Back to the Future 2008 (May 30th 2012)

From May 30th 2012

Looks like we have a 2008 situation on our hands albeit in slow motion at this point:

DXY up as Euro plummets:

Gold falls on paper liquidation and reversion to risk-off USD/Treasuries:

Even Brent has dropped to 103 although supply threats probably mean that it won’t go anywhere near the $40 we saw in 2008:

EUR/USD ping pongs around 1.24, a long way down from the 1.30 only a couple of weeks ago:

So we are back to considering the the context and implications:

– Germany still won’t agree to a big CTL+P
– The ECB can still only provide liquidity not solvency related bailouts.
– Spain can’t afford to bail out its banking system.
– Greece runs out of money on June 20th a few days after its election.
– Greece has already run out of bank collateral which means the ECB may legally have to cut liquidity flows before the June 17th election.
– U.S. LEI’s are faltering but have not all turned down yet.

At the moment it still looks like it will be down to FED to make the CTL+P decision on June 20th. It’s looking more and more like if they don’t do something on the 20th global markets could actually implode.

Why would the FED CTL+P?

1) U.S. equity indexes are starting to decline.
2) U.S. LEI’s are faltering.
3) U.S. U3 is still at 8.2%, months before the election.
4) It’s the last chance they can do something before actions become ‘political’.
5) The DXY is already too strong as is the EUR/USD. A strong USD threatens a U.S. export led recovery and thus unemployment.
6) Additional credit swaps may be necessary to provide additional liquidity in the EZ – buying time until after the elections.
7) Black Swans a) Israel/Iran; Israel may just press the button add inflame already nervous markets. b) An Ireland surprise c) Bond vigilantes take a pop at Portugal or Italy d) Greece tax receipts plummet even further bringing forward the day the Greece current account moves into the red.

With the news that: ‘Euler Hermes, the world’s biggest trade insurer, has suspended cover for exporters shipping to Greece amid fears the debt-laden nation could be forced out of the euro, hindering Greek importers’ ability to pay their bills.’ Greece could have some real trading issues in June.

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