Nouriel Roubini held a party/lecture at his apartment exclusively for clients (many of them hedge funders) of his firm Roubini.com.
He spent about 30 minutes discussing the big issues of the day: The US economy, China, and of course, the biggie, the Eurozone crisis.
Here's the gist of what he told them.
When it comes to Europe, frankly, he said, "Our view is very bearish." Europe is a slow motion train wreck and there's a "significant risk of a Eurozone breakup." This doesn't mean Greece and Portugal leaving, it means Spain and Italy ultimately leaving as well, which would mean the whole thing is toast.
And if the Eurozone breaks up "everything around the world goes sour."
The fundamental problem -- which is something he laid out in a note to clients this week -- the matter of flows. While Europe might be able to address some "stock" problems (the size of the debt), there's no answer to the matter of growth and trade deficits, which the periphery countries are consistently running.
So the basic strategy of the IMF/Germany is this: Keep Greece on life support long enough for a big bazooka to save Italy and Spain, at which point, when it's obvious that austerity doesn't work (which everyone knows) then, perhaps in a year from now, you let Greece default. The hope is that Spain and Italy are okay by then. Roubini is, not surprisingly, skeptical.
There's only one strategy that might work: Periphery reforms and the core engages in fiscal stimulus and more monetary easing, in which case you might get the kind of balanced adjustment that would work. But the problem, of course, is German culture, which is against monetary easing and more fiscal stimulus.
As for the US, he thinks people are breaking out the kool-aid to soon on the avoidance of a recession. "Q3 GDP will be revised downward," he explained because the first estimate only looks at big firms, which are doing better than small and medium sized businesses that are "getting squeezed."
So supposed Q3 GDP gets revised down to a rate closer to 1.5%, then next year we experience a $200 billion fiscal drag: "That will bring growth to zero."
And of course, "If the Eurozone blows up, it all gets worse."
Finally on China, he predicts it avoids a hard landing this year and next year, but sees trouble in 2013-2014.
BANKS across Europe are starting to take seriously what until now seemed only remotely possible: the withdrawal of Greece from the euro currency.
As the fate of Greece's future in the eurozone hangs in the balance, European banks and US banks that operate in Europe are conducting "fire drills" to prepare for a Greek pullout.
WSJ
Navy makes initial contact with vessels heading for Gaza closure, offers option to head to port in Egypt or to turn around; IDF not expecting violent clashes but ready for all situations.
The navy has made first radio contact with the two-boat Gaza flotilla which is approaching the region. The IDF informed the vessels that their current course is leading them toward a naval closure off the coast of Gaza, which is in line with international law.
The vessels were informed that they can turn around and prevent an infringement of the closure or head to a port in Egypt. The activists on board refused to heed the navy's call and refused to act in accordance with the instructions they were given. The flotilla is now heading toward the area under closure, the navy said.
Jerusalem Post
CANNES—It may well be remembered as the day the euro zone began to break apart.
At a late night news conference in Cannes on Wednesday, German Chancellor Angela Merkel and French President Nicolas Sarkozy shattered the bloc’s most sacred taboo, conceding openly for the first time that Greece might end up having to leave the tight-knit currency club it joined a decade ago.
The admission, after an intense two-hour meeting with Greek Prime Minister George Papandreou on the eve of a G20 summit, sets the euro zone on a perilous course that could reverberate in Europe and beyond for decades.
Were Greece to leave the euro zone, a step that until now European officials have said is technically and legally impossible, the consequences would be devastating even though the country represents just 2.5 percent of the 17-nation currency area’s gross domestic product (GDP).
Just how devastating is difficult to say because the move would take Europe and the global financial system into uncharted territory.
But what does seem clear is that an exit would spark contagion to other peripheral countries as foreign investors pulled out en masse. This in turn would hammer financial institutions across the bloc, leading to bank runs and forcing the European Central Bank (ECB) to respond with massive liquidity provisions and government bond purchases.
The central bank and all private and official sector creditors would have to write off their claims on Greece in one fell swoop. The resulting credit crunch, economists say, would make the freeze-up that followed the 2008 bankruptcy of U.S. investment bank Lehman Brothers seem mild.
“If Greece left the euro, the market pressures on the countries perceived as the next most vulnerable would rapidly become overwhelming,” the Economist Intelligence Unit said in a recent report entitled “After Eurogeddon”.
“As the chain reaction spread across Europe, we think contagion would be rapid, dramatic and uncontrollable at times.”
The Star
