On The Eve Of The European Stress Tests: A Q&A With Goldman Sachs On Tomorrow's Prime Time Event

Tyler Durden's picture

As the world focuses its attention on Europe where tomorrow at 4pm GMT (the idea of an earlier release was scrapped)  the results of Stress Test version Europe will be released, there are two types of pundits: those who know the tests are weak and have been designed by the very banking system they are presumably supposed to test, yet due to billions of dollars in vested interest are preparing to put on a cheerleading show that would leave the Laker girls green with envy; then, there are those who know the tests are weak and have been designed by the very banking system they are presumably supposed to test, and as a result refuse to even look at them due to advance knowledge they are nothing but a systematic farce which should achieve nothing, yet will likely provide a sufficient excuse for those who lift every offer regardless of cost to send the market to A. Joseph Cohen giddyness levels (at least if our own experience with stress testikng is any indication). Needless to say, we fall in the latter category, and would be more than happy to deconstruct these tests, if only the criteria were publicly known in advance! So for those who actually do pretend to care, here is a Q&A with Goldman Nick Kojucharov in which the Goldman analyst discusses the ins and outs of the Stess Test. And since it has been leaked that the only bank which will fail is Germany's permabankrupt Hypo (even as the Cajas, Landesbanks and Greek aluminum shacks with a backyard vault and a repo line to the ECB, all pass), the only part of the Goldman report that caught our eye was the following: "There is obviously the risk that if too many banks pass and do so with a comfortable margin, the test may be judged as too easy to have actually been informative about the strength of the banking system, and markets may not draw any new comfort or optimism from the exercise."

Instead of listening to the idiots on TV, we will instead keep a close eye out on LIBOR, Euribor and EONIA: these will present a far better picture of true state of affairs in Europe than any farce of a test ever could.

From Goldman Sachs: "On the eve of the bank stress tests"


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NOTW777's picture

"There is obviously the risk that if too many banks pass and do so with a comfortable margin, the test may be judged as too easy"

yeah but those who believe the tests are "too easy" dont control the markets 

Tarheel's picture

interesting to see how the big boys get info sooner than the rest of us. I think thats what happened at 3:25pm today

carbonmutant's picture

 It's the kind of thing that give trailing stops a bad name...

NOTW777's picture

enough to save 1088; eurobanks will be fabulous

Boozed's picture

Unfortunately for all of us, the banks will pass the tests and of course the markets will move higher. The last few lemmings in this market will pay the ultimate price for their folly by not knowing when to get out. When the first dominoe falls the chain reaction will be evident. As long as Bernanke Bucks are free, the illusion continues.

barkingbill's picture

so which is it then? continued illusion or falling dominoes?

wiskeyrunner's picture

This is such a fraud. Look folks the banks are ok, see we tested them.

PlausibleDenial's picture

Totally off topic, but I just got this so I thought I would share.....


July 22, 2010 Home Prices Are Not Recovering - Radar Logic Home Sales Are Up But Prices Have Not Improved Much Since Early 2009 New York, NY - July 22, 2010 - In May, as we entered the seasonal peak in housing activity, the signals coming from the housing markets were mixed, according to the May 2010 RPX Monthly Housing Market Report released today by Radar Logic Incorporated. Sales activity was up, but the mix of sales has shifted toward less-expensive properties in many cities. The 25-MSA RPX Composite increased 2.1% on a year-over-year basis, but gains were not large enough to be described as a recovery, and on balance there was more evidence of weakness in the market than strength.  "The patterns in this month's data are, in fact, troubling," said Michael Feder, President and CEO of Radar Logic. "Activity has rebounded over the last year, but there has been a shift toward lower priced housing.  We have not seen the recovery in prices that we would have expected with the return of volume.  RPX values are essentially flat from January 2009.  The implication is that there is little volume in the sectors that are most likely to contain the 'underwater' loans, and as a result, the market is not absorbing this overhang.  Unless this inventory overhang is remedied through market or structural forces, it will certainly continue to stifle any early recovery in housing," Feder added. RPX price performance varied widely from city to city. Eleven of the 25 metropolitan statistical areas (MSAs) tracked by Radar Logic posted year-over-year declines in RPX prices, five were flat and nine showed improvements. Most of the MSAs with year-over-year gains were in the West, while the Midwest had the most MSAs with price declines. The largest RPX gain was in San Jose and the largest decline was in Detroit. The 25-MSA RPX transaction count increased 41% year over year. This increase comes off a low base, so the gain in percentage terms is larger than it would be in more normal periods. Even so, the year-over-year gain in terms of the number of additional homes sold was the second largest recorded for May since the beginning of Radar Logic's historical data in 2000. All 25 MSAs posted year-over-year gains in transaction counts, with the largest gain occurring in Detroit. Sales of foreclosed homes by lenders and mortgage servicers, which Radar Logic calls "motivated sales," decreased as a percent of total sales over the last year, they still accounted for 24% of home sales across the 25 MSAs tracked by Radar Logic. Motivated sales do not include short sales, bank-sanctioned sales by home owners for less than their outstanding mortgage balance. If short sales were included, motivated sales would account for a considerably larger share of total sales. Between May 2009 and May 2010, a shift in the mix of sales toward less-expensive homes could be observed in a number of metropolitan markets. The shift was especially prominent in Detroit, Miami and Las Vegas. In Detroit and Miami, the shift toward the low end of the price spectrum was driven by an increase in motivated sales characterized by significant price discounts. In Las Vegas, the shift in the mix of sales toward the low end of the price spectrum was driven by an increase in sales other than motivated sales. This shift could reflect an increase in short sales and sales by investors, neither of which are included in motivated sales.
The complete May 2010 RPX Monthly Housing Market Report is available for sale on Radar Logic's website. A complimentary executive summary is available with registration. To register, click here.

Report Methodology The RPX Monthly Housing Market Report is produced by Radar Logic Incorporated, a New York-based real estate data and analytics company. These reports provide insight and detailed analysis of Radar Logic's 25 Metropolitan Statistical Areas (MSAs) and the Manhattan Condo market. This study is based on the premise that each of the MSAs, while having economic influences in common like credit and mortgage rates, is influenced primarily by local conditions. Data in the RPX Monthly Housing Market Report reflect the 28-day aggregated value of Radar Logic Daily™ Prices. The price per square foot metric used is a powerful tool for analyzing housing markets because it significantly reduces the influence of property sizes on overall housing price trends, which can skew results. The Daily Prices for each MSA are not adjusted for seasonal variations. In some cases, Daily Prices may vary based on reporting characteristics within individual MSAs. The June 2010 RPX Monthly Housing Market Report will be released on August 26, 2010, at 4:00 PM EDT

Goldenballs's picture

All the banks have passed the stress tests,the Faroe Islands will win the next World Cup,President Obama is a good President,the Depression is over,Elvis works in our local Supermarket,etc,etc,etc,...................

Youri Carma's picture

RECAP STRESSTEST: Who got stressed? The stressed “little Timmy” Geithner stressed that his stress test wasn't about bank nationalization. Still the stock owners got stressed.

Although “Stress test” may seem an interesting term but boiled down it’s nothing more than a biding time gimmick. Even Bernanke himself said: “The outcome of the stress test is not going to be fail or pass." Bernanke’s testimony on Fed’s monetary policy http://www.reuters.com/article/idUKTRE51N3Q520090224?virtualBrandChannel=10480&sp=true

The U.S. banks are insolvent and that was the main reason why the stress test definitely couldn't be "a solvency test." The U.S. was the big pot calling the kettle black in urging Europe for a "stress test" which in fact, in the American version, was merely a biding time - jurist mind - word gimmick. Geithner cunningly was able to avoid the "bad bank" ditch in which the Germans, be it shortly, seem to be digging themselves. The Germans took this "stress test" far too seriously (as Germans always take everything very serious) and they were about to actually expose themselves with this "bad bank/slush fund" idea which was immediately rejected by Geithner after he discovered that this would expose them to as much as $4 trill in the public eye. But the Germans together with Europe  discovered this "bad bank" ditch too and also opted for the same biding time "stress test" word gimmick which, again, was "no solvency test" in the Timmy Geithner version.

Quote From Max Keiser: "Remember that if you are at a Poker table and you don't know who the chump is, you're the chump!"

"Bad Bank idea would would probably be "very expensive," costing as much as $4 trillion", 4 February 2009, by Robert Schmidt (Bloomberg) http://www.bloomberg.com/apps/news?pid=20601087&sid=adjCyH0MJKQk

Goldman’s Hatzius Says Fed Balance Sheet Could Hit $4 Trillion, 25 August  2009 by Thomas R. Keene and Liz Capo McCormick (Bloomberg) http://www.bloomberg.com/apps/news?pid=20601087&sid=awWsNf0zRkYY


metastar's picture

Lets get China to stress test the European banks! We need a non-western stress tester.

scratch_and_sniff's picture

Its like this. If euro banks fail the ST's then we dump for same old fears, at the same time if most euro banks pass then we dump because test was too easy. So paradoxically, the only way out of this is if a convincing amount of banks fail, and if Brussels already know this is the case in advance, then long euro it is... so long euro it is then.

Privatus's picture

Ponzi pudwhackery.

Pez's picture

Hurry, hurry, hurry! Step right up and see:

We will not see the likes of this orchestrated event since the Pay per view steel cage match that pitted Hulk Hogan against Randy "Macho Man" Savage (with the lovely Elisabeth). Jim McMahon are you behind this?

wiskeyrunner's picture

This should put to rest the big head & shoulder top formations in the indexes. Get ready for much higher indexes as we near the fall elections. Yes folks it's all a rigged show, don't sit this one out make some free money BUY SP 500 INDEX FUTURES.