Scott Minerd's Detailed Pre-Mortem On What Europe's Bank Run Will Look Like, And Other Observations

We traditionally enjoy the periodic letters by Guggenheim's CIO Scott Minderd. His latest piece, "The Opening Act to the Broader Crisis" is no exception. In it, the strategist dissects the European crisis, compares it to the subprime debacle and sees it as the precursor to the eventual downfall of the euro, a surge in the dollar, the "federalization" of Europe and the adoption of QE by the ECB. The key must read item in the current report is Minerd thought experiment of what a  wholesale bank run, first in Ireland, and then everywhere else in Europe, would look like. This is especially important as one could, as Scott claims, start at any moment. What does this mean for investments? "If we are on the brink of crisis in Europe, which I believe we are, then there are several expectations we can draw about the investment landscape. First and foremost, the dollar will strengthen rapidly against the euro; U.S. Treasuries will rally; equity prices in Europe will fall; and credit spreads will widen, at least temporarily. In general, risk assets will experience choppier waters, especially as the crisis intensifies." Yet somehow this is a disconnect with the Guggenheimer's recent Barron's round table bullish statements on stocks and high yield bonds: "Let me be clear, I am not changing my mind on any of these investment theses, but a crisis in Europe will likely interrupt, but not derail, certain bullish trends at some point in 2011." It is ironic that Minerd brings up subprime as an analogy to Europe: after all his response is precisely the same that everyone else who appreciated the gravity of the subprime contagtion used at the time, starting with The Chairman. To wit "it is contained." All else equal, and it never is, we fail to see how a surge in the world's funding currency, the USD, will not generate an all our rout in every single risk asset, The Chairman's gushing liquidity notwithdtanding, due to trillions in short dollar funding positions.

Here is how Minerd, who obviously realizes this dichotomy, attempts to resolve this glaring irony:

To understand what this might look like, I use the analogy of the stock market in 1987. During the stock market crash of October 1987, the Dow Jones Industrial Average plunged 31 percent. For six trading days, it appeared that everything in the world blew up. Despite its crash that October, the Dow still ended 1987 up 2.26 percent for the year. Annual returns were 12.6 percent during the 1980s, and they surged even higher (15.1 percent) in the decade following 1987. From a historical perspective it doesn’t look like there was much of a crisis in 1987 after all. In 2011, I think the markets will face something similar with the pending crisis in Europe. At least for the U.S. market, at some point in the next year there will be a dramatic disruption that will adversely affect prices. In spite of this, I still believe equity returns will average 7 to 9 percent for the next decade.

So let's get this straight: the unwinding of the biggest political and socio-economic experiment of the last century, and the collapse of the world's largest economy (which is what the EU is), together with surging bond spreads, trillions in FX flows, an explosion in the dollar, the collapse of European trade is the same as a... one-time stock market event?

H.M.M.M.M.

That said, Minerd does have some pertinent observations on how the imminent pan-European bank run will eventually look like.

‘Imagine You’re Irish’

To help explain why I believe a broader financial crisis is coming to Europe, let me start with a quick story. Imagine for a moment that you’re an Irish citizen. Needless to say, you have many concerns about your country’s economic situation. The unemployment rate is 13.7 percent and climbing, your economy continues to contract, your nation’s debt-to-GDP ratio is 97 percent and rising (up from 44 percent just two years ago), your national deficit has ballooned to a whopping 30 percent of GDP, your government is caught in a debt trap, and its borrowing costs have increased 75 percent year-to-date. If expressed in current market rates, the interest payments on your government’s debt obligations could easily account for 7 percent of GDP, or roughly one third of annual tax revenues. To put this into perspective, the situation facing the Irish government is akin to waking up everyday only to realize that one-third of your salary is gone before you even think about paying for the necessities of life.

Fiscally, everything is heading in the wrong direction in Ireland. However bad it may be, the country’s solvency is a secondary concern. If you’re an Irish citizen, the more pressing issue is what you’re going to do about your banking deposits. Your domestic Irish bank posted a 2.4 billion euro net operating loss in 2009 and is projected to nearly double its losses in 2010. The entire domestic Irish banking system has essentially failed, but the government wants you to believe that everything is fine. After all, the International Monetary Fund, the European Central Bank, and the European Union member countries have cobbled together an 85 billion-euro rescue package of which approximately 35 billion euros is set aside for the banking system.

In addition to the bailout, the Irish government has assured you that it will guarantee your deposits, therefore, there’s no need to worry.

Then you get a hold of the Central Bank of Ireland’s most recent Credit, Money, and Banking report (publicly available on the internet). You see that total deposits for Ireland’s dwindling base of domestic credit institutions were roughly 496 billion euros as of October 2010. Some quick math tells you that this is more than three times Ireland’s GDP, and 14 times the scope of the current banking system bailout package. You start to wonder, “If I try to get my money from the bank at the same time everyone else does, where is the government going to get the euros to pay everyone?” You can’t think of an answer. Then you start to feel silly. “Why am I even bothering with all this worry?” you ask yourself. “I’ll just go down to the bank and take my money out now before things get worse. I can give it to a multi-national bank and sleep better at night.”

It seems trite, but this little scenario is essentially what’s happening today. The Irish banking system is literally experiencing a run on its banks. According to the most recent banking update from the Central Bank of Ireland, total deposits in Irish banks declined more than 5 percent (28 billion euros) between August and October alone.

Year-over-year, deposits declined 10.5 percent, and foreign investors are pulling their money out at an even faster rate of just over 20 percent per year. If the October data was that brutal, I cringe at the thought of what the November and December numbers may reveal. Even more disconcerting, domestic deposits have begun to contract. It’s one thing for foreign depositors to lose confidence, but now even the domestic deposit base is losing faith.

Facing facts like these, each morning when I wake up I have to wonder, “Why is today not a good day for a wholesale run on the Irish banking system?” And if there is a wholesale run on the Irish banking system, then what stops the same scenario from cascading into Portugal, Greece, Italy, and most importantly, Spain?

So is there any hope at all for Europe? Yes...but to plagiarize from Goldman, with huge risks:

‘Where’s My Printing Press?’

Someone recently asked me, why doesn’t Ireland drop out of the EU and do what the United States has done with quantitative easing (i.e., run the printing press)? The problem in Ireland, Spain, Portugal, etc. is that they can’t print money – they surrendered the sovereignty of their printing press to the European Central Bank (ECB) long ago.

The next logical question is, why doesn’t the ECB just run the printing press for them? Can’t the ECB create a flood of euros to alleviate any concerns over illiquidity in the banking system and the toxicity of certain sovereign debt obligations? Technically they can, but practically they won’t. The psychology behind this is something that I hope to address in a future commentary. But for now, suffice it to say that dropping out of the EU is not a viable option for Ireland or any of the other debt-plagued peripheral countries. Benefiting from aggressive monetary policy is equally unlikely, at least to the extent necessary to stave off further crisis.

If Ireland and the peripherals can’t drop out of the euro, and the ECB won’t paper their way out, then what is the alternative? The answer most likely lies with the Germans. Since Germany is not willing to let the troubled economies secede from the euro, and they’re not interested in outright bail outs, the only option left is for the nations of the European Union to somehow share the burden. This would require greater fiscal union and ultimately translate into European federalization. Federalization may not seem very palatable at the moment, but the debate is certainly gaining steam. Once the crisis comes to a head, I could see the German people looking much more favorably upon playing a historic role in organizing the fiscal union of the sovereign states of Europe.

In simple terms, federalization means that the EU would issue pan-European bonds and begin the process of expanding the role of its central governing body over time (the EU already has a governing body with a formal president, currently Herman van Rompuy). This is what the United States did when it ratified the Constitution and established the U.S. Treasury, which in turn consolidated and absorbed the various debts incurred by colonies during the Revolutionary War.

I believe the federalization of Europe is the most viable solution and will be the ultimate outcome. As German Finance Minister Wolfgang Schäuble said recently, “Sometimes it takes a crisis so that Europe moves forward. In this crisis, Europe will find steps toward further unification.” As Schäuble subtly foreshadows, to get from here to there, the crisis will need to intensify. As sovereign credit downgrades continue to flow in and deposits in Europe’s weakened banking system flow out, a broader crisis in Europe appears to be imminent in 2011.

What this means is that the final lap in the great currency debasement race will start in earnest some time in 2011 as the last lever available to the EU has to be pulled:

With the great debaser, Dr. Bernanke, leading the way, the European Central Bank will eventually have to join the charge and print money in order to save the European financial system. As Hyman Minsky once postulated, central banks ostensibly say that their job is to maintain stable prices and sound monetary policy, but at the end of the day, the role of any central bank is to save the financial system at all costs. This includes the cost of the value of the currency and price stability. There’s nothing that cannot be sacrificed if the entire financial system is at risk. Practically, I believe this means that the euro will head to parity with the dollar and then ultimately below parity.

According to Minerd this means that a short EUR trade is a no brainer. That and going long core European CDS, a trade which we ourselves have been pushing for a long time:

The main theatre where the events in Europe play out will be in the foreign exchange (FX) market, where the primary opportunity is to short the euro. Outside of FX, I believe there are opportunities to buy gold and invest in U.S. Treasuries (but not just yet), as both will benefit from their safe-haven status once crisis erupts. In addition, there is opportunity to go long credit protection in the CDS of the countries that haven’t blown up yet, namely Italy, Germany, and France.

We disagree that a plunge in the EUR, which means a surge in the USD, can coexist with rising risk assets. It can't. There are literally trillions in USD funded carry positions whose unwind will result in a market correction that will obliterate the 666 lows on the S&P. There is simply no way that a drop in the Euro does not impair risk.

We end with Minerd's closing observations on that "other" most important topic - interest rates:

In December 2009, the yield on the 10-year Treasury increased 64 basis points to close out the year, primarily on the back of robust expectations for economic recovery (fourth quarter 2009 GDP eventually registered 5 percent annualized growth). Following the rise in rates in late 2009, the first quarter of 2010 saw rates go sideways. Then, after pushing upward to 4 percent in early April 2010, the yield on the 10-year proceeded to fall precipitously by 160 basis points over the next six months. Most recently, yields have mimicked 2009 year-end by climbing 80 plus basis points off the lows as positive economic expectations are taking root once again.

Although it would appear I’m describing significant fluctuation in rates over the past 12 months, at no point in this story did rates break out of the long-term down trend established over the past 30 years. In fact, even at the nadir of 2.21 percent on December 31, 2008, the yield on the 10-year note remained completely within trend. Even as we end the year with yields rising to what seem to be a relative high, the 10-year Treasury remains completely within the trend channel of declining longterm interest rates.

I’ve already gone on the record saying that the bull market in bonds is long in the tooth, but it’s also important to note that bull markets don’t just roll over and die – they either break trend and continue into a parabolic blow off, or they break the trend and move sideways for long periods of time. To me, the most important point is that the recent rise in interest rates has yet to break out of the downward secular trend in bonds. This event would be the first indicator to watch for before anyone should be concerned about rates rising in a meaningful way, and it has yet to materialize. I suspect that in the near term we’ll see continued upward pressure on rates, but I would be surprised if they reached much higher than 3.80 on the 10-year note before declining again. The moral of the story is that as we near year-end, the 10-year note remains approximately 45 basis points below where it started the year.

After a tumultuous 2010 filled with rising-rate speculation, the case for an extended period of low interest rates remains faithfully intact.

Full report here.

h/t momo "I am hiding a sock in my pants" trader

Comments

[Alfred]

"Pre-Mortem"... freakin' genius!

[HarryWanger]

Gee, I wonder if it will be as "horrific" as the Irish bank run on 12/7? Pretty much crippled the country. Oh, it didn't? That's right, another "horror" story that didn't come to pass.

[Careless Whisper]

who can focus on bank runs when lindsay is having so many problems.

http://www.tmz.com/2010/12/21/lindsay-lohan-betty-ford-staffer-dawn-holl...

[Gully Foyle]

Careless Whisper

Definitely far less worse than Spiderman the musical and it's curse.

Gotta admit Lohan does have a knack for staying in the media unlike say Tom Sizemore.

[Careless Whisper]

the controlled media force feeds us lindsay stories as a distraction to the important news, but people are seeing through that, or at least viewing important news along with the daily nonsense.

http://www.youtube.com/watch?v=WoHOAPSgzJM

[LowProfile]

Not as many people want to hate-fuck Sizemore.

[Lord Welligton]

The ECB and the Central Bank of Ireland have "lent" €135bn to Irish banks.

That's over 100% of Irish GNP.

[M.B. Drapier]

And €44bn+ of that is Exceptional Liquidity Arrangement money from the Central Bank of Ireland. Unlike other ECB/Eurosystem "liquidity" programs like the LTRO repos or the SMP bond-buying, the Irish taxpayer is on the hook for any and all losses from Irish ELA "liquidity".

[M.B. Drapier]

[doubledypost]

[crazyjsmith]

Patience Wang Chung, Patience.  Or did you not read the multiple references to "2011"? 

Rarely does one die immediately when diagnosed with a terminal disease. 

[flacorps]

A pre-mortem is a terminal diagnosis. No need for a neologism. My neologism of the year is "plutocronyistikakistocracy."

[Oh regional Indian]

That sounds like a neologism straight out of the mouth of GI Gurdjieff.

Very good.

10 points.

ORI

http://aadivaahan.wordpress.com

[Gully Foyle]

flacorps

Doctor: [laughs] Right, kick ass. Well, don't want to sound like a dick or nothin', but, ah... it says on your chart that you're fucked up. Ah, you talk like a fag, and your shit's all retarded. What I'd do, is just like... like... you know, like, you know what I mean, like...

[cosmictrainwreck]

excellent recall, Gully! scene ends, as I remember, with the doc freaking out: "unscanable! unscanable!" perhaps prescient.....

[metastar]

plutocronyistikakistocracy, ... WTF???

[UncleFurker]

Why would the USD rally?

Are the US banks exposed to a european crash?

[Spalding_Smailes]

The dollar is going up because the USA will have 3.5-4.0 GDP next year. The euro is in trouble because they built many nations around one interest rate, Germany is booming & needs a rate hike. The pigs and the rest need ultra low rates, this will end bad. The US dollar being the reserve currency always has a bid, old debt being rolled over ( can kick ), new debt being issued on a global scale every day, businesses ect .... The USA running at 70% is still a powerhouse.

[Sean7k]

As long as GDP numbers include government expenditures, they are compromised. They require an additional tier of analysis. The proportion of public versus private product becomes an important ratio. This ratio is climbing in favor of public spending. With the addition of city and state fiscal failures looming- this could get very ugly, very fast. 

This will be the cover used to prop back up the euro and the dollar will then slide. The Yen will follow and we will continue the spiral downwards. Asset prices will mean nothing by themselves  because currency values are compromised. Ratios of assets will be necessary to determine any real winners. 

[DoChenRollingBearing]

Almost everything I read (here and elsewhere) convinces me that it all is going to end badly and the only protection we individuals have is gold (etc.).

[akak]

I agree, DoChen --- all this talk about a "rising dollar" and "flight to safety in the dollar" is just more smoke and mirrors attempting to hide the ultimate truth --- the depreciation and ultimate collapse of ALL fiat currencies, and the corrupted and unsustainable Ponzi-like markets and financial structures built around them.

[Id fight Gandhi]

You can't expect GDP that high when the world cannot buy your goods. GDP today even missed expectations. You're way off.

Germany is screwed being part of the euro. Only country over there doing anything or producing,

[DosZap]

Germany won't be screwed, they will (IMHO) dump the Euro, and go back to the Mark.

Prior to taking a major bath.If they do not their citizens will burn them down.

[Gully Foyle]

Spalding_Smailes

Phone Computer: Welcome to AOL Time Warner Taco Bell US Government Long Distance. Please say the name of the person you wish to call.
Rita: Upgrayedd.
Phone Computer: There are 9,726 listings for "Upgrayedd". Please deposit $2,000 to begin connection.

[Spalding_Smailes]

BankofAmerica is up 7% this week. Should be up 25-35% by next July.... easy money. The new gold.

[tmosley]

Take a look at a five year chart of each and then hit yourself in the head for being so stupid.

Actually, let me help you: http://finance.yahoo.com/q/bc?t=5y&s=GLD&l=on&z=l&q=l&c=BAC

[cougar_w]

Shorter Scott Minerd: "The Eurozone is baked. The Bernank will shortly reach for a bigger hammer. And as ever, buy the dip."

[TWORIVER]

Harry where are you planning to sell AAPl or SPY. What targets do you have?

[HarryWanger]

I believe that AAPL will hit 400 early next year. I am trailing it with a fairly tight stop (2% below current price) as it moves higher. 

As for SPY, I am not holding it but don't think you have to worry about it until SPX reaches 1285-1290 level. That might be the next logical point for a shallow pull back.

[VegasBD]

"This is not the Harry you are looking for."

[downrodeo]

Shoot, where is HamyWanger?

I want to see those two in the same room at the same time...

[samsara]

Come'on Wang,   Stops are for Pessimists

[TWORIVER]

Harry where are you planning to sell AAPl or SPY. What targets and stops do you have?

[elagano]

I just hate when people post charts that are not to scale.

[Beam Me Up Scotty]

So, today I have read 2 articles about society going cashless.  How does one make a run on the bank then?  Or will the sheeples debit card cease to function one day?? 

[Sean7k]

Germany finds it can conquer Europe, without firing a shot. The world no longer needs a military- we only require central banks and a measure of trust.

[virgilcaine]

"We disagree that a plunge in the EUR, which means a surge in the USD, can coexist with rising risk assets. It can't. There are literally trillions in USD funded carry positions whose unwind will result in a market correction that will obliterate the 666 lows on the S&P. There is simply no way that a drop in the Euro does not impair risk".

beauty. I'm expecting undorderly declines across the spectrum.  Like that word unorderly. Fits with the times.

[RobotTrader]

As usual....

The worse the problems in Europe....

U.S. retail stocks get even stronger....

Europeans are now cheering because their U.S. common stock investments are skyrocketing.

The retail index remains pinned at the highs, unable to sell off.

[HarryWanger]

Average Joe and Jane couldn't care less about Europe, and rightly so. What they are seeing is job security and a new found sense of relief that we will be just fine here. That has led to a strong buying binge, hence retail stocks flying.

[jus_lite_reading]

BWAHAHAHAHAH! "Harry Wanger" is a pseudonym for Ben Benanke or Obama!

What they are seeing is job security and a new found sense of relief that we will be just fine here. That has led to a strong buying binge, hence retail stocks flying.

[Tyler Durden]

Funny you should say that, as it is precisely indicative of the level of ignorance among the broader population. Job security? Yes... if one equates a part time job with security.

Luckily, most people in America are not as stupid as you suggest and realize that the recovery is a "part time" one based on unrepayable government leverage.

Charting America's Transformation To A Part-Time Worker Society, Following 6 Straight Months Of Full Time Job Declines

[HarryWanger]

Luckily, most people in America are not as stupid as you suggest and realize that the recovery is a "part time" one based on unrepayable government leverage.

You are dead wrong on that assumption. Look, I have seen discretionary spending this past Q surpass even our strongest years of 2004-2007. Either people are as "stupid as I suggest" or they are very comfortable with their economic situation. Based upon the discussions I've had with clients and distributors, Joe and Jane are as comfortable with their job security as I have seen in years.

[malikai]

I think Joe and Jane have been sipping too much eggnogg. I think it will all come crashing down shortly. But first, let's party!

[DosZap]

malikai,

Bingo, Americans are largely children mentally.

They have pulled in their horns, paid down their debt, and now, are spending again, those that can, with abandon.

One LAST FIX, after 2yrs of self imposed austerity, and debt paydowns they think they DESERVE some good TIMES.

They will get it, Big "0" will get credit, and we all go back to the real world.

Broke as a dead dik dog.

[downrodeo]

Of course, it could be the case that your personal experience is not indicative of the overall behavior of the nations economy. I'm sure you've considered that though...

[Sean7k]

3RD quarter GDP shows personal expenditures are down and inventories are up. I know you like to shill, but it would improve you're standing if you knew when to shill and when to shut up.

[tmosley]

Either you are a liar (something I am inclined to believe, as you a literally a professional troll, writing papers on the "psychology of permabears"), or your business is being buoyed by spending from federal workers.

My area was the last one into the depression, and should be the first one out, as we have (relatively) outstanding governance here.  There is no recovery here.  Unemployment remains high.  No-one but the "ultra rich" are spending.  New businesses are not opening up.  Existing businesses are not hiring.  On the rare occasion that I have been hiring, I get more applicants each time.

So yeah, your story is just that, a story.  Fiction.

[Panafrican Funk...]

http://www.gallup.com/poll/112723/Gallup-Daily-US-Consumer-Spending.aspx

Spending data. Most recent available was 12/17/10. People are spending about $70 per day. For 12/17/2009, people were spending about $73 per day.

Point being, you're completely full of shit or extremely ignorant.

[crazyjsmith]

WOW WangChung, you even got TD to post a comment regarding your ignorance.  Congrats!!  Nothing like a little bit of Chart Therapy to slap some reality back into the conversation.

[akak]

You are dead wrong on that assumption. Look, I have seen discretionary spending this past Q surpass even our strongest years of 2004-2007. Either people are as "stupid as I suggest" or they are very comfortable with their economic situation. Based upon the discussions I've had with clients and distributors, Joe and Jane are as comfortable with their job security as I have seen in years.

Fuck you, you utterly lying piece of shit troll, if you expect ANYONE here to believe such complete and total, wildly absurd bullshit.  There are permabulls, and then there is permabullshit.

[steve from virginia]

Largest increases in US income has been in exports (weak dollar) and in defense outlays. With a $80 billion restructuring of Department of Defense (DOD) this year cuts will be felt in the DC area which is heavily invested in defense and security businesses.

The DC area is looking @ 15- 20,000 DOD- and related layoffs along with local government cuts. What the Feds will do to/with Fannie/Freddie is also a question mark. Restructuring these entities will cost 20,000+ jobs and more downstream.

This area has long been considered 'recession proof' because of the immense Federal presence but real estate values have declined 20% since the 2007 peak. Many government related tech contract jobs have been lost. Construction is down + 50%. Commercial RE has the highest vacancy rate since 1990's recession w/ retail sector bombed except in a few 'high end' locales.

High fuel and food (embedded fuel) costs are diverting funds from other consumables. There is no comfort here, only increasing anxiety as people realize the District area is no different from anywhere else in the country.

Please keep telling us how things are in Beverly Hills.

[Vampyroteuthis ...]

What they are seeing is job security and a new found sense of relief that we will be just fine here.

Harry, do you know how many hard working, well educated people who are willing to work at the moment can not find work? It is on the order of millions. I try to be accepting when posters have different opinions than me. That comment is so ridiculous, from now on I am going to junk everything you say jackass.

[jus_lite_reading]

Harry Wanger is a leading expert on the economy...

....

....

April fools, in December!

PS- I do the same. Track him down and just junk him.

[crazyjsmith]

"Hence retail stocks flying" ...Harry Wanger

Largest Electronics Retailer = BBY = Christmas Binge = Happy Retailers = BBY Down 20.5% Since Nov 1 = Wanger Chung is an idiot

[akak]

Wow, a comment from HarryWanger immediately following one by RobotDickweed --- an automatic junking two-fer!

[malikai]

How is this even remotely possible apart from irrational xmas season pumpups? Are you planning to exit these before the post xmas numbers come in? I can only see one ultimate direction there and without watching them constantly, I'd be worried about a slash and grab or slash and burn taking place within this sector shortly.

Also, hi. My first post here. Been watching yours for a while now. I too, trade to make money, not fight my moral/political battles.

[ebworthen]

Why can't they all just add zeroes to the database?

When there is no physical manifestation of the electronic database dollars, they can just add zeroes.  Who says they don't have money in the bank if they say they do?

They don't have to print, mint, or possess anything of value as long as they can SAY they have money. 

Is the FED deficit anything different?  We are passing 1's and 0's about in the binary database - who is doing the accounting? 

If I'm a big bank I can use this ethereal data to leverage other people's 1's and 0's, allocating them to "my" database, and I make "money" and pay out "bonuses".

There is no currency or value or capital, it is all fake, phoney, non-physical switches in the cloud. 

1 = on and 0 = off 

If I can flick the light switch faster than you I take your money.  If I can make you believe that the light is off when it is on, or vice-versa, I take your money.  You go to work and do something because you believe that the light switch means something in a physical way.

Well, it means something only as long as the mass perception holds.  When the perception falls apart, the binary system collapses in a downward spiral, until the only thing of value is physical and there is no trust beyond the bullet, bread, and bodies.

[Cdad]

According to Minerd this means that a short EUR trade is a no brainer.

Well, my lawyers will be in touch with Mr. Minerd as clearly he is stealing my characterization of the little bimbo known as Miss Euro.  You know, there is such a thing called plagiarism.  Of course, that is probably a quaint and forgotten law, too.

In the meantime, little Miss Euro is about to do her thing again...she is leaning...and that damn creepy German photographer is moving in with his camera, and all I have to say is that this is all looking very, very much like a bad thing...no matter what Apple shares are doing.

[sandorgb]

the fundamental imbalances which caused the credit crisis of 2008 have not been addressed. if anything, the extend and pretend policies of both the Fed and ECB have only added to the debt servicing burden. thus, the next crisis is assured and it will assuredly be worse than the last one. it is amazing to me how readily the market is willing to suspend disbelief in the laws of mathematics and the lessons of history. this is perfectly rational, according to brainwashed economists. resisting the deflation that must occur only leads to a depressive inflation induced by loss of confidence in the financial system.

low growth coupled with perpetually high debt service costs, the economy goes on a kind of extended methadone maintenance of just getting by. the joy of the credit fix is gone. it is now a game of warding off the next sickness. economic growth is impaired as nominally high prices pretend to mask the inexorable stripping of real wealth from the economy. eventually, more and more of the debt slaves, exhausted and broke from working three part-time jobs to cover food, fuel and rent, throw in the towel and roll over. the music stops, the chairs are put away, and the long overdue clean-up of the mess begins.

in the meantime efficient market theory demands that we perpetually blow bubbles, sowing the seeds for the next bust, all in service of the twin gods of free money and rational, self-serving, self-congratulating behaviour. we are players in the theater of the absurd.

[TradingJoe]

Oh Well, everybody and their moms are buying the "dips", fine! Me? Nope! Got out of all longs except my Physical PMs! This is simply too crazy for me! Have some shorts, cause they are cheap, just for fun, not really a believer this "market" will turn south anytime soon, but, better in cause you never know, eh?

[RobotTrader]

Physical PM's are underperforming at the moment.

I have learned that if the SPY goes into a huge correction, PM's will go down 2x faster and PM stocks will go down 4x faster.

Just sayin'....

I learned the hard way back in 2008 when I watched my IRA account full of PM stocks get decimated...

[TradingJoe]

I otherwise agree but when is this SPY going to crash???

Given all that cheap FEDs Gifts! Also, I will average down my Physicals since I am mostly in coins, some historic some contemporary. Don't hold a lot though, am not some "rich wanter" :-)). Just being cautious cause this "market" ain't no real market!

[DosZap]

I learned the hard way back in 2008 when I watched my IRA account full of PM stocks get decimated...

Where would you be had you left them alone?.

Hopefully you did, so you can really get a payback.

[akak]

I learned the hard way back in 2008 when I watched my IRA account full of PM stocks get decimated...

Where would you be had you left them alone?.

But, but, but .... that would have required focusing on something more than a 24-hour timeframe!  That is asking FAR too much of ADD-afflicted Robot!  Don't you know it's all about now, Now, NOW?!  Yesterday is just so, yesterday!

[Panafrican Funk...]

So, you're completely full of shit then?

http://www.finviz.com/futures_charts.ashx?t=ES&p=w1

http://www.finviz.com/futures_charts.ashx?t=GC&p=w1

Pretty fucking obvious you're lying, Robo!

[I am more equal...]

Missed the potato famine...the way this should end will make that event look rather pleasant by comparison.  I wonder will the Irish migrate to China this time?

[M.B. Drapier]

No, the UK as always.

[DosZap]

Hopefully America, we can use some GOOD people.

[M.B. Drapier]

Sadly I don't have to imagine. Here's one I made earlier:

(Incidentally: in Ireland, this ad is on rotation on zerohedge.com right now. (Or it was mere minutes ago. Here's the link.) Rabo seems to be upping its search for Irish deposits too. It's not reassuring when ZH's AdSense starts trying to sell me financial security rather than insanely-leveraged FX and spread betting.)

Also, National Irish Bank is talking up its status as a subsidiary of Dankse Bank and advertising energetically for business customers.

(and later:) And I might as well repost this:

Here's a stab at estimating the Irish banks' possible derivatives losses (now the losses of the Irish taxpayer, natch). Also, here are some brokers who recommend you buy Allied Irish Banks.

[THE DORK OF CORK]

Sweet Jesus Drapier , well for what its worth I am keeping my remaining liquid funds in something with a Harp on it.

I know its a kind of distorted retarded nationalism but inertia is preventing me from going 100% Oliva Newton John.

[M.B. Drapier]

It helps that I have no money, so I feel I can trust RBS with my overdraft. :)

[THE DORK OF CORK]

Ha , good one - implode / explode - these are the only outcomes , tell me what do you think is stopping the ECB going all FOFOA.

Are they just waiting for the best moment in time or are they worried about European savers getting slightly pissed off after their savings are toasted ?

PS - that turning the corner blog is a good one , Brian L. how do have time to create such informative analysis  ? you should be out there in the "real world"executing deals in the national interest....................

[THE DORK OF CORK]

repeat show

[purplecaveman]

The Road to Serfdom in Europe. It ain't funny.

[virgilcaine]

still on alert for Greece 12%, should be support for higher rates. End of euro party time.

Last Update: 12:00 PM ET, Dec 22 0.226% VALUE: 11.992 Greece 10 Year(GGGB10YR:IND)

[keepusfree]

Seems to me that the most important part of this is that Europe will be "federalized", essentially becoming one economic unit, which really was the plan all along.

[Captain Kink]

I must be Irish.  I wake up every day and a third of my income has vanished before I even start--just ask my ex.

[downrodeo]

hey, i've got a great solution for all of this crazy cash, mad money, and freaky fiat...

http://www.cnbc.com/id/15840232?video=1705701323&play=1

[ebworthen]

Oh of course this is the goal.

No cash, everything tracked in the database banking cloud.

Efficiently taxed, fee'd, tracked - a goldmine for marketing companies and the IRS - and no pesky gold or other tangible currency for the peasantry to avoid oppression with.

[downrodeo]

game, set, match yo!

[Nathan Hale]

"To put this into perspective, the situation facing the Irish government is akin to waking up everyday only to realize that one-third of your salary is gone before you even think about paying for the necessities of life."

May I humbly point out that this is the reality for just about every taxpayer in the good ole USSA.

[Captain Kink]

please do point it out.  and yes, 35% federal 10% for city and state (in NYC), plus ss and med, and it's actually 50% right off the top...and then my ex gets another 17% of what was the gross (or 34% of net)

I work until September before i make 1 red cent.  (good thing i also own copper! )

And then everything i buy is whacked for another 8 1/2% sales tax. So add another month. The 4th quarter is mine to spend!  The cart is getting awfully heavy.  I may just stop pulling and get in.

[IQ 145]

 Turn on the warp drive, Scotty!

[Advoc8tr]

Wow!  Is it really that bad? That's worse than in 'those' Scandanavian social democracies....   So if you worked adhoc for cash at a level 1/5 of your current income you would be better off in net terms??  Not even taking into account all the expenses related to getting to and from work each day....  

Seriously .... why would you keep doing it? 

[Judge Fedd]

I don't think the German population would be pro federalization (ironic no?). The Germans are already bandying about bringing back the DM or breaking the Euro into two versions. A northern Euro for Germany & the Scandinavian countries and a Southern Euro for the Mediterranean countries & Ireland. The population seems themselves as shouldering the burden of countries who were fiscally irresponsible.

[Canucklehead]

The Germans won't go for Federalization.  Every country in Europe wants to tell them what to do.  The Europeans are looking for a marriage now that they are old and have been rode hard and put away wet.

Who is going to marry an 80 year old who constantly tells you what to do while spending your money?  Even in death there is no inheritance...

[Augustus]

The part of the scenario which does not compute is the idea that an Irishman will remove money from the Irish bank and deposit it into an International bank.  The fellow is supposedly able to read the balance sheet and earnings statements of the Irish banks and determine that they are unsafe for holding his money.  If that is the case, won't he also be smart enough to determine that the statements of the International banks are impossible to to evaluate?  And if he determines that the backing of the Irish govt. is not suitable, what would cause him to believe that there is any real backstop for an International bank.  Or does it mean that the individual will have a direct deposit and an account with the ECB?

I just don't see that the outcome of a country wide run on all Irish banks will result in increased deposits at Citi or Credit Suisse.  What any analysis will result in is a decision to not trust any of them if absolute safety is required.

[Judge Fedd]

There is always money in the banana stand.

[Shrimp Head]

+ NO TOUCHING!

[M.B. Drapier]

It may not compute, but it is what's happening, apparently. In fact, it seems the domestic deposit money is largely going into the Irish subsidiaries of foreign banks, such as National Irish Bank (Danske), Rabo Direct, ACC Bank (also Rabo), and Ulster Bank (RBS, God help us). As with a full-service bank run, I'm pretty sure that most of those leaving the Irish banks - certainly the retail depositors - haven't studied their financial reports in depth, or at all. The motivation is a gut-level loss of faith in the Irish banks and the state (seasoned with anger); that's probably the real motivation of most of the people who have looked at a balance sheet too. Most of them presumably haven't thought through what's likely to be happening at the same time that an Irish bank inflicts losses on depositors, and/or haven't had their gut-level confidence in the broader European banking system shaken yet. (And to be fair, many European sovereigns do present a more reliable backstop for depositors in a near-worst-case than Ireland does.)

Also, the PM bug doesn't bite very widely in Ireland, so even the farmers who are now keeping their money under the bed are probably keeping it in Euro cash.

[Bendromeda Strain]

Ben Davies and Robin Griffiths both say as much in their latest KWN interviews. It is happening, and no, it doesn't necessarily make sense. Looking for the incoming Govt to really make things interesting.

[gwar5]

Little wonder. The TARP stopped bank runs in 2008 but the debts were transferred to sovereigns.

Irish taxpayers are saying "Fuk Yoo" to Banks Dae-Ho. We're all Irish now.

People here have been turning in their FRNs for gold and silver. Same thing.

Yes... we still have no bananas

[Manipulism]

‘Imagine You’re American’

[Groty]

I wish he had explained his raionale for U.S. equities rising in the face of a wholesale European bank run.  That part doesn't make sense to me, while the rest of his analysis seems logical.

[ATM]

I think he's saying that a Euro market event will certainly have a negative effect here in the US but it will be short term and the US market will rise in the 7-9% range on average.

He's also on record as saying that we are going to basically end the use of fiat money in the future so it's only a timing thing on that one.

Does money crash sooner rather than later? I think later but we are on a collission course at present that cannot be changed. Fiat will end, and it will end badly.

I like Minerd, he's the Gugi-guy.

[metastar]

New World Order Bitchez!

[samsara]

Come'on Wang,   Stops are for Pessimists.

[irishlink]

Yes I would also fear the figures for November and December. The outflows into the Swiss Frank and the Aussie Dollar have accelerated no end and the new banking laws signed by the Irish President today would encourage anyone to cut and run. The Irish minister of finance is now as powerful as Stalin. We certainly will not see new banks in this country for a long time. A run on the banks can be just as dangerous when its slow and steady,as is the case here in Ireland now.

[buzzard beak]

Can I get more information about these foreign depositors in Irish banks? They sound like the kind of guys I like to follow.

[malek]

And I thought the "biggest political and socio-economic experiment of the last century" had been communism?

[irishlink]

The foreign depositors are all the Diaspora or the foreign companies who are keeping their profits in Ireland so Uncle Sam does not get his hands on it. After all until a few weeks ago a blanket guarantee from the sovereign was very reassuring. Now their is no sovereign and the bigger worry now is not the banks but the survival of the euro itself! 

[THE DORK OF CORK]

Farceism is the 21st century new ism - embrace change you cannot believe in - it is good for your psychological well being.

There is a God out there and he worships mammon

[Buck Johnson]

Federalization won't work.  One, if federalization happens every country would have to be considered an equal partner regardless of how big their economy is in each state.  Just like California is 17 percent of the GDP and the 9th biggest economy in the world, but it still has 2 senators (even though it has alot of representatives).  What federalization will do is to bring down the standard of living for the richer countries and bring up the standard of living for poorer countries/economies.  Another thing that will destroy this is that unlike states of the US, these countries/states of federalization are totally different in people and customs and in how they do business.  Federalization is just the last jab to keep the EU/Euro together.

[hugovanderbubble]

Excellent workpiece.