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David Faber, Chris Whalen and Euro Banks

Bruce Krasting's picture




 

I think a lot of Chris Whalen over at Institutional Risk Analytics, so I tuned in CNBC to listen to him this morning. At one point the discussion turned to Europe and Chris made it clear:

There are growing funding issues at some European banks

David Faber jumped out of his chair and challenged Whalen. He implied that Chris was making things up and spreading rumors. I was a bit surprised. It was if Faber was defending the Euro banks.

Faber is an ass. He doesn’t read newspapers either. Two recent headlines:

My understanding from talking to Europe again the morning is that there is a constant drain of dollar funding from highly rated core European banks. I’m absolutely confirming what Whalen has separately heard.

Behind the problems are US money market funds. They have been reducing their exposure to the big “safe” Euro banks. This process has been ongoing for some time. It's not news at all.

This chart from Fitch shows where the exposures were at the end of June. Note that there is not much outstanding for Spain and Italy, but you can be sure that even those numbers are much lower today. Germany is relatively small; the reason is they don’t pay much for deposit money. But look who is a total of 15% of all US money funds. France.

A US money fund that is either facing redemptions (they are) or who just wanted to reduce Euro bank exposure there is only one place to go; France. And that is what is happening. I have no idea of the volume of this unwind; my instincts tell me it is pretty large. It accelerated today.


It’s only Wednesday. There is a lot of time to worry about this before Friday. Normally big developments in Europe have happened over a weekend. That may not be case this time around. The markets may force the global finance leaders to move more quickly to (try to) stabilize things.

The mechanism is already in place. The US dollar swap agreements can be used at any time. A trillion of liquidity could be provided very quickly. It would require that the central banks of Europe on-lend the liquidity to the commercial banks. That would solve the solvency issue. It would be the equivalent of a Euro TARP. A semi-nationalization of the banks.

I wrote yesterday that I was dumfounded by Bernanke’s decision to extend ZIRP for two years. This unprecedented step has huge risks attached to it. Bernanke is well aware of that. Why did he risk it all? He must have known that there was soon to be a very big sucking noise from Europe. One that would require the USA to lend Europe some very big bucks.

I have some sense of what is going on in the background. Chris Whalen has a much better idea than I. But the big shots at the major banks know exactly what is going on the funding markets. After all, they ARE the funding markets. I can assure you that central bankers and treasury officials are all talking as well.

So if your wondering why stocks are tanking and bonds are soaring it’s because the news on this is already out. It’s just not in print. A thanks to Chris Whalen for putting this so squarely on the table.
.

 

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Wed, 08/10/2011 - 13:25 | 1547233 Greater Fool
Greater Fool's picture

It still feels to me like there has to be another shock for BAC, say, to actually plunge over the edge of the cliff.

If they do, then yes--it will be Lehman, or quite possibly worse.

Wed, 08/10/2011 - 13:18 | 1547199 Mr.Kowalski
Mr.Kowalski's picture

Disturbing to say the least. I'm gettin that Lehman feelin again, and so are the markets.

Wed, 08/10/2011 - 13:15 | 1547179 Spitzer
Spitzer's picture

So jump to bonds, where you are exposed to the currency risk ? Fuck is that a stupid idea.

Wed, 08/10/2011 - 17:11 | 1548458 Ethics Gradient
Ethics Gradient's picture

Just borrow the money for the bonds from Greece, if you can

No currency risk there.

Borrow in Euros and pay back half as much in whatever it is they give out afterwards.

Wed, 08/10/2011 - 13:09 | 1547150 Gubbmint Cheese
Gubbmint Cheese's picture

Is there a video link available to this yet?

edit: thanks!

 

 

Wed, 08/10/2011 - 13:10 | 1547149 Mercury
Wed, 08/10/2011 - 14:48 | 1547572 DonnieD
DonnieD's picture

This is not surprising. It's the same network that feels the need to put Steve Liesman on air every 15 minutes to defend the Fed.

Wed, 08/10/2011 - 13:52 | 1547351 Bruce Krasting
Bruce Krasting's picture

Tks Mercury. I have tech problems today. You solved one of them.

b

Wed, 08/10/2011 - 13:07 | 1547147 kaiserhoff
kaiserhoff's picture

Liquidity is always an illusion.

               Michael Milken

Wed, 08/10/2011 - 18:43 | 1548850 disabledvet
disabledvet's picture

when you need it...i agree. having said that if you've been a junk bond king during this cataclysm you've been INCINERATED. Time for the meat eaters to make an appearance.

Wed, 08/10/2011 - 16:41 | 1548216 Bruce Krasting
Bruce Krasting's picture

Read my bio. I worked for him 5 years. Twas liquidity that brought DBL down.

Wed, 08/10/2011 - 13:06 | 1547141 alexwest
alexwest's picture

##
David Faber jumped out of his chair and challenged Whalen. He implied that Chris was making things up and spreading rumors. I was a bit surprised. It was if Faber was defending the Euro banks.
Faber is an ass. He doesn’t read newspapers either
##

bruce , pal .
why seeing whalen/faber debate you decided whalen was talking true, and faber is talking false.why ????????

what if mr. whalen is trying to speak down European banks, thus talking his book/ his clients book (aka shorting europe banks) and he actually is ass ?

or might be you're THE ASS TOO..

alx

ps
your reference to WSJ/FinTime is just Laughable .. since when mass media started printing up-today information...

Wed, 08/10/2011 - 18:51 | 1548883 disabledvet
disabledvet's picture

the "free speach indicator." ironic actually when you consider how important freedom was to (some) folks who came to this country. now listen to them: "shut your phucking mouth" is all they have. whatever happened to "put your money where your mouth is"? oh, that's right. this is New York. They're bankrupt. The MEDIA telling people to shut up???!!! YOU SHUT UP! Only here for the money? REALLY? Well..."phuck you very much" then, too. Ridiculous. It makes money for no one of course. Even the entertainment value is wanting. I'm sure WWF would agree as would their advertisers and sponsers.

Wed, 08/10/2011 - 15:54 | 1547836 Slim
Slim's picture

This has been going on for weeks.  Euro inter-bank lending has been getting tighter and tigher.  US money funds have been divesting concentrations of Euro bank CP.  Granted the papers only see it today but this is why the market has been selling off massively and financials have been getting killed (along with general economic and recovery concerns).  Any of them may be talking their books but either Faber has had his head in the sand or is lying.  The issues have been plain as day for a couple weeks now.

Wed, 08/10/2011 - 13:56 | 1547368 Bruce Krasting
Bruce Krasting's picture

I put my name on this as well. I said in print that I am hearing from my contacts the same as Whalen. So that is why I know that Whalen is right and Faber is well, just Faber.

The WSJ story is from yesterday. That's not relevant enough for you?

Wed, 08/10/2011 - 19:03 | 1548933 disabledvet
disabledvet's picture

The burden of proof is on Faber not the other way around. Unprofessional--unworthy of being on the air let alone representing the financial media. The fact of the matter is people want answers after the taxpayer gave these worthless fucks trillions. "Go phuck yourself" is the answer? Hmmm. where have i heard that one before. Wait 'till the terror trials start.

Wed, 08/10/2011 - 16:20 | 1548034 RockyRacoon
RockyRacoon's picture

Great article, Bruce.  These anecdotal tidbits with the accompanying news articles is very helpful.

Wed, 08/10/2011 - 13:51 | 1547347 Commander Cody
Commander Cody's picture

And you maintain money market funds are not leaving European banks?  A few weeks ago I got the latest prospectus on a Fidelity fund (yeah, I know its making zip).  The high percentage of notes held by European banks did not still well with me so I moved it all.  I'm probably not the only person taking these measures to protect principal.

Wed, 08/10/2011 - 16:43 | 1548243 Bruce Krasting
Bruce Krasting's picture

Well done Cody. I'm not sure this is going to expode so that you would have lost in your MMF. But there may have been some days when it did break the buck (before Uncle Sam steps in) But if what you did lets you sleep better, then it is a smart move.

bk

Wed, 08/10/2011 - 13:47 | 1547324 11b40
11b40's picture

You can believe who you want to believe.  Whalen has been calling the right shots for a long time, to the displeasure cheerleaders for the status quo.  It won't be long now before we know for sure who is right and who is talking his book. 

Will you come back and tell Bruce if you were wrong?

 

 

Wed, 08/10/2011 - 13:05 | 1547139 automato
automato's picture

The gold and silver bullion website has gone bonkers! Prices have gone out of control!

 

http://www.bulliondirect.com/catalog/home.do

Wed, 08/10/2011 - 13:43 | 1547308 Gold Dog
Gold Dog's picture

TROLL

Wed, 08/10/2011 - 13:04 | 1547130 web bot
web bot's picture

Faber reminds me of the rich spoiled kid that doesn't like the light to be shone on anyone else.

Chris Whalen provided top drawer commentary in the interview.

Wed, 08/10/2011 - 13:01 | 1547121 DarkStarDog
DarkStarDog's picture

"Faber is an ass"  yes, I concur.  He is most likely losing his ass and explains his imature action.  So, I expect the CNBS crowd to pray to thier Bail Out god the great Bernack to do something to save them from making bad bets as thier stupid guest recogmend each and every hour.  You'd think these dumb asses would of been greatful for the 100% gains they saw due to Burnacks dollar cruching vaporized wealt affect and cash in asap before they lose 80% of what they should of not gotten to begin with. 

Wed, 08/10/2011 - 13:01 | 1547119 Mediocritas
Mediocritas's picture

Was on the wires this morning that French banks were selling gold below spot in a desperate attempt to raise cash. Not sure if it's true but sounds plausible.

Central bank swap lines are going to be running hot (as you predicted Bruce) in the very near future.

Wed, 08/10/2011 - 13:50 | 1547339 MachoMan
MachoMan's picture

If so, it sure didn't offer any price relief in ol' tradition.  Buy the fucking smaller ramp than would have otherwise happened?

Wed, 08/10/2011 - 13:00 | 1547115 Cone of Uncertainty
Cone of Uncertainty's picture

Good post.

Wed, 08/10/2011 - 16:57 | 1548355 Reggie Middleton
Reggie Middleton's picture

I'll gladly go back on CNBC to discuss banks. It should be obvious that I don't mind ruffling feathers and I feel I have a pretty firm grasp on what is happening over in Europe.

Wed, 08/10/2011 - 18:28 | 1548791 silvertrain
silvertrain's picture

You always do a great Job Reggie..

I saw faber about 2 to 3 weeks ago challege Jim Rickards on Squawk box on something similar to that exchange this morning he had with Chris..He was wrong then also..

Wed, 08/10/2011 - 17:34 | 1548563 breezer1
breezer1's picture

you have been calling em right all along reg.

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