Archive - 2012 - Story

The year is not over yet, and already Greece's banks have lost €36.7 billion of their deposit base in 2011, and a whopping €64.6 billion since the beginning of 2010, which is down from €233 billion to €173 billion in under two years. In October another €3.5 billion was withdrawn from Greek banks and likely either redeposited somewhere deep in the heart of Switzerland, or converted to various inert metals and buried somewhere in the back yard. The good news: the outflow is just over half of October's record €6.8 billion. The bad news: at this rate of outflows, Greek banks will have zero deposits in around 4 years. Which at the end of the day is all the matters, because while the Troica can keep funding capital shortfalls indefinitely, all faith in the country's banks has now been lost and Greece is officially a zombie economy. The fact that the country's deficit as a % of GDP is about to be re-revised even higher is no longer even meaningful: the Greek economy and its banking sectors are now officially dead. We merely feel bad for anyone who still has cash in banks as, just like gold in 1930s America, any residual cash may soon be "sequestered" for national security purposes. After all there are bankers who need record bonuses, and Military sales from Europe and the US that have to proceed using what will likely soon be "commingled" deposit cash.

Lately, Bain founder and GOP presidential candidate Mitt Romney has found himself in a spirited defense of the private equity industry, doing all he can to spin decades of data which confirm, without failure, that PE Leveraged Buy Outs are nothing but "efficiency maximizing" transactions whose only goal is the "maximization" of EBITDA in the pursuit of dividend recap deals, IPOs or outright sales, while loading up the company with untenable amounts of leverage. All this with a 3-5 year investment horizon, which ignores the long-term viability of a company and seeks to streamline (read fire as many as possible) operations as quickly as possible in the goal of maximizing short-term returns. We wish him luck in his endeavor. As for the other side of the equation, we recreate a post we penned back in November 2009 which analyzes just how effective the mega-LBOs have been for the economy, and the workers involved. In other words - the facts. In a nutshell, here they are: "The Disastrous Performance Of Private Equity: Of The Top 10 LBOs, 6 Are In Distress, 4 Have Defaulted." Read on for the full details.

If there is any one more vivid confirmation of Mayer Rothschild words "Let me issue and control a nation's money and I care not who writes the laws" then we have yet to find it. Today Hungary, which had "valiantly" defied Europe and the IMF in ignoring pressure to make its central bank more "malleable" finally folded, following a recent explosion in its bond yields, a surge in CDS to records, and a collapse in its currency. And to think how easy it is to subjugate a state to slave status in our "globalized" days without shedding one drop of blood. Reuters reports: "Hungary's government is ready to consider modifying disputed legislation if the European Commission deems it necessary, Foreign Minister Janos Martonyi told the bloc's executive and European Union partners. "We fully respect the authority of the European Commission, the guardian of the EU treaties," Martonyi wrote in a letter dated January 6 and published by his ministry on Tuesday. "We stand ready to consider changing legislation, if necessary."" As Rothschild foresaw so effectively over 200 years ago, selling out your sovereignty only takes a few pieces of (paper) silver.

Is it right to crush free speech as long as the message is offensive to you personally?  Do peaceful protestors really present a legitimate threat to our national stability?  Are they truly more dangerous than a corrupt government hellbent on assassinating the legal protections of our natural rights which have existed for centuries?  Would any supporter of the jackboot methodology like to explain to me in a coherent manner why they believe their skewed world view should be shielded from sincere questions?  Please, I can't wait to witness the kind of ridiculous mental gymnastics required to make such arguments palatable.  If this kind of ignorance wasn't so destructive, it might actually be entertaining.

Grab a cup of coffee, find a comfortable chair, lean back, and prepare to be entertained: here is Whitney Tilson's Mea Culpa for "returning" -24.9% in 2011.

Remember when various economics professors and self-anointed Ph.D'ed market timers said to sell everything because the gold 200 DMA had been breached to the downside, never to be crossed back again, to which our simple retort was, "Many are doing their damnedest Ph.D.-best to somehow fuse economic theory and technical charting, and state that a breach of the 200 DMA in gold is indicative of imminent price collapse. And then there are facts. Such as this nugget from Stone McCarthy which looks at previous episodes of the 200 DMA breach and concludes based on severity of trendline penetration compared to average, that "this is just one reason we see strong potential for a rebound as participants reduce short exposure." So much for technicals." Sure enough: less than a month later, and $100 higher, gold is right back above the 200 DMA. Oh, and we expect to hear nothing from said academics for a long time.

Money continues to come into the market based on “decoupling” and the “muddle through” scenario. I do not believe that “muddle through” is an option. The entire system in Europe has become so interconnected that “muddling through” doesn’t seem realistic. The situation in Italy remains bleak (bond yields are higher again in spite of massive amounts of central bank support). The situation in Greece is reaching a peak. A voluntary resolution seems less likely by the day, but that leaves open the ECB’s positions, and also opens up the question of what to do with all the Greek Government Guaranteed Bank Bonds (affectionately known as ponzi bonds) that the ECB is financing to keep Greek banks alive? The ECB will have to change their rules yet again to let formerly guaranteed debt still be pledged as collateral? I think that issue is just as important as the CDS settlements and changes in collateral requirements that are likely to result from a Greek default.

Bob Janjuah, despite never leaving, is once again back, even if he really has nothing new to say: "Western policy makers, at the national and G20/IMF level, still seem to have no response to solvency problems other than printing more money, loading on more debt, and hoping that "time" sorts it all out. In other words, the extension of ponzi schemes which are being used to cover up our lack of competitiveness and real productivity growth through the use of money debasement and leverage....Apologies to all for not telling you anything new or very different. One day, when we collectively abandon the neo-communist experiment in the West that relies on more debt and printing money in order to maintain the status quo, then I will hopefully have a different and far more positive view of the years ahead. I look forward to this time. But for now, expect more of the same as in 2011. And I know it's a few weeks early, but as I am unlikely to write anything for at least a month, Kung Hei Fat Choi. The year of the dragon will soon be upon us."

Markets are moving positively across the board today following comments from Fitch, dampening speculation that France may be downgraded from its Triple A status. Fitch’s Parker commented that he does not expect to see France downgraded at all throughout 2012. However he added that there are continuing pressures for France from national banks and EFSF liabilities, Parker also reinforced German confidence stating that Germany’s Triple A rating is safe. Markets were also experiencing upwards pressure from strong French manufacturing data performing above expectations and successful Austrian auctions today, tightening the spread between France and Austria on 10-year bunds.

There was not much to note in the overnight session, where aside from artificial market-boosting developments out of China (noted here) which have carried over into a risk-on mood for the US market, however briefly, Europe has been virtually unchanged following two quiet auctions by Austria and the Netherlands. Austria sold a total of €660m of 4% 2016 bonds, and €600m of 3.65% 2022 bond. Avg. yield 2016 bond 2.213% vs 1.96% in the previous auction, in other words the shorter borrowing costs roses, and the longer ones fell. Holland sold a total of €3.105b of 0.75% 2015 bonds; the target was up to €3.5b. with an average yield 0.853%. End result EURUSD is virtually unchanged for the day at 1.2770 as of this writing despite some serious short covering earlier (as expected), while the Italian BTPs remain unch at 7.15%. What is probably more disturbing and is to be expected, is that now virtually all the free cash from the December 21 LTRO (all €210 billion of it) and then some has been allocated to the ECB, where the Deposit Facility usage rose by nearly €20 billion overnight to a new record of €482 billion, €217 billion more than the December 21 notional. The question that should be asked is just what do banks know that lemming long-only investors don't. Hint - ask UniCredit.

• Italy Is Biggest Risk to Euro, Says Fitch (WSJ)
• Greek Bailout in Peril (WSJ)
• Swiss Currency Test Looms for SNB’s Jordan in Race to Replace Hildebrand (Bloomberg)
• Daley to Depart as Obama Shifts Strategy From Compromise to Confrontation (Bloomberg)
• BOE Stimulus Expansion May Not Be Enough to Revive U.K. Recovery, BCC Says (Bloomberg)
• Geithner in China to Discuss Yuan, Iran (Bloomberg)
• China Won’t See Hard Landing in 2012, Former PBOC Adviser Yu Yongding Says (Bloomberg)
• Measures to boost China financial markets (China Daily)
• Obama Panel to Watch Beijing (WSJ)

We did a double take when we read the following lead sentence from a just released Bloomberg report on what is about to take place in China: "China’s stocks regulator will “actively” push pension and housing funds to begin investing in capital markets, and encourage long-term investors such as insurers and corporate pension plans to buy more shares." To paraphrase Lewis Black - we will repeat this, because it bears repeating - "China’s stocks regulator will “actively” push pension and housing funds to begin investing in capital markets, and encourage long-term investors such as insurers and corporate pension plans to buy more shares." And that is the last ditch effort one does when one has no choice but to push "long-term investors" into the last giant ponzi. Of course, this being China, "long-term investors" means anyone at all, and "pushing" ultimately involves either 9MM or a 0.44 caliber. And what was said earlier about mocking mainstream media spin - well, the first opportunity presents itself a few short hours later - when Bloomberg, the same agency that wrote the above report, tells us that "Asian Shares Rise Amid Global Economic Optimism." Odd - no mention of the fact that China is now pushing habitual gamblers, which over there is another name for "investors" into what is openly an invitation (at gunpoint nonetheless) into the latest and greatest bubble. That said, we give this latest artificial attempt to boost stocks a half life of several days max before the SHCOMP plunges to new lows for the year.

In keeping with the theme of everything decoupling from everything else these days, a comparable decoupling pattern could be observed in China's December trade data, which experienced a surprising jump in its trade surplus from $14.5 billion in November to $16.5 billion in December, even if exports broadly slowed down and grew at the slowest pace in 10 months. This number was quite odd as it represents almost double the consensus forecast $8.8 billion, predicated by a matched slow down in imports which were up only 11.8% Y/Y, the smallest rise since the October 2009 decline of 6.4%. The odd jump in the trade surplus appeared at a time when many were expecting that the slowing Chinese economy would be well on its way to shifting from surplus to deficit, leading to a devaluation of the CNY (as opposed to the constant badgering form the US and Chuck Schumer demanding a revaluation of the renminbi). Furthermore, as the year winds down to the Chinese Near Year in February, this has been a traditional time when Chinese surpluses decline and go negative, even in good years (see 2010 and 2011). Yet a quick glance at China's two primary trading partners: the US and EU does not reveal anything peculiar: both were either flat or saw just a modest drop in the trade surplus - good news for anyone concerned if the European slowdown would hit the country's largest trading partner. Which is where the decoupling occurred, as the surplus soared in the "rest of the world" or the non-EU/US category. As can be seen below, December is traditionally a month when the surplus contracts and approaches the flatline. Yet this year, oddly enough, the December surplus doubled from $5.8 billion to $11.4 billion. Just who is it, outside of the US and EU, that suddenly saw a pressing need for Chinese imports?And yet all of the above is likely just minutae when one considers something far more important: Chinese Oil imports. As the chart below shows, sooner or later excess capacity within the OPEC system is going to disappear. And then it gets really interesting.

Today is the three year anniversary of Zero Hedge...