Phoenix Capital Research's blog

I trust at this point you are beginning to see why any expansion of the EFSF or additional European bailouts is ultimately pointless: Europe’s ENTIRE BANKING SYSTEM as a whole is insolvent. Even a 4-10% drop in asset prices would wipe out ALL equity at many European banks. 

The markets flew into this deal based on rumors and short-covering and are now waking up to the plain obvious facts that you cannot solve a debt problem with more debt. Also, it might be worth considering just where the EFSF bailout money will be coming from when various EU members can’t even stage successful bond auctions without the ECB stepping in.

Do you really think Europe, which is even MORE insolvent that the US, is somehow going to experience a different ending from the Bazooka move? They’re in far, FAR worse fiscal shape that the US was in 2008 (including unfunded liabilities, REAL Debt to GDP levels for most EU members is north of 400%... heck even Germany’s is over 200%).

With OVER $46 trillion in assets outstanding, this means that European banks would need to raise $1.77 TRILLION in capital to bring their leverage levels down to 13 to 1.

Dr Pippa Malmgren is a former economic advisor to George W. Bush and a former advisor to Deutsche Bank. According to Malmgren, Germany has already ordered the printing of Deutsche Marks in anticipation of a possible withdrawal from the EU

The US banking system as a whole is leveraged at 13-to-1. While this is not horrible relative to Europe’s banking system (more on this in a moment), these levels still mean that an 8% drop in asset values wipes out ALL equity. Then you have Europe’s banking system, which is leveraged at 26-to-1. Anecdotally, this is borderline Lehman Brothers (30 to 1). At these levels, even a 4% drop in asset prices wipes out ALL equity.

Last week’s moves were entirely based on the fact that stocks are now tracking the Euro almost tick for tick. And last week, the Euro hit “take off,” despite the clear indications that Europe is facing systemic failure (the entire banking system is leveraged at Lehman-like levels and European sovereigns are facing failed bond auctions on a weekly basis).

While our conversation primarily focused on the restaurant industry, the points and principles Chef Richard lives would serve as an example for any businessperson. His success is the product of hard work, respect for his customers, and a near superhuman focus on quality. 

It’s time to settle the debate regarding Europe’s banking system. I know that the mainstream media keeps talking about another round of bailouts or an expansion to the Emergency Financial Stability Facility (EFSF) as though these things matter. But the reality is… they don’t. Europe’s problems go WAY beyond Greece’s debt. And the entire European banking system is primed for a systemic collapse.

Greece is not the issue here. The issue is that Europe as a whole is broke, facing massive unfunded liabilities, and running out of viable creditors to band-aid its banking crisis. We are literally talking about a banking system collapse over there.

Given the economic backdrop in the US and Europe, I remain convinced we’re breaking out of this range to the low side. I’ve warned to get defensive for over a month now. This week looks to be a good time to add to shorts as I expect we’re going to likely see a top this week as earnings season kicks into higher gear and the usual options expiration nonsense ends.

US Commercial banks have $200 TRILLION in interest rate based derivatives sitting on their balance sheets. And guess which banks have the greatest exposure?

Sarkozy and Merkel continue to make "plans" for what to do... The reality is all they're doing is playing for time while they prepare for a Greek default. Indeed, German officials recently told the Telegraph that a "hard" default for Greece is coming which will feature investors taking a 60% "haircut" on their investments in Greek bonds. 

The "powers that be" have lost control of the markets. Both the IMF and the Bank of England have warned we are facing a financial meltdown of historic proportions and possibly the worst ever in history. These are the very groups that are supposed to hold up the financial system... telling us that we're facing a "meltdown."

Europe’s banking system is in far FAR worse shape than anyone over there is admitting. The stress tests were complete and total fiction. And the market is starting to figure this out.