Let's start at the beginning. Bubbles and Busts are both created by The Federal Reserve.
Presidents are merely along for the ride. They like to credit themselves for the bubbles, and then look for scapegoats, usually the (non-existent) free market during the busts.
But it is The Fed that creates them both.
President Trump has made a big (yet understandable) mistake. He's tried to portray himself as the cause of the current bubble in the stock market. He wants credit where credit is due.
In this case, credit is not due.
As we already mentioned, the Fed created the current bubble, and did so a long time ago.
One look at a chart of the S&P 500 says it all:
Chances are, Trump realizes that most people won't look at a chart of the stock market and he just wants some good PR.
The president wants people to think that he is the reason for the stock market bubble.
This is a big mistake.
The Fed is the premier member of the so-called "Deep State". In fact, without The Fed, there would hardly be a "Deep State" to speak of.
The Fed sits at the top of the Deep State. They have the ultimate power (that no human beings should ever have) to create new money out-of-thin-air.
In case Trump hasn't figured it out yet, the Deep State does not like him.
Should a major decline in the stock market occur during Trump's Administration, guess who will take the blame?
President Trump.
After all, he took ownership of the bubble!
Should the market tumble, the mainstream media (that also despises Trump) will have plenty of his quotes, YouTubes, and Tweets to use against him.
The economic woes will be pinned on Trump.
Will Trump deserve the blame? No, but it'll be too late.
?This is not to say that a major decline will occur during Trump's tenure. Bubbles can take on a life of their own, and this one may last during Trump's full term.
But that's a risky gamble to make.
This bubble is going on almost 10 years now without a serious decline.
Should we see a major selloff, Trump has very few friends in the major power centers that will come to his aid.
As Peter Schiff points out in this fantastic clip below: The Fed now has their fall guy:
Below are some key highlights from Third Point’s latest Q2 letter, in which we find that Dan Loeb, despite some early market turbulence and thesis drift, has again managed to do what 95% of his peers have been unable to do, outperforming the S&P YTD and returning 10.7% through June 30, up 4.6% in the second quarter.
From the Second Quarter 2017 Investor Letter:
Review and Outlook
During the second quarter of 2017, Third Point earned +4.6% in the Offshore Fund,
bringing total returns for the year to +10.7%. We have generated alpha through good stock
picking in an environment that has proven unpredictable, but favorable for our
opportunistic style.
In our January letter to investors, we shared our view that 2017 would be a year
characterized by reflation globally, an end to central bank easing, and a US economy juiced
up by the Trump administration’s increased fiscal spending and tax reform. So far, none of
these predictions has come to pass. In April’s investor letter, we noted that actions out of
Washington would be delayed or even denied, but explained that we remained fully
invested because we believed that the emergence of synchronized global growth was more
important than the fading “Trump Trade”.
We were correct on this point and during the second quarter, we reduced investments in
bank financials, exited reflationary macro trades, and reoriented the portfolio towards
investments in companies that benefit from low inflation. Europe, which we highlighted as
a source of opportunity in our Q1 Letter, has been a bright spot. Our exposure there is
higher than it has been since 2010, led by our recently announced investment in Nestlé.
Our portfolio is well balanced across equity sectors but with declining exposure to credit
strategies.
Looking ahead to the second half of the year, we still believe that central banks will be
important drivers of action. While it might be too early to say that the key central banks
have turned hawkish, their tone is changing and they are well past the point where any hiccup in the market will prompt increased accommodation. In the US, current weak levels
of inflation and poor CPI and retail sales reports present a quandary for the Fed. Based on
her recent remarks, Janet Yellen does not seem likely to advocate drastic action. However,
we do believe that the Fed will begin balance sheet reduction shortly but that the next rate
hike will be on hold until growth and inflation accelerate.
Economic growth in the US has been generally disappointing, particularly relative to
expectations. Markets, on the other hand, have been helped by better performance
globally, which also explains why non-US market performance has been strong. We believe
that US growth will pick up in the second half, driven by seasonality and other factors. However, the US economy will continue to have an overhang until Congress and the
President show they can get major legislation passed this year. With substantial corporate
tax reform promised but not delivered, companies are sitting on their cash hoards and their
M&A plans, waiting for clarity.
Despite the market run-up, we continue to find compelling investment opportunities,
particularly with global growth intact. However, not all stocks that have appreciated are
trading at fair value and accordingly, we are also finding opportunities to hedge the
portfolio with single name shorts that we believe are overpriced.
More in the full letter below, which includes Loeb’s commentary on Third Point’s investments in Baxter, Alibaba, and Blackrock.
The US government likes to pretend that the rising cost of living is under control. People in Southern California know better. According to a new report in the Los Angeles Times, median house prices in Southern California have doubled in the last five years.
LA Times reports:
In many corners of Southern California, home prices have hit record highs. And they keep going up.
In Los Angeles County, the median price in June jumped 7.4% from a year earlier to $569,000, surpassing the previous record set in May. In Orange County, the median was up 6.1% from 2016 and tied a record reached the previous month at $695,000.
Across the six-county region, the median price — the point where half the homes sold for more and half for less — rose 7.5% from a year earlier and is now just 1% off of its all-time high of $505,000 reached in 2007, according to a report out Tuesday from CoreLogic.
The price increase was even greater than the 7.1% rise recorded in May, and some agents say there are no signs of a slowdown in the Southern California market.
One of Twitter’s funniest economic sleuths, Rudy Havenstein, points out the obvious problem:
— Rudolf E. Havenstein (@RudyHavenstein) July 26, 2017
In case you’re confused, Rudy is referencing that the US government and its central banking partners desire a 2% inflation rate. Government measures the prices consumers pay for a basket of goods and services to determine the official inflation rate called the Consumer Price Index (CPI). However, the “core” CPI doesn’t include vital things like food and energy.
The chart below from the Bureau of Labor Statistics illustrates how much more dramatic the cost of living rate moves when food and energy are added:
Market optimists tend to quote the core CPI number because it’s less dramatic, but it’s not as accurate as the “headline” CPI with food and energy included. But the core CPI claims to be a good measure of housing costs. Until 1983, the measure of homeowner cost was based largely on house prices. Today, they use some voodoo math since a home is considered an investment and a living expense. Simply put, it attempts to account for owner-occupied homes which may be going up in value, but the monthly cost remains stable. Whereas rents in the same market will rise due to the increased value of homes.
A more reliable measure of home prices, the Case-Shiller Composite Home Price Index, was also released this week. It showed a nationwide increase of 5.6%, closer to Southern California’s rate than the CPI.
The Case-Shiller Index chart below looks very similar to the LA Times chart showing the boom in home prices beginning in 2012.
Home prices alone don’t tell the whole story. Renters are struggling the most. According to a recent report in the Orange County Register, the average rent for a house in Orange County is $3,114 per month and $2,548 for a home in Los Angeles County. The median household income in LA County is around $56,000, before taxes. So rent eats about 50-60% of wages. And Southern California is a microcosm of what is happening in many other cities in America.
The LA Times correctly identifies the market forces causing the price increases: “growing economy, rock-bottom mortgage rates and a shortage of homes on the market.” And, of course, the LA Times shepherds government action to stop the surge in home values.
Government officials say they are trying to take steps to address the problem of affordability.
In Los Angeles, Mayor Eric Garcetti is advocating for a fee on new development to raise money for below-market housing — a policy known as a “linkage fee” and used in cities such as San Francisco, San Diego and Oakland.
And in Sacramento, Gov. Jerry Brown and legislative leaders have said they will put housing at the top of their agenda when they return in August from a monthlong break.
Legislators have proposed a package of bills aimed at raising money for subsidized housing and making it easier for developers to build all kinds of housing, which often faces pushback from residents concerned over traffic and neighborhood character.
Some cities in Southern California have already made some absurd laws trying to reduce cost of homes like banning Airbnb-type short-term rentals. Watch the video below where Activist Post’s Vin Armani explains this wrongheaded approach:
Markets tend to correct themselves without government interference. People also adapt. It’s one reason the co-living trend is exploding. However, sooner or later not enough people can afford house prices and a correction will begin. For instance, some people will move away and new housing units will be built to accommodate supply and demand.
Take a look as Case-Shiller’s HPI chart below from the boom-bust period of 2002 through 2008. You can clearly see the 2007 correction begin to have its effect.
After loose lending practices, low mortgage rates, and shady Wall Street re-packaging of housing debt enabled the boom period and inevitable bust, the downward trend continued until about 2012 as previously indicated.
Today rates are even lower. Lenders are getting creative again because Millennials don’t qualify due to high student debt and low wages. And Wall Street is as corrupt and greedy as ever. Combine that with the bloated municipalities in desirable areas making it expensive or impossible to get new building permits, and home prices may continue rising at this rate for a couple more years.
With the Senate having failed to repeal Obamacare, after a critical “Nay” vote by John McCain crushed Trump’s biggest campaign promise shortly after midnight on Thursday, Trump is plans to kill Obamacare slowly, and this time he has vowed to take insurance companies and members of Congress down with it.
The president on Saturday threatened to end key payments to Obamacare insurance companies if a repeal and replace bill is not passed. “After seven years of ‘talking’ Repeal & Replace, the people of our great country are still being forced to live with imploding ObamaCare!” Trump tweeted, followed by: “If a new HealthCare Bill is not approved quickly, BAILOUTS for Insurance Companies and BAILOUTS for Members of Congress will end very soon!.”
After seven years of “talking” Repeal & Replace, the people of our great country are still being forced to live with imploding ObamaCare!
This is not the first time Trump has made a similar threat: the president previously threatened to withhold Cost Sharing Reduction payments, or CSR, which lower the amount individuals have to pay for deductibles, co-payments and insurance. While the White House announced earlier this month that key ObamaCare subsidies to insurers would be paid this month, the administration did not make a commitment beyond July. Trump’s threat may have a significantly adverse impact on the insurance sector when it opens on Monday.
Incidentally, Trump is not wrong when he claims that insurance companies have received implicit taxpayer-funded bailout: as the chart below shows, insurance company stocks are up 700% since Obama became president, more than double the S&P’s return.
After the Friday morning Senate vote, Trump wasted no time to threaten to sabotage Obamacare. “3 Republicans and 48 Democrats let the American people down,” the president tweeted at 2:25 a.m. Friday. “As I said from the beginning, let Obamacare implode, then deal. Watch!”
As Bloomberg notes, there are two key ways the President of the U.S. could undermine the law: asking his agencies not to enforce the individual mandate created under Obamacare; and stopping funds for subsidies that help insurers offset health-care costs for low-income Americans. Both moves could further disrupt the Affordable Care Act’s individual markets and eventually lead to higher premiums, or rather even higher premiums that Obamacare itself has led to.
Where does this leave Trump’s implosion threat?
One of the first steps the president could take would be to stop the monthly CSRs. The administration last made a payment about a week ago for the previous 30 days, but hasn’t made a long-term commitment. Trump has called the subsidies a “bailout” for insurance companies in the past, and he just did it again on Saturday. “We are still considering our options,” Ninio Fetalvo, a spokesman for Trump, said in an e-mail. Meanwhile, America’s Health Insurance Plans, a lobby group for the industry, said premiums would rise by about 20 percent if the payments aren’t made. Many insurers have already dropped out of Obamacare markets in the face of mounting losses and blamed the uncertainty over the future of the cost-sharing subsidies and the individual mandate as one of the reasons behind this year’s hikes in premium.
“If certainty is not brought to the market and policymakers in Washington fail to establish stabilization measures, consumers face the prospect of significantly higher costs,” Ceci Connolly, chief executive officer of the Alliance of Community Health Plans, wrote.
Another way Trump could hamper the ACA is to instruct Price’s department to direct little or no support to open enrollment when people sign up for Obamacare plans near the end of the year. It could include ignoring website upkeep, not advertising the enrollment period and offering little help for people who have difficulty signing up.
Finally, the Trump administration could simply choose not to enforce the penalties surrounding the individual mandate of Obamacare for uninsured people or broaden exemptions to the law. The Internal Revenue Service, which enforces the penalty, said in January it would no longer reject filings if taxpayers didn’t indicate whether they had insurance. Unless the IRS follows up with each silent filing, this could let some uninsured people dodge the penalty.
As Bloomberg observes, all the moves would have an impact over time. For now, only one thing is certain: nothing is certain. As Larry Levitt, senior vice president of the Kaiser Family Foundation, puts it in a series of tweets:“The big question in health care now is what will happen with the individual insurance market,” Levitt said. “Insurers will be reading all the tea leaves for what the administration will do with cost-sharing payments and the individual mandate.”
Actually, one more thing is certain: while opinions on Trump’s approach to Obamacare repeal may differ, virtually all Americans can unite behind Trump’s threat to finally end bailouts of members of Congress. Whether or not he will follow up and enforce it, is a different matter entirely.
Stocks have recently witnessed an unprecedented cluster of new highs occurring on negative volume.
A number of stock bears have pointed to the supposed thin nature of the rally in justifying their skepticism. That is, the rally has been led by a relatively small number of stocks as opposed to broad participation. While we have seen anecdotes of such a condition, we can’t say that we fully subscribe to this concern. Factors such as the NYSE advance-decline line hitting new highs along with the various market cap indices, from small-caps to large-caps, also at new highs undermine the argument, in our view.
We will say that some of our proprietary breadth measures have not supported the recent rally. When such divergences have occurred in the past, stocks have eventually dropped, confirming the signals of our indicators. However, the timing of such a reckoning can be difficult. Outside of that condition, as we said, concerns about breadth have been mainly of an anecdotal nature.
Today’s Chart Of The Day is also best classified in the anecdotal category, though perhaps a little more alarming than some of the recent “warnings” that we’ve seen. It deals with a recent odd spate of new 52-week highs in the S&P 500 on days in which declining volume on the NYSE actually exceeded that of advancing volume. There have actually been 6 such new highs in the past 3 months.
If that doesn’t seem like a big deal, it is actually a record number of such days within a 3-month time period. In fact, it is double the previous record number of 3.
So, how much of a warning sign – if at all – is this recent phenomenon? Going back to 1965, there have been plenty of these occurrences, e.g., the latter 1990?s and 2013 that failed to lead to any negative consequences whatsoever. However, most of those were isolated events. The recent cluster of these days is, again, unprecedented and may signal a bigger warning sign for the stock rally.
Just days after Anthony Scaramucci replaced Sean Spicer as the White House’s Comms director, the former SkyBridge Capital president, who is still finalizing the sale of his stake in the FoF business to China’s scandal-ridden, money laundering HNA (at what reports allege was a greatly overinflated acquisition price), the Mooch immediately teleported himself to the front page of every political, financial and gossip magazine courtesy of his now infamous New York Magazine telephonic meltdown, in which he slammed Reince Priebus as a “fucking paranoid schizophrenic” and Steve Bannon as a “cocksucker,” and who effectively catalyzed Trump’s decision to fire Priebus on Friday afternoon. And then, the “peak news” cherry on top hit when the Post reported that Scaramucci’s 38-year-old wife Deidre, who had grown tired of his “naked ambition”, and had filed for divorce “after three years of marriage after getting fed up with his ruthless quest to get close to President Trump, whom she despises.”
News of his divorce has so far prompted at least two reactions from the new White House’s communications chief.
On Friday afternoon, Scaramucci asked media outlets to leave his family out of coverage of him and the Trump administration. “Leave civilians out of this. I can take the hits, but I would ask that you would put my family in your thoughts and prayers & nothing more,” he tweeted.
Leave civilians out of this. I can take the hits, but I would ask that you would put my family in your thoughts and prayers & nothing more.
Then, in an ironic twist, the man who made a 30-second delay obligatory when listening to White House briefings, said media coverage of the news will reveal “who in the media has class and who doesn’t.”
Family does not need to be drawn into this. Soon we will learn who in the media has class and who doesn’t. No further comments on this.
“No further comments on this,” he added, although somehow we doubt it.
Meanwhile, the Daily News reported that while Scaramucci looked like a “pottymouthed madman” during his first week as White House communications director, he keeps a level head when it comes to divorce. At least, that’s what his matrimonial lawyer Leonard Sperber said when asked about reports on Friday that the Mooch’s second marriage was ending. Sperber represented Scaramucci in his 2011 divorce from his first wife.
“He was always calm and rational in the handling of his first divorce, which is perhaps the most sensitive, personal matter an individual can endure,” Sperber said in a statement to the Daily News. The Long Island attorney provided the statement after getting pre-authorization to give a comment.
Sperber described Scaramucci as having “incredible knowledge of policy, history and economics, amongst other topics.” “His memory is remarkable and, in my opinion, he has a photographic or near photographic memory,” said Sperber, who declined to say if Scaramucci had retained his services again.
It was unclear if Sperber was being paid for the infomercial. The NY Daily News also added that Deidre Ball, his second wife who filed for divorce, once worked as an executive at Scaramucci’s SkyBridge Capital. She could not be reached for comment.
The grounds for war have been laid. You know it and I know it. The democrats have forced republicans into a small corner and have been scratching away at their fat faces since election night. For every action, there is is reaction — basic physics.
Rep. Gaetz and a few dozen other republicans are now calling for a special prosecutor to investigate the great and many crimes of the previous administration and Hillary Clinton.
Rep. Gaetz:
“The American public has a right to know the facts – all of them – surrounding the election and its aftermath,” they wrote. “We urge you to appoint a second special counsel to ensure these troubling, unanswered questions are not relegated to the dustbin of history.”
‘I don’t think that the crimes of the prior administration, of Hillary Clinton, the collusion with James Comey and Loretta Lynch should be forgotten just because Hillary Clinton lost the election’
Here is their 14 point request.
Allegations that former Attorney General Loretta Lynch instructed then-FBI Director James Comey to downplay the nature of the Clinton email probe
The FBI and DOJ’s decisions in the course of the email probe, including controversial immunity deals with Clinton aide Cheryl Mills and others
The State Department’s involvement in deciding which Clinton emails to make public
Disclosures in WikiLeaks-released emails regarding the Clinton Foundation and, according to the letter, “its potentially unlawful international dealings”
Connections between Clinton officials and “foreign entities” including Russia and Ukraine
Revelations in hacked Democratic National Committee emails about “inappropriate” coordination between the DNC and Clinton campaign against Bernie Sanders’ Democratic primary campaign
The “unmasking” of Americans in intelligence documents and potentially related leaks of classified information
Comey’s admitted leak of details of his conversations with President Trump
The FBI’s “reliance” on controversial firm Fusion GPS, which was involved in the questionable anti-Trump “dossier”
“Our call for a special counsel is not made lightly,” the lawmakers wrote. “We have no interest in engendering more bad feelings and less confidence in the process or governmental institutions by the American people. Rather, our call is made on their behalf. It is meant to determine whether the criminal prosecution of any individual is warranted based on the solemn obligation to follow the facts wherever they lead and applying the law to those facts.”
Rep. Gaetz tears into Clinton, Rice, Obama and the whole cabal — calling for an investigation into these matters.
And here is the Chair of the House Judiciary Committee, Rep. Goodlatte, discussing the hypocrisy of the left, wanting a Russian investigation but not one that pursues the truth in the sundry of apparent crimes committed by the previous administration and Hillary.
With AG Sessions under pressure to deliver, I would not be surprised to see dueling Special Counsels investigating both matters at the same time.
In an unexpected announcement, earlier this week the U.K.’s top regulator, the Financial Conduct Authority which is tasked with overseeing Libor, announced that the world’s most important, and manipulated, benchmark rate will be phased out by 2021, catching countless FX, credit, derivative, and other traders by surprise because while much attention had been given to possible LIBOR alternatives across the globe (in a time when the credibility of the Libor was non-existent) this was the first time an end date had been suggested for the global benchmark, which as we explained on Thursday, had died from disuse over the past 5 years.
Commenting on the decision, NatWest Markets’ Blake Gwinn told Bloomberg that the decision was largely inevitable: “There had never been an answer as to how you get market participants to adopt a new benchmark. It was clear at some point authorities were going to force them. The FCA can compel people to participate in Libor. What can ICE do if they’ve lost the ability to get banks to submit Libor rates?”
And while the rationale for replacing Libor is well understood (for those unfamiliar, read David Enrich’s comprehensive account of Libor rigging “The Spider Network“), there are still no clear alternatives. Ultimately, as Bank of America calculates, “moving an existing $9.6 trillion retail mortgage market, $3.5 trillion commercial real estate market, $3.4 trillion loan market and a $350 trillion derivatives market is a herculean task.” A partial breakdown of the roughly $400 trillion in global Libor-referencing assets is shown in the table below.
And with nearly half a quadrillion dollar in securities referncing a benchmark that is set to expire in under 5 years, the biggest problem is one of continuity: as Bloomberg calculated last week, in addition to the hundreds of trillion in referencing securities, there is also currently an open interest of 170,000 eurodollar futures contracts expiring in 2022 and beyond – contracts that settle into a benchmark that will no longer exist. “What are existing contract holders and market makers supposed to do?”
Then there is the question of succession: with over $300 trillion in derivative trades, and countless billions in floating debt contracts, referening Libor, the pressing question is what will replace it, and how will the transition be implemented seamlessly?
According to Bank of America, one possible option to achieve the transition could be to move to a “fixed-spread” Libor benchmark. In this scenario, regulators and market participants could agree for Libor to be hardcoded as a fixed spread over the underlying benchmark of their choice (BTFR-broad Treasury financing rate in the US, SONIA in UK etc). This could help to ensure that contracts that rely on Libor could continue to have a reference rate while the rate itself would move based on the regulator’s preferred benchmark.
The option obviously would raise some concerns around what spread to be chosen, the term structure of the fixed spread (for 1m vs. 3m libor for example) – but these, BofA believes, would be easier challenges to address than renegotiating and re-hedging existing contracts.
There is a third problem: while the above scenario could be one option for a short term solution, the longer term concern continues to be the lack of a clear alternative for new contracts. Acccoring to BofA’s Mark Cabana, the FCA announcement likely increases activity in the OIS market (both receive and pay flows) – but ultimately, the OIS market (overnight indexed swaps) is based on a fed funds rate whose own future is unclear in a system of non-zero excess reserves dwindling underlying volumes (chart below).
Another option is the BTFR rate (broad Treasury financing rate) which was selected by the Alternative Reference Rates Committee or ARCC (which is having its inaugural meeting on August 1) – but the market has gone down this route before with little success in the GC futures market given declining GCF volumes.
In the end, BofA warns that the most likely emerging scenario is one “involving a fractured derivatives market with multiple underlying benchmarks across different countries developing.”Worse, note that the FCA suggests that the IBA and panel banks could continue to produce Libor but the FCA would no longer persuade panel banks to stay.
Finally, what makes the above especially problematic, is that 2021 is when the Fed’s balance sheet shrinkage is expected to conclude (according to NY Fed estimates), and when short term rates are to be at their tightening peaks according to sellside estimates. That this will come at a time when there is no effective way to trade, or hedge, unsecured short-term rates – which will by then be roughly 2% higher than where they are now according to the Fed’s dot plot…
… will make the Fed’s normalization, from a market standpoint, especially “interesting”, if not impossible.
European Union states are considering measures which would allow them to temporarily stop people withdrawing money from their accounts to prevent bank runs, an EU document reviewed by Reuters revealed.
The move is aimed at helping rescue lenders that are deemed failing or likely to fail, but critics say it could hit confidence and might even hasten withdrawals at the first rumors of a bank being in trouble.
The proposal, which has been in the works since the beginning of this year, comes less than two months after a run on deposits at Banco Popular contributed to the collapse of the Spanish lender.
Giving supervisors the power to temporarily block bank accounts at ailing lenders is “a feasible option,” a paper prepared by the Estonian presidency of the EU said, acknowledging that member states were divided on the issue.
EU countries which already allow a moratorium on bank payouts in insolvency procedures at national level, like Germany, support the measure, officials said.
“The desire is to prevent a bank run, so that when a bank is in a critical situation it is not pushed over the edge,” a person familiar with German government’s thinking said.
The Estonian proposal was discussed by EU envoys on July 13 but no decision was made, an EU official said. Discussions were due to continue in September. Approval of EU lawmakers would be required for any final decision.
Under the plan discussed by EU states, pay-outs could be suspended for five working days and the block could be extended to a maximum of 20 days in exceptional circumstances, the Estonian document said.
Spooking Customers
I side with Charlie Bannister of the Association for Financial Markets in Europe (AFME), who says “We strongly believe that this would incentivize depositors to run from a bank at an early stage.”
I am unsure why the graphs sometimes use different country codes than appears in the first column. Where different, I show both symbols. The list of country codes is shown below.
Forb ratio stands for forbearance ratio.
Cov ratio stands for coverage ratio: (Loans – Reserve balance)/Total amount of non-performing loans. It’s a measure of how prepared a bank is for losses.
Italy, Greece, Spain, Portugal, and Ireland have a combined €606 billion in non-performing loans.
The entire European banking system is over-leveraged, under-capitalized, and propped up by QE from the ECB. Simply put, the EU banking system is insolvent.
That the EU has to consider such drastic measures proves the point.
