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Fooling Some People
Research for Online Investors

by John Dalt


Nicolas Sarkozy, President of France, is flying to Germany today to meet with Angela Merkel (German Chancellor) and Jean-Claude Trichet (outgoing President of the European Central Bank).  The “deal” he thinks they had to prop up banks with the new enhanced EFSF is falling apart.

You can fool some of the people all of the time, all of the people some of the time, but you cannot fool all of the people all the time.—A. Lincoln

The time to come clean in the eurozone is rapidly approaching.  Will leaders be able to stave off the day of reckoning one more time?  Certainly, but the problem becomes bigger with every passing day, week and month.

The French want the EFSF to have a “banking license.” This would mean the EFSF could borrow money from the European Central bank to multiply its assets.  The EFSF has about 300 billion euros available from its total of 440 billion euros.  The EFSF could easily multiply their available funds to over one trillion euros with borrowing from the ECB.

This larger amount would then be available to buy sovereign debt in the open market to tamp down interest rates if they began to spike.

The European Central Bank nor Germany is in favor of this plan.  French Finance Minister Francois Baroin told reporters this morning, “..everyone knows about the reticence of the central bank.  Everyone knows about the German’s reticence.  But for us that remains…the most effective solution.”

Another plan is for the EFSF to guarantee the first 20% or 30% of losses on new issue sovereign debt.  This would create a problem with older debt that did not have the EFSF guarantee.  Issues would trade at different discounts, because of the different risk profile.

While the Eurozone Leaders are trying to convince markets that all is well and sovereign debt is good from any eurozone country, they are working to convince banks and other private bondholders to take a bigger loss on the Greek bonds they already own.  Bondholders agreed to a 21% haircut in July.  They would exchange their short term Greek bonds for cash and longer term bonds issued by the European Commission.

Who do they think they are fooling?

You're telling me new Greek debt is good, but you want me to lose 50% on the Greek bonds I already own…so you can loan them more money?  Incredulous would describe my reaction if they were not dead serious.

When you figure out how politicians can say and believe such silliness, let me know.  There is only one way out for the eurozone…print money.  Print a lot of it.   Get the U.S. to print some too.  Reduce everyone’s standard of living with low interest rates on savings, and spiraling costs on everything they buy.  Inflation is the great tax that no one sees, until it is too late.

Greek workers and are staging a two day strike to protest more austerity measures.  More than 100,000 students, workers and business owners marched through Athens to increase pressure on parliament as they vote on deeper spending cuts.

Greek Protesters 10/19/11

The protesters were yelling “Burn. Burn. Burn down the bordello Parliament.”  A senior Pasok party official said, “People are unhappy; they are venting their anger and this will intensify.”  According to the Wall Street Journal, ‘He blamed his own government for failing to introduce reforms progressively over the past two years, fearing public reaction.  “Now we have to do it all in a matter of weeks.  It was a terrible mistake.”

You can fool some of the people all of the time, all of the people some of the time, but you cannot fool all of the people all the time.—A. Lincoln

President Obama & Senate Majority Leader Harry Reid…are you listening?  Balance the budget, take up the budget bills the House is sending you, and pay heed now…the day of reckoning is drawing nigh.  Sobering decisions have to be made in the U.S., either now or when the bond vigilantes knock on our door.

There has been a clear crisis of confidence that has seriously aggravated the situation. Measures need to be taken to ensure that this vicious circle is broke.--- International Monetary Fund Managing Director Christine Lagarde

The information presented in this newsletter is based on generally available news releases, corporate filings, current events, interviews and the editor’s opinions.  It may contain errors and you should not make investment decisions based solely on what you believe you have read here.  Do your own research, it is your money.  If you lose it, it is your responsibility, not ours or your grandmothers!  The editor may or may not have a position in any securities discussed.  The editor may have held a position in a security earlier, or in the future.

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