Eurogroup Head Confirms "It Has Become Serious", As He Is Back To Lying

Eurogroup Head Confirms "It Has Become Serious", As He Is Back To Lying:
The insolvent banana continent is back. Recall back in May 2011:

“When it becomes serious, you have to lie." -Jean Claude Juncker

Ergo, things in Europe are very serious again because the Eurogroup's head, who until recently promised he was quitting his post because "he had gotten tired of the Franco-German interference in managing the region's debt crisis", only to spoil the fun and say he was lying about that too, is back to doing what he does best - lying. To wit: "the euro countries are preparing together with the bailout fund EFSF and the European Central Bank to buy government bonds if necessary clip euro countries." And now cue Schauble: "Federal Finance Minister Wolfgang Schaeuble has rejected speculation about impending purchases of government bonds by Spanish EFSF and ECB."
From Suddeutsche Zeitung:

"No time to lose": The chairman of the €-group sees a crucial point of the debt crisis has arrived. Jean-Claude Juncker supports plans by ECB chief Draghi for the purchase of government bonds - and Germany are partly to blame for the crisis. Berlin treats the euro area "as a branch." Also called "chatter on the withdrawal of Greece" is not helpful.

Juncker confirmed that the euro countries are preparing together with the bailout fund EFSF and the European Central Bank to buy government bonds if necessary clip euro countries. Because there is no doubt, he said. "It is still necessary to decide exactly what we will do and when." This depended "on the developments of the next few days and from reacting as fast as we need."

And to think only yesterday the only person whose opinion matters, Germany's Finance Minister,  "denied plans for a new aid program for Spain, according to newspaper Welt am Sonntag, after the media reported European Union leaders aim for Spanish government bond purchases by the European rescue fund and the European Central Bank."
We leave it up to readers to figure out which of the above two is telling the truth, but in the meantime, here are some other soundbites from the man who is back to desperation pleading with markets:

• JUNCKER SAYS MUST USE ALL AVAILABLE TOOLS TO SAFEGUARD EURO
• JUNCKER: EMU READYING FOR EFSF/ECB INTERVENTION
• JUNCKER SAYS MARKET REACTION ON SPAIN, ITALY INAPPROPRIATE - indeed, central planners always know best

And funniest:
"All talk about the emergence of Greece is unhelpful"
Of course, it is much better to stick one's head in the sand and avoid the only possible outcome of this tragic farce that the implosion of Europe has become, and truly best to completely avoid any discussion of what happens in case of Plan B.
To summarize, from Reuters:

The euro zone is at a decisive point and leaders will work with the European Central Bank (ECB) to demonstrate their commitment to the stability of the single currency, Eurogroup head Jean-Claude Juncker said in interviews with European newspapers.

Juncker told Germany's Sueddeutsche Zeitung and France's Le Figaro in reports made available on Sunday that leaders would decide in the next few days what measures to take to tackle Spanish bond yields which last week touched euro-era highs. They had "no time to lose," he said.

Asked whether it was true that France wanted the bailout fund to buy government bonds, under an agreement made by euro zone leaders at their summit in June, but that Germany was resisting, Juncker answered:

"I have no doubt that we will implement the agreements of the last summit. We still need to decide what we will do when. That depends on the developments of the next days."
The European bailout fund, the European Financial Stability Fund (EFSF), will work together with the ECB without affecting its independence, he said.

"We will work in close agreement with the ECB, and we will, as <ECB President> Mario Draghi said, see results. I don't want to drive expectations, but I must say, we have reached a decisive phase."

Draghi said on Thursday he would do whatever was necessary to protect the euro zone from collapse, prompting expectations of a new bond-buying program.

"The euro countries have reached a point where we have to use all means possible to show that we are determined to protect the stability of the euro zone... nobody should doubt the will of those involved, to prove our determination," Juncker said.

To summarize:
i) since the head of the Eurogroup is back to outright refuting what Germany said a day earlier, Europe is once again back to Plan B - lying, which means things are again on the verge of an all out collapse, and plunge in the EURUSD, which, as a reminder, is precisely what the German export industry wants more than anything, and
ii) just like in the June 29 summit, beggars are again hoping they can be choosers, and can force Germany, by way of a full blown media onslaught in which they represent that a vague possibility is now a certain outcome, and thus have already set expectations about 5% higher than it would be otherwise, to succumb to the will of the beggars, and allow full blown debt monetization.
And like back then, so now, all we can say to the broke periphery, which now apparently include France, but as David Einhorn said, it will take bond traders a little longer to figure it out, is good luck. It will be desperately needed.
As an appendix, here is Juncker's hillarious attempt to justify lying to Spiegel magazine at critical inflection points:
SPIEGEL: Mr. Prime Minister, you are a Christian Democrat and a Catholic, which is why we want to talk to you about the Ten Commandments.

Juncker: I already have an idea of what you are getting at.
SPIEGEL: Are you familiar with the Eighth Commandment?
Juncker: Of course. Thou shalt not bear false witness against thy neighbour.
SPIEGEL: Apparently you don't take it very seriously. More than two weeks ago, you denied a report by SPIEGEL ONLINE about a secret meeting of several European Union finance ministers to discuss the situation in Greece, even though the official limousines were already pulling up in Luxembourg.
Juncker: The most important commandment is not to inflict harm on others. Although it isn't stated quite that way in the Ten Commandments, it follows from them. The finance ministers of several Euro Group nations had agreed to meet on Friday with the president of the European Central Bank (ECB), Jean-Claude Trichet. Because the financial markets in Europe were still open and trading was still underway on Wall Street, we had to deny the existence of the meeting. Otherwise the course of the euro against the dollar, which had already fallen as a result of your report, would have plunged disastrously.
SPIEGEL: With this false denial, you not only harmed your own credibility, but that of European financial policy as well.
Juncker: And it didn't exactly enhance the credibility of SPIEGEL ONLINE to disseminate the false report that we were meeting in Luxembourg to discuss Greece's withdrawal from the monetary union.
SPIEGEL: Forgive us for saying so, but SPIEGEL ONLINE had obtained information to that effect from government sources, as well as a working document prepared specifically for this meeting for the German finance minister.
Juncker: It is not unusual for finance ministers to have documents with them that contain all of the issues being discussed in public. And the question of Greece's withdrawal from the monetary union is certainly being discussed in public. But that's a far cry from saying that the issue is on the agenda of a meeting. As a result, I had to be all the more careful to ensure that no unnecessary turbulence would occur in the markets.
SPIEGEL: Are you saying that, as a finance minister in the age of global capital markets, you cannot tell people the truth?
Juncker: I do not have a ready answer to your question. My main concern is to protect people from detriment. That's why I feel practically compelled to make sure that no dangerous rumors begin to circulate. I'm certainly not going to go to confession because of a false denial. God understands more about the financial markets than many who write about them.
...
SPIEGEL: When secret meetings are held and the truth isn't always being told, people gain the impression that there must be something wrong with this Europe.
Juncker: People understand perfectly well that politicians have to discuss sensitive issues behind closed doors. I had 10 seconds to decide how to react to the report in SPIEGEL ONLINE. Let us say, hypothetically, that I had said: "Okay, we are having a meeting, but I'm not going to tell you what we intend to talk about." That would have triggered a tsunami in the financial markets. Instead, I chose to produce a small wave of outrage over a white lie.
SPIEGEL: Nevertheless, we'd like to try aiming for the truth.
and so on

Biggest EPS Miss Since Lehman, And This Time It's Not The Tsunami's Fault

Biggest EPS Miss Since Lehman, And This Time It's Not The Tsunami's Fault:
Yes, we know it doesn't matter because Ben & Mario have got our backs at whatever multiple is required to levitate the economy market, but as Citi's credit desk points out; despite the constant chatter about EPS beats (despite top-line misses), the trick is that analysts have been dragging down expectations since the earnings-cycle began and so judging 'misses' must be done against a 'frozen' pre-earnings number. If we do this 'fair' approach to considering expectations, the percentage miss in the S&P 500's EPS for Q2 2012 is as bad as the Q2/Q3 2011 Tsunami-driven miss - and the worst we have seen since Lehman Brothers shuffled off this mortal coil. So as usual, be careful what truth you believe and consider just how much more 'hope' is now in this market given this reality.



Citi Credit Weekly

Undoubtedly, part of the reason that Spain and Greece have come back into focus is that the earnings of US companies continue to be so uneven. With more than half of S&P500 companies having reported, we’re only now starting to get the full picture, and viewed from the top down perspective it’s far less pretty than even last week led us to believe. Relative to expectations, top line revenues have been especially weak, with nearly all sectors surprising to the downside, even as EPS and EBITDA have tended to beat.

But even those sorts of statistics tend to hide the true weakness because equity analysts tend to revise expectations down while earnings season is still ongoing, which explains why some 72% of S&P500 companies manage to beat expectations in a weak quarter.

To get a truer picture of the magnitude of disappointment, it’s necessary to freeze estimates prior to the start of earnings season, so that those companies reporting later don’t get the benefit of having the bar set lower by the early reporters. And viewed this way, we see that earnings surprises have been about as bad as the third quarter of 2011, which were impacted by the Japanese earthquake and the debt ceiling debate.

Source: Citi

A Completely Screwed Up System

A Completely Screwed Up System:
The following chart from the Congressional Budget Office (CBO) shows who pays federal income taxes in America.

It should come as no surprise that individuals with the highest incomes pay the most in taxes. The top 20% pay 94% of all income taxes according to the CBO. It should also be no surprise that the bottom two rungs (40%) of the income groups pay very little taxes. But it was surprising to me that the bottom 40% actually pay a negative income tax.

How does one pay negative taxes? Tax transfers to low income groups exceed their tax liabilities. Two examples of these transfers are the EITC (Earned Income Tax Credit) and ACTC (Additional Child Tax Credit). The following chart from the Congressional Research Service (CRS) describes the effective negative tax rate phenomenon.


For those earning up to $26,000, there are no income taxes levied, but those individuals pay FICA (Social Security taxes). The value of the tax credits available to those individuals is greater than their SS taxes. Therefore, the group, ends up with a negative tax rate.
I favor this type of income redistribution. I think high-income groups should end up supporting lower income groups. I have no problem with negative effective tax rates for individuals and households that are at, or below, the poverty line.

But….

The CRS reported:

individuals who were not authorized to work in the United States received $4.2 billion by claiming the refundable portion of the child tax credit—the additional child tax credit (ACTC).

“How is this possible?” How could illegal workers end up receiving federal tax credits? The IRS is encouraging the process.

The IRS issues two kinds of tax identification numbers. A traditional SS# is available for all legal residents. Illegal residents can obtain an ITIN (Individual Tax Identification Number). The use of ITIN has exploded 10-fold over the past decade. In 2010 3.2m people used these numbers to file tax returns and obtain refunds.



The use of ITINs is just one component of the problem. The Social Security Actuary estimated that 75% of illegal workers are using a fraudulently obtained SS# to get work. The IRS/SS knowingly collects this tainted money.

Combining the ITIN data with the 75% estimate by SSA leads to an estimate of 12m taxpayers contributing (and getting refunds) who shouldn’t be in the system at all. (Note: the Census Bureau put the number of unauthorized aliens at 11.2m in 2010.)

What happens when a cash incentive to have children is made available to people who live in the country? They have babies, of course. From the CRS:


Do existing laws permit illegal workers to get tax rebates and benefits?
For refundable tax credits like the EITC and ACTA, the answer is a very clear “No!” But that hasn’t stopped the IRS from allowing this to happen.

However, it is completely legal for an illegal worker to obtain Social Security benefits. Illegal workers who have contributed to SS (FICA taxes) for a minimum of 10 years are illegible to receive retirement benefits on the same schedule and terms as an individual who works legally. (Note: I was shocked when I first learned this, but it is true {Link}).

How many undocumented workers are there that might be eligible to get Social Security benefits? Pew answers that:

35% of unauthorized adults have resided in the United States for 15 years or more and that 28% have resided for 10 to 14 years. The report also found that the proportion of unauthorized aliens who have been in the country at least 15 years has more than doubled since 2000.

Based on the Pew numbers, 62% of the 12m unauthorized aliens will be eligible to receive benefits in their lifetimes. These workers have contributed to SS, so the law says they can get monthly checks. But the reality is that a significant percentage in this group is paying negative effective tax rates after taking into consideration the refundable tax credits described above. In the end, the lower 30% of income groups (including undocumented workers) end up “paying” for SS out of one pocket, while getting a similar sized refund check in the other pocket.


What are my points/objectives in writing about this?

- Our immigration laws (and how they are applied) are completely idiotic.

- The IRS is facilitating the problem by allowing refunds to be paid to those filing with illegal SS#s (or legally obtained, but fraudulently used ITINs).

- Stirring the pot on the issue of illegal workers and their rights to receive Social Security benefits. It is now more than two years since the Chief Actuary of the SSN, Stephen Goss, spoke about this matter (Link). This is a political issue. The country deserves an update on how big this problem is before November. The candidates should be asked what they plan to do about it. Illegal workers have contributed as much as $240Bn to SS (10% of all assets).

- Stimulate a discussion on a very complex and emotive topic.


Notes:
In my heart I have a soft spot for illegal immigrants. My father came from Europe in 1939.

I know many illegal families. I like them. They are good parents. They are hard workers. They would be happy to pay taxes as regular citizens do. They want to own property, cars and have their children get an education.

But the numbers are too large, and the consequences too significant. In the end, this about the law.

So I don’t know what to do.
.

Student Loan Debt Time Bomb

Student Loan Debt Time Bomb:
Ah, the American Dream.  Go to college, work hard, graduate, get a good job, career and then you'll be set for life with high earnings, enough money to buy a home, raise a family and retire comfortably.
Oops, rewind, this isn't the Ozzie and Harriet show, it's real life.  Did you know student debt is one of the few debts one cannot declare bankruptcy on, no matter what?  That literally you have to be in a pine box, or close to it, to have your debt forgiven?  That 53.6% of those under the age of 25 with a four year college degree or better cannot find a job?
Student loan debt is now the next great bubble, threatening the U.S. economy as the mortgage crisis did. The NACBA released a study and calls student loan debt the next financial crisis, on the level of the mortgage crisis.

• College seniors who graduated with student loans in 2010 owed an average of $25,250, up five percent from the previous year. Borrowing has grown far more quickly for those in the 35-49 age group, with school debt burden increasing by a staggering 47 percent.

read more

Coin flips psychologically better??

Coin flips psychologically better??:

A TEDtalk about the counterintuitive notion that too much choice actually causes us to be unhappy.



So, maybe ceding control to a random entity is psychologically less damaging than over analytical musings.







Baba Shiv: Sometimes it's good to give up the driver's seat - YouTube

Japan Industrial Production (MoM) -0.1% in Jun

Japan Industrial Production (MoM) -0.1% in Jun: FXstreet.com (Barcelona) For more information, read our latest forex news.

Chinese slowdown gets painful

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Next Stop for 10-Year Treasurys: 1.25% Yield?

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German banks cut back periphery lending

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ESM armed with a banking license - the ultimate bailout "bazooka"

ESM armed with a banking license - the ultimate bailout "bazooka":

Should the ESM, the Eurozone's permanent bailout facility, be granted a banking license? Apparently some within the ECB believe that it should.

Bloomberg: - European Central Bank council member Ewald Nowotny said there are arguments in favor of giving Europe’s rescue fund a banking license, reviving the debate on bolstering its firepower as leaders face the prospect of a full-scale Spanish bailout.

“I think there are pro arguments for this,” Nowotny, who heads Austria’s central bank, said in an interview in his office in Vienna yesterday. “There are also other arguments, but I would see this as an ongoing discussion,” he said, adding he’s “not aware of specific discussions within the ECB at this point.”

It's a powerful concept because being a bank, the ESM could tap the ECB's unlimited lending facilities to leverage its holdings of sovereign paper. By granting the ESM a banking license, it can effectively buy Spanish and Italian bonds "on margin", with the ECB being the margin provider. This entity would wield buying power several times larger than the Eurozone's original ESM commitment, making it the ultimate bailout "bazooka".

So far Mario Draghi had not been supportive of the idea - at least officially.

Bloomberg: - ...ECB President Mario Draghi said on May 24 that such a move amounts to the central bank financing governments, which is prohibited by European Union law...

The issue of EU laws is a major one, but it's not without a precedent. As the Bloomberg article points out, "publicly-owned credit institutions such as the European Investment Bank (EIB) are exempt". In fact the EIB has been involved in buying government debt of Eurozone nations for some time, even ending up stuck with some Greek bonds (see this post).

Bloomberg: - The EIB, which was founded in 1958 and is owned by the member states of the EU, was granted access to ECB refinancing in July 2009. Nowotny said the fact that the ESM has missed a July deadline to become operational is a “weakness that has to be overcome.”

However there is a political problem with this scenario. The ESM now has a €500bn cap on total debt purchases. That means no matter what leverage is available to the entity, it can only purchase bonds of up to the amount of the cap. An increase in its buying power would require (among other things) Germany's approval. And with the elections coming up in Germany next year, the chances of German politicians agreeing to this increase are quite low.

Barclays Capital: - From a political perspective and in view of the German national elections scheduled for September 2013, we do not see much of a chance that the German government would agree to another increase in the ceiling until then, or to more fundamental changes implying the mutualisation of national, public debt. This constraint may be relaxed if the crisis picks up pace rapidly and moves into the core.

Nevertheless the rumors of the ESM being armed with a banking license are flying (and even moving the "risk" markets on Friday).

CNBC: - Reports (vague rumors) that ECB head Mario Draghi may have reached out to Bundesbank head Jens Weidmann moved the Dow more than a hundred points in the middle of Friday's trading day.

It certainly wouldn't be surprising that they talk, but the rumor mill threw in a rich tidbit: that they had discussed giving the EU's permanent bailout fund (the ESM) a banking license.

The danger of course is that after this buildup, the "bazooka" and other expectations from the Eurozone may not materialize. Without a decisive follow-through, the "risk" markets may retrace their recent gains and then some. After all when it comes to the Eurozone crisis, the EU leadership has a knack of over-promising and under-delivering.

SoberLook.com

www.SoberLook.com

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