Warnings About the Eurozone

The Republicans can blame President Obama or do-nothing Ben Bernanke for all the economic problems, but this mess in the Eurozone gets worse week after week, and while you can possibly put blame on the Bush Administration and Wall Street for starting the crisis in Europe, this is also a political problem that only those countries can solve. However, while we wait for that to happen, the angst and fear emanating from the Eurozone make the markets seem unstable even on a good day, and every weekend there is some dire warning just before the Monday opening. This week is no different.

A few weeks ago, Mario Draghi, European Central Bank President, made a speech promising to do "whatever it takes" to save the Euro. But his words didn't calm the markets, which instead reacted negatively. They just aren't buying what he is selling, so to speak. Then he spoke again last Thursday, to mixed reviews.

"It's pointless to bet against the Euro," he said.


Can Draghi Turn the EU Ship Around?

Draghi, when he spoke late last week in Frankfurt, did not step away from his sweeping “whatever it takes” reassurance of the week before. In fact, he reaffirmed that the ECB would enter the bond markets to keep sovereign borrowing rates down. And he put this every which way he could. The central bank would “undertake outright open-market operations of a size adequate to reach its objective.” Interest rates, he said later, “that are related to fears of the reversibility of the euro are unacceptable, and they need to be addressed in a fundamental manner.”

What changed? Nothing of consequence. Draghi spoke a little more technocratically, offering details and leaving behind the billboard headlines. He implicitly acknowledged a target yield on European sovereign debt. That amounts to another commitment to whatever it takes.

In the meantime, Germany’s central bank president, Jens Weidmann, repeated that Germany was against the ECB’s latest thinking about bond buying.

Meanwhile: Italy's President is in a panic, and sees the Euro collapsing:

Mario Monti Sees Euro Alliance Dissolving

Monti, in an interview with Germany’s Der Spiegel magazine published yesterday, said that disagreements within the 17- nation euro area are detracting from the policy response to the debt crisis and undermining the future of the European Union.

“The tensions that have accompanied the euro zone in the past years are already showing signs of a psychological dissolution of Europe,” Monti told Der Spiegel. While he backed the ECB’s willingness to address “severe malfunctioning” in the government bond market, Monti said the problems “have to be solved quickly now so that there’s no further uncertainty about the euro zone’s ability to overcome the crisis.”

. . . Monti told Spiegel that he intends to stay in office until April 2013, when Italy is due to hold elections, and he hopes he “can save Italy from financial ruin until then, with the moral support of some European friends, and Germany foremost. But I say very clearly: moral support, not financial.”

An article reprinted on CNBC from Financial Times hints that Spain might actually be leaving the Eurozone:

Wall Street Warned of Possible Euro Exit

The eurozone continues to be the predominant concern of US bank executives, ahead of the faltering US recovery. Last summer the worsening of the eurozone crisis produced wild swings in US banks’ stock prices and led the Securities and Exchange Commission to demand they provide more disclosure of assets in Spain, Greece, Italy, Ireland and Portugal.

. . . Last week the speculation on whether Mario Draghi, European Central Bank president, would take more aggressive action to tackle the crisis produced further gyrations in US stock prices.

One senior Wall Street executive said his bank was approaching derivatives counterparties to say: “‘We’ve got this contract, it’s in euros, what I want to know is in the event that Spain were to be redenominated are we going to end up being adversaries on this or can we just agree that this is a euro contact? Let’s just move it to London law so we each agree that we know where we stand.’

Uncertainty in the Eurozone Confuses Markets

As I wrote a few weeks ago, even if the Germans kick Greece out of the Eurozone and they go back to the drachma and a future of austerity, there are other countries in the same shape waiting in the wings. Spain, Portugal, Italy, Ireland . . . know one really knows where the ripples with stop. It's a dangerous time for the world economy. Yesterday the markets seemed happy that Spain will get a $125 billion bail-out - today, not so much.

This article describes the volatile situation succinctly:

Spain, Italy in market storm ahead of Greek vote
12 June 2012 | 14:45 | FOCUS News Agency

Madrid. Investors pounded Spanish and Italian debt on Tuesday, beset by grave doubts over a Spanish banking rescue and fears of a looming Greek exit from the eurozone, AFP reported.
Despite eurozone powers striking a deal Saturday to extend Spain a banking sector rescue loan of up 100 billion euros ($125 billion), the alarm gripping bond markets showed no sign of relaxing.
Two major concerns stood out: doubts over Spain's outlook even with the mega-loan and this Sunday's Greek elections, which in a worst-case scenario could send Athens back to the drachma.
It was impossible to say how things may turn out, said Edward Hugh, an independent economist based in Barcelona.

Facebook Falls Again - Updated

Facebook Stock is selling for $28 a share this afternoon. I will update the final price when the markets close at 4:30 EST.


Some predict it will bottom out at $25, but I think that might be optimistic. Of course it might bottom out today at $25, but what about the rest of the week? Just kidding - I really have no idea how this will end. I'm watching it fall for the entertainment value only. :)

Reuters reports:

As Facebook shares dipped below $30 in afternoon trade, buying picked up in the August $29 strike puts.
Put options, generally considered bearish bets, give the holder the right to sell shares at a specific price by a certain date, while calls, generally considered bullish bets, give the holder the right to buy shares at a specific price.

 Update: Yep - ended the day at $28.84 per share.

How Bad a Day Did Facebook Have? 

 So bad that a short-sale circuit breaker was tripped because the stock price kept falling. Circuit breakers kick in when a stock drops more than 10 percent from the previous session's closing price. On the day, Facebook fell 9.6 percent to $28.84, and since the company went public earlier this month, the stock has plunged more than 24 percent.

Facebook Faceplant Causes Facepalm

I hate to say "I told you so," but the other day I wrote that I was underwhelmed by the Facebook IPO and thought it might fall apart quickly in spite of all the media hype and high-profile buyers such as Bono of U2.

And looks like I was right - headline after headline. I don't pretend to be an economist and have no money in the stock market and probably never will, but I think I can spot a trend. Facebook is not an up-and-coming commodity anymore. It's been around too long to have an IPO, and not everyone is as thrilled about Facebook as they were about Google.

Of course, no one out here in the 99% real world should feel sorry for these new billionaires. But there are problems with the fact that Facebook employees are stuck with the stock for many months and are barred from selling quickly while the price is still decent. And what about investment portfolios that included Facebook as a sure thing? We probably won't know until the bottom drops out.

WSJ: Facebook Slides Again

Facebook's stock was recently trading down 4.5%. The stock lost 11% on Monday as more investors and analysts began to question the size of the company's public debut, which initially valued the company at $104 billion. The company is now worth about $90 billion, based on Tuesday's stock price.

"Dreams of Riches"

Facebook Provides Cautionary Tale

"It was the casino effect a little bit here," said Steve Cordasco, a registered investment adviser with Philadelphia-based Cordasco Financial Network, which oversees about $700 million in assets. "It's good for the average investor to realize that you just don't know, that the experts just don't know."
Mr. Cordasco, who referred to Facebook's debut as a "face-plant," had advised one qualified investor who wanted to put a large amount in the stock not to buy on the first day of trading. The investor took his advice and bought Mr. Cordasco a beer on Friday as they watched Facebook lumber to its close.

 Bloomberg: Analysts Who Shunned Facebook Are Heroes

Analysts who broke away from the herd and told investors to avoid Facebook Inc. (FB), the biggest initial public offering ever by a technology company, are looking like heroes after the stock plunged.
While bulls forecast benefits as companies shift advertising to the Internet, Wieser said Facebook’s price is too high and the path to growth unclear. “There’s always a risk of buying into excessive hype, using rules of thumb for valuation that are divorced from fundamentals,” Wieser, a New York-based analyst at Pivotal, said in a telephone interview yesterday. “There are many things that really speak to the uncertainty investors should be incorporating when they’re thinking about Facebook.”

SFGATE: Facebook Hedge Funder Furious

We just got off the phone with a hedge fund manager who says his fund owns Facebook stock "in excess of a $100 million.
. . . His allegations/claims/opinions:
---->NASDAQ knew it systems were broken before the Facebook IPO, and instead of aborting the offering and facing huge embarrassment, it went ahead. Traders then lost hundreds of millions of dollars as they tried to buy and sell Facebook stock without getting confirmation that their trades had been executed.
---->NASDAQ made the problem worse on Monday. NASDAQ told traders who thought they had sold their Facebook stock on Friday – but had actually not – to fill out a form by noon. This form asked traders to list the price at which they thought they had sold their stock and they price at which they actually had. Problem was: Many of these traders had not yet actually sold their stock. Because the form required an actual selling price, many did, dumping tens of millions of shares of Facebook stock on the market, and sending the stock price plummeting.

Economics Round-Up

CNBC Slideshow: Europe's Real Estate Ghost Towns

Euro Tumbles Due to Wild Weekend Elections 

Anti-Austerity Ballot Backlash 

France, Greece, and the End of the Euro 

 Continued German support for the single currency relies on acceptance of the austerity imposed by the fiscal compact. Both France and Greece have now resoundingly rejected the old political consensus, making the future of the single currency more uncertain than ever.

 Greeks Reject "Barbarism" of Economic Austerity

Alexis Tsipras became the surprise package of the Greek election by telling Angela Merkel to get lost.
“The people of Europe can no longer be reconciled with the bailouts of barbarism,” Tsipras, 37, said on state-run NET TV late yesterday after his Syriza party unexpectedly came second in the country’s election. “European leaders, and especially Ms. Merkel, should realize that her policies have undergone a crushing defeat.”

Germany's Merkel Defends the Euro and Austerity

Ms Merkel has called for giving Athens time to "analyse the election result" and determine "which groupings are possible for a new government".
She acknowledged that the budget cutting imposed on the debt-mired country in exchange for two separate rescue packages was "difficult" but said it "nevertheless must continue".

Socialist Hollande Defeats Sarkozy in France

“After 35 years of politics, after 10 years at the highest levels of government, after five years as head of state, I will become a Frenchman among the French,” Sarkozy said last night, conceding defeat.
With joblessness at a 12-year high and public debt at a record, the electorate proved unwilling to forgive the 57-year- old lawyer for foibles such as celebrating his 2007 victory at a chic Paris restaurant and a holiday on a billionaire’s yacht, making the election an anti-Sarkozy vote.
“If the French had jobs and more money in their pockets, they’d be confident and ready to forgive,” said Laurent Dubois, a professor at the Institute of Political Studies in Paris.

 Austerity Could Be Over for Europe

“Immediate austerity, in recessionary economies, simply doesn’t work – a point apparently better understood by many European voters than those they have elected,” said David Kelly, chief market strategist at J.P. Morgan.
In less than two years, voters in seven European countries have thrown out leaders or ruling parties.
What Europe needs now is some “enlightened macro-economic approach,” according to Mr. Kelly. And that means less pressure on the austerity pedal, he argued.