Tuesday, January 11, 2011

Act III: EU Stability=Vendor Financing

The financial implosion in Europe reached a new chapter this week with both China and Japan stepping forward to buy bonds from EU or EU rescue funds. The export markets have showed up with cash in hand. Importers can rejoice, funds have arrived.  That’s the good new’s, the bad news is the same issues.  Europe is relying on its vendors to keep the party rolling.

Vendor financing is one of the last stages of a blow off bubble in reallocation of capital.  We have a snake eating itself and discussing how good the meal tastes.  This won’t end well.  The ability to kick the can down the road, is rapidly shrinking.  The half-life of how long a special interventions lasts is dropping.  This wont continue long.  There is no “Shock or Awe” in the actions taken at this point.

The interesting aspect of the Chinese purchase is that it is rumored to be a Sovereign 144 private placement.  That is, China and the Sovereign in question, will do a deal in private where the details are not subject to public transparency.  This allows the Sovereign in question to raise funds with out the Bond Vigilantes adjusting the selling prices.

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