Bank Run

As US markets hit their all time highs, there is nothing but bad news in EU sovereign land. What does it take for people to understand that equities have detached from fundamentals & the macro outlook?

'All is not resolved' is how Morgan Stanley's Arnaud Mares begins his latest diatribe on the debacle that is occurring in Europe. While a disorderly default seems to have been avoided (for now), the Greek problem (as we have discussed extensively) remains unsolved as debt sustainability seems questionable at best, economic recovery a remote hope, and the growing political tensions across Europe (and its people) grow wider. Critically, Mares addresses the seeming complacency towards a Greek exit from the euro area noting that it is no small matter and has dramatic consequences (specifically a la Lehman, the unintended consequences could be catastrophic). Greece (or another nation) leaving the Euro invites concerns over the fungibility of bank deposits across weak and strong nations and with doubt over the Euro, the EU could collapse as free-trade broke down. The key is that, just as in the US downgrade case last year, a Euro-exit implies the impossible is possible and the impact of such an event is much, much higher than most seem to realize. While the likelihood of a Greek euro-exit may remain low (for now), the scale of the impact makes this highly material and suggests the EU will do whatever it takes (print?) within their mandates to hold the status quo. For all practical purposes, it would be the end of the euro as a genuine single currency and to preserve the euro if Greece left would require total federalism in the rest of the area.

Now everybody's bank bashing, of course the reason to bash the banks is 4 years old, despite Bove-like analysis to the contrary. I will discuss this on CNBC for a FULL HOUR tomorrow from 12 pm to 1pm.

The complacency of the markets is amazing given the risks at hand. I don't think I'm that smart, so is it that so many others are that stupid? It can't be, can it?

This chart from Credit Suisse cuts through all the propaganda BS like a hot knife through butter.

With the impending March 20th maturity GGBs trading at 1400% yield (or 36% of par), EURUSD trading at 1.31, and European financials (and Greek financials explicitly) all up considerably, one could be forgiven for confusion as to what is priced in and what is not. As Bank of America (BAML) noted earlier in the year, believe it or not, Greece remains a blind spot and that risks from Greece are not fully priced in. Summarizing the deep cuts that Greece is expected to make - the Troika is demanding fiscal measures of 2% of GDP in 2012 - BAML points out that while they believe a common ground can be found, the asymmetric risks of a disorderly default could weaken the EUR well below their projection of 1.25 in the first half of the year. Certainly, while Greek sovereign bond markets seem priced for inevitable default (as real cashflows still count in the credit markets), FX and equity markets seem to be jumping-the-shark of the crisis - Europe will be stronger without Greece and Fed will backstop inevitable crisis - and missing the interim crisis conditions (Lehman-moments) that will occur as tail-risk scenarios and social unrest (that LTRO seems to have assuaged for now in people's minds) could return rapidly across the entire region. With frustration growing between an impatient Troika (that faces total humiliation, moral hazard, and ugly precedents for others) and a stubborn April-election-facing political class in Greece (along with the inability of the PSI to get done for all the reasons we have discussed in the past - foreign law bonds, basis traders, hedged positions, hedge fund sovereign litigation arbs) it seems the Troika has the most to lose for now seemingly holding a gun to their own head (as once again a massive ECB intervention might be needed with all its knock-on effects on the Fed's balance sheet expansion).

You're about to hear a big boom come from across the Atlantic, but I've yet to hear a peep from the rating agencies. And many of you guys think they were delinquent during the other credit bubble!!!????

Ever want to know what a documentary that spits the truth about the rating agency scam and overall Ponzi would look like if it actually aired on international TV???

When the first revision of the second Greek bailout to the tidy round number of €130 billion was announced, we scoffed, mockingly. Because a country which then had a 7% budget deficit, and now has a deficit that will be well in the double digits, and not to mention a banking system that is now hollow following tens of billions in deposit withdrawals as month after month the Greek bank run gets worse, would obviously need much more liquidity (but banish the thought that it is a solvency crisis...) Sure enough, earlier today Der Spiegel broke the news that the second bailout, which has yet to be re-ratified, and absent Greece meeting demands to cede fiscal sovereignty, is likely a non-starter, would be increased to €145 billion "citing an unidentified official from the so-called troika." So whether or not this is true is irrelevant: what matters is that Spiegel released the article in the same series of posts in which it explained just why Germany has full right to demand (via European enforcement mechanisms or however) virtually anything in exchange for the ongoing endless bailout (such as: Merkel macht Wahlkampf für Sarkozy and Griechenland sträubt sich gegen EU-Aufpasser). Which means one thing only: the great propaganda spin machine is now on, and its only purpose is to provide Germany a buffer of "having done everything in its power" to prevent the now inevitable Greek default. Which, incidentally, means that a Greek default is inevitable. Because at this point once the default floodgates open, the question will be not where the bonds will trade, but just how big the impairment on the European DIP (aka Troika bailout package) will be.

More reasons why quality blogs should be staple fodder for those who are serious about real information and analysis. Now reporters, editors, bankers, analysts, managers, politicos & regulators frequent blogs. Do you wonder why?

Imagine pensions not paying retiree funds, insurers not paying claims, and banks collapsing everywhere. Sounds like fun? I will be discussing this live on RT's Capital Account with the lusciously locquacious Lauryn Lyster at 4:30pm.

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.

We dont' need any water, let the mo@#$#%ker burn!

The iconoclastic outcast being called in to shake things up a little. I'll appear on CNBC @2:30 with my outlook for 2012. I'm not shy about my track record & here's what I'll have to say.