas.”

“I’m going to defer that to others in the Department of Justice,” Mueller replied.

Indeed, Holder’s Monday speech at Northwestern University seemed to leave the door open.

Constitutional expert Jonathan Turley writes:

One would hope that the FBI Director would have a handle on a few details guiding his responsibilities, including whether he can kill citizens without a charge or court order.

***

He appeared unclear whether he had the power under the Obama Kill Doctrine or, in the very least, was unwilling to discuss that power. For civil libertarians, the answer should be easy: “Of course, I do not have that power under the Constitution.”

***

The claim that they are following self-imposed “limits” which are meaningless — particularly in a system that is premised on the availability of judicial review. The Administration has never said that the [Law Of Armed Conflicts] does not allow the same powers to be used in the United States. It would be an easy thing to state. Holder can affirmatively state that the President’s inherent power to kill citizens exists only outside of the country. He can then explain where those limits are found in the Constitution and why they do not apply equally to a citizen in London or Berlin. Holder was not describing a constitutional process of review. They have dressed up a self-imposed review of a unilateral power as due process. Any authoritarian measure can be dressed up as carefully executed according to balancing tests, but that does not constitute any real constitutional analysis. It is at best a loose analogy to constitutional analysis.

When reporters asked the Justice Department about Mueller’s apparent uncertainty, they responded that the answer is “pretty straightforward.” They then offered an evasive response. They simply said (as we all know) that “[t]he legal framework (Holder) laid out applies to U.S. citizens outside of U.S.” We got that from the use of the word “abroad.” However, the question is how this inherent authority is limited as it has been articulated by Holder and others. What is the limiting principle? If the President cannot order the killing of a citizen in the United States, Holder can simply say so (and inform the FBI Director who would likely be involved in such a killing). In doing so, he can then explain the source of that limitation and why it does not apply with citizens in places like London. What we have is a purely internal review that balances the practicality of arrest and the urgency of the matter in the view of the President. Since the panel is the extension of his authority, he can presumably disregard their recommendations or order a killing without their approval. Since the Administration has emphasized that the “battlefield” in this “war on terror” is not limited to a particular country, the assumption is that the President’s authority is commensurate with that threat or limitless theater of operation. Indeed, the Justice Department has repeatedly stated that the war is being fought in the United States as well as other nations.

Thus, Mueller’s uncertainty is understandable . . . and dangerous. The Framers created a system of objective due process in a system of checks and balances. Obama has introduced an undefined and self-imposed system of review ….

Before you assume that Mueller’s comments are being blown out of proportion, remember that it has been clear for some time that Obama has claimed the power to assassinate U.S. citizens within the U.S. As we pointed out in December:

I’ve previously noted that Obama says that he can assassinate American citizens living on U.S. soil.

This admittedly sounds over-the-top. But one of the nation’s top constitutional and military law experts – Jonathan Turley – agrees.

***

Turley said [on C-Span]:

President Obama has just stated a policy that he can have any American citizen killed without any charge, without any review, except his own. If he’s satisfied that you are a terrorist, he says that he can kill you anywhere in the world including in the United States.

Two of his aides just … reaffirmed they believe that American citizens can be killed on the order of the President anywhere including the United States.

You’ve now got a president who says that he can kill you on his own discretion. He can jail you indefinitely on his own discretion

***

I don’t think the the Framers ever anticipated that [the American people would be so apathetic]. They assumed that people would hold their liberties close, and that they wouldn’t relax …

Indeed, given that virtually any American could be considered a suspected terrorist these days, no one is safe from an all-powerful president’s whims.

As I noted in another context, circular reasoning provides all the justification needed:

The government’s indefinite detention policy – stripped of it’s spin – is literally insane, and based on circular reasoning. Stripped of p.r., this is the actual policy:

If you are an enemy combatant or a threat to national security, we will detain you indefinitely until the war is over

It is a perpetual war, which will never be over

Neither you or your lawyers have a right to see the evidence against you, nor to face your accusers

But trust us, we know you are an enemy combatant and a threat to national security

We may torture you (and try to cover up the fact that you were tortured), because you are an enemy combatant, and so basic rights of a prisoner guaranteed by the Geneva Convention don’t apply to you

Since you admitted that you’re a bad guy (while trying to tell us whatever you think we want to hear to make the torture stop), it proves that we should hold you in indefinite detention

See how that works?

And – given that U.S. soldiers admit that if they accidentally kill innocent Iraqis and Afghanis, they then “drop” automatic weapons near their body so they can pretend they were militants – it is unlikely that the government would ever admit that an American citizen it assassinated was an innocent civilian who has nothing at all to do with terrorism.

Greece - Round III, In Which We Learn That Greek Debt Actually INCREASED Post-Default

Tyler Durden — Fri, 09 Mar 2012 17:22:40 +0000

From Mark Grant, author of "Out of The Box and onto Wall Street"

Greece---Round III

We are finally getting some answers and that is the good news, maybe the only good new really. The Greek debt tender has ended and 85.8% of the bond holders have tendered. This is the number for the Greek law bonds but please note that the participation for the English law bonds was only 70% so that I would guess that not only will the English law bondholders sue for Estoppel but they will sue for acceleration, immediate payment, as an illegal CAC was implemented. This was my lead projection for the outcome and in-line with consensus thinking. This is just the beginning, however, of a number of incidents that are about to transpire. Next there will be suits in the Swiss courts, the British courts and in the American courts concerning the retroactive “Collective Action Clause” which may not be legal in other jurisdictions besides Greece and the European Union. Never, ever forget that the EU implicitly has gone along with a retroactive clause and that if it can be done in Greece that it then can be done for any other nation in Europe and if it can be done to force bond holder participation that it can be done for any other clause in any sovereign indenture in Europe. Further the ECB and the EIB have exempted themselves for the CAC which is the new template for how things will be handled in Europe. The European Union may well have a moment to cheer but the reactions of bondholders will be punishing in my estimation as the LTRO money runs out and as nations on the Continent come to the markets for additional financing.

So now we wait on the ISDA ruling which will be coming shortly to determine if the CAC triggered the CDS contracts. If they did then we will await to see how $75Bn in the CDS contracts are to be settled and if there is any institution that becomes impaired by having to settle up. Further out we will see the results of all of this on many balance sheets in Europe and the impact to the financials of many banks and insurance companies.

The Fun Keeps Coming

Since the ratings agencies have to post 12 hours in advance for any rating change it will not be until tonight or perhaps tomorrow until we see their opinions. Given what S&P and Fitch have previously said however I think the safe assumption is that the country will be placed in “Default” which will trigger all kinds of other clauses in a variety of contractual obligations. For the sovereign there are $90Bn in derivative contracts outside of the CDS contracts that may have trigger language depending upon the ratings agencies. We will also see what happens with Municipal contracts and then as the Greek banks will most probably follow and be placed in “Default” we will see what securitizations get triggered, what collateral agreements get unwound, what inter-banking lending agreements mis-fire and what securitizations at the ECB get returned to the banks of origin.

The Debt of Greece

The somewhat amusing part of this entire transaction is that the debt of Greece has been INCREASED. Greece and the EU handed private holders $138Bn in write-offs but with the addition of the new loan, $171Bn, the gross debt for Greece increased by $33Bn and this is if all of the legal challenges favor Greece. The total debt of Greece (sovereign, municipal, corporate and bank) has just increased from $1.20 Trillion to $1.233 Trillion and all accomplished by this brilliant plan that did nothing except to tag investors and ramp up the debt load for the country. Take this and add in the austerity measures and perhaps demands for more coming later today as the EU has its summit and an economy that is quickly sinking into the sea and unemployment that is surging and then you can visualize that the absurd has become the impossible and quickly conclude that more Greek loans will have to be forthcoming; or not with some form of Greek exit. The much bandied about notion that all of this will reduce the Greek debt to GDP is little more than a joke. For the past two years there has not been one, one, accurate projection for Greece concocted by the IMF/EU/ECB and I see no end to this now. Some quick math on my part indicates, in 2020, a debt to GDP ratio exceeding 170% and that is being kind and using optimistic assumptions. Just this morning the new numbers released for Greece showed a 7.50% deficit increase as opposed to the projected -5.50% number. This is one more case of quite inaccurate projections and a worsening economy for the country.

The IMF Contribution to Greece

The IMF has tentatively offered $17Bn for the next round of Greek funding while the EU expected $56Bn keeping the IMF ratio the same as in the first round of the Greek bailout. The IMF has said that it will not increase its position without a larger firewall and this is something that Germany has refused to do to date. I ask then where is the $39Bn going to come from then as no government in Europe has approved funds to make up for the deficit. Then as this morning the EU has indicated that any new funds may only be released in tranches we may find that the EU releases money to pay off their banks and other financial institutions but with only a paltry sum released to be used in Greece. The IMF/EU contribution may become quite fragmented and we may hear screams emanating from Athens soon.

The Next Continental Plays

Keep your eyes on Portugal. Very poor economics that are worsening and I think they may be back to the till quite soon. Then watch Spain as they are the first country to publically tell the EU to “Shove It” as they are sticking to their 5.8% deficit and refuse to adhere to the EU mandated 4.40% number as the maximum debt allowed. They have also refused additional taxes and additional austerity measures as several other European nations have cried "foul" and threatened to demand penalties and fines for the country. Then turn to the north and watch France as with elections looming on April 22, run-off on May 6, that Sarkozy appears to be the loser and the most likely winner, Hollande, supports economic and financial policies that are in direct opposition to the policies laid out by the German Chancellor.

More Data

As more information is released today and over the weekend I will try to provide some commentary as we all look to the meaning of things and not to the manipulated headlines. The situation is complicated, convoluted and the appreciation of the consequences of the decisions and of the unintended consequences of the decisions will loom large in making correct investment choices. As far as I am concerned the Great Game remains in play.

Kit Juckes: The USA's gentlemen's agreement with Japan and China is coming to an end

Daily Collateral — Fri, 09 Mar 2012 17:12:42 +0000

Looks like it's time to start looking for somewhere else to peddle those Treasuries -- but then, when hasn't it been? Soc Gen's FX head Kit Juckes:

A cosy relationship has formed over the years whereby the resistance to allow currencies to appreciate too much in Japan and China has fuelled appetite for US assets, which in turn has allowed the US to run a huge deficit (with gradually falling Treasury yields). This is changing, and not (yet) in a good way.

Here are the current account balances he is referring to. Japan and China's combined current account has deteriorated significantly over the last few years and continues to head lower:

Also, why risk-on/risk-off will continue to be the norm:

Capital flows don't match up to current account flows -- and don't need to -- but since the global recession, the decline in the US deficit has mirrored the fall in the China/Japan surplus. The "big story" hasn't been on that side of the equation, but rather, about the increased flow of capital out of the US in response to seriously unattractive domestic yields, and the periodic breaks in that outflow that trigger dollar strength and 'risk off' moments across asset markets. The chart below shows the lurch back into capital repatriation into the US in 2008/2009, but other than that, it?s been a very one-way flow.

As Tyler Durden noted earlier, "the truth is that in this new normal only beta matters (the more lever the better), and the only beta that matters is that generated by relative USD strength/weakness." Observe:

Juckes sees the eurozone (Germany) presiding over the largest surplus provided the euro "escapes the weight of the threat to its existence," and reduced import demand due to austerity in many of the EMU countries running deficits will contribute. He concludes:

The image that comes to mind is of a puzzle where the pieces no longer fit easily together. In the end they will, but the way that happens will affect asset prices. The big price-insensitive buyers of dollars will be less important. That won't move US yields up much while rates are zero and QE (whether sterilised or not) is taking place. But Treasury yields are at the end of their 30-year bull market. As long as rates are anchored by the Fed and the US is running a large deficit without automatic demand for US assets from China and Japan, it isn't helpful for the dollar ... And sadly, the 'risk on-risk off' gyration will go on as US investors seek positive real returns where they can.

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