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Four Facts that PROVE the EFSF Doesn’t Matter… At All
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.
Consider the following four facts:
FACT #1: Europe’s entire banking system is leveraged at 25 to 1.
This is nearly two times the US’s leverage levels. With this amount of leverage you only need a 4% drop in asset prices to wipe out ALL equity. These are literally borderline-Lehman levels of leverage (Lehman was 30 to 1).
Mind you, these leverage levels are based on asset values the banks claim are accurate. Real leverage levels are in fact likely much MUCH higher.
KA-BOOM.
FACT #2: European Financial Corporations are collectively sitting on debt equal to 148% of TOTAL EU GDP.
Yes, financial firms’ debt levels in Europe exceed Europe’s ENTIRE GDP. These are just the financial firms. We’re not even bothering to mention non-financial corporate debt, household debt, sovereign debt, etc.
Also remember, collectively, the EU is the largest economy in the world (north of $16 trillion). So we’re talking about over $23 TRILLION in debt sitting on European financials’ balance sheets.
Oh, I almost forgot, this data point only includes “on balance sheet” debt. We’re totally ignoring off-balance sheet debt, derivatives, etc. So REAL financial corporate debt is much MUCH higher.
KA-BOOM.
FACT #3: European banks need to roll over between 15% and 50% of their total debt by the end of 2012.
That’s correct, European banks will have to roll over HUGE quantities of their debt before the end of 2012. Mind you, we’re only talking about maturing debt. We’re not even considering NEW debt or equity these banks will have to issue to raise capital.
Considering that even the “rock solid” German banks need to raise over $140 BILLION in new capital alone, we’re talking about a TON of debt issuance coming out of Europe’s banks in the next 14 months.
And this is happening in an environment prone to riots, bank runs, and failed bond auctions (Germany just had a failed bond auction yesterday).
KA-BOOM
FACT #4: In order to meet current unfunded liabilities (pensions, healthcare, etc) without defaulting or cutting benefits, the average EU nation would need to have OVER 400% of its current GDP sitting in a bank account collecting interest.
This last data point comes from Jagadeesh Gokhale, Senior Fellow at the Cato Institute, former consultant to the US Treasury, and former Senior Economic Advisor to the Federal Reserve Bank of Cleveland.
This is a guy who’s worked at a very high level on the inside studying sovereign finance, which makes this fact all the more disturbing. And he knew this as far back as January 2009!!!
Folks, the EFSF, the bailouts, China coming to the rescue… all of that stuff is 100% pointless in the grand scheme of things. Europe’s ENTIRE banking system (with few exceptions) is insolvent. Numerous entire European COUNTRIES are insolvent. Even the more “rock solid” countries such as Germany (who is supposed to save Europe apparently) have REAL Debt to GDP ratios of over 200% and STILL HAVEN’T RECAPITALIZED THEIR BANKS.
Again, it DOES NOT matter what Sarkozy and Merkel say. It doesn’t matter how much leverage the EFSF gets. Europe is broke. End of story. And those investors who get suckered into betting this mess will work out well are very likely going to lose everything.
The impact of the fallout from this will make 2008 look like a joke. The EU is the largest economy in the world. So if its banking system collapses (and it will) we’re facing a full-scale Global financial meltdown (the IMF has even warned of this).
That’s the reality of the situation we’re in today. I know nobody likes to publicly admit it. But it’s true.
What happened in 2008 was literally just the warm up. The REAL DEAL is coming in the next 14 months. And it’s going to involve corporate, financial, and sovereign defaults.
On that note, if you’re looking for specific ideas to profit from this mess, my Surviving a Crisis Four Times Worse Than 2008 report can show you how to turn the unfolding disaster into a time of gains and profits for any investor.
Within its nine pages I explain precisely how the Second Round of the Crisis will unfold, where it will hit hardest, and the best means of profiting from it (the very investments my clients used to make triple digit returns in 2008).
Best of all, this report is 100% FREE. To pick up your copy today simply go to: http://www.gainspainscapital.com and click on the OUR FREE REPORTS tab.
Good Investing!
Graham Summers
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still waiting for that wolf to show up...
I used to think alot of Graham, actually because I was exposed to him thru a couple buddies who are in the market ...
But Jesus fucking Christ, this guy is like a bad yahoo poster. The sane shit over and and over and fucking over...
Ok already, the world fucking sucks, but doni have to hear it everyday goddamn day from the same fucking guy so he can sell his goddamn newsletter to me...???
It's like having Elvis knock on my damn door to sell me the Elvis crunch breakfast cereal..
Graham.... Just SHUT the fuck up already..
And you will see: Christmas 2012 will arrive with none of all this Armageddon-doom. Somehow they'll fix it, or the situation is not that serious. So. No crisis, collapse, meltdown, Armageddon. Merry Christmas 2011 & 2012. And many happy new years. Boring world we live in.
WOW. THIS GUY IS A BIG FAN OF THE WORD KABOOM, HUH? HE IS A TYPICAL DOOMSDAYER. THE GLASS IS ALWAYS COMPLETELY EMPTY WITH THESE TYPE CLOWNS. AGAIN, EVERYONE MISSES THE POINT WITH KEYNSIAN MAJIC. ITS A MATTER OF TIME AND THE EFSF WILL CAPITALIZE THE BANKING SYSTEM AND WRITE DOWNS WILL PURSUE. THERE IS JUST THE DRAMA WE MUST ENDURE BEFORE WE GET THERE. THE BEAUTY OF KEYNSIAN ECONOMICS AN FIAT LAND IS THAT THE RULES CAN BE CHANGED BY THE POWERS THAT BE ON ANY GIVEN MOMENT. PERIOD. THERE IS NOT PROCEDURAL BULL CRAP. IF BENNIE WANTED TO, HE COULD HAVE A TRILLION SENT TO EUROPE WITHOUT OUR KNOWLEDGE. THIS IS NOTHING MORE THAN DRAMA BEFORE THE HARCUTS AND DRAMA PROCEED. THE DRAMA IS NECESSARY TO MAKE SURE WE THE SHEEPLE DON'T EVER THINK THAT THE ELITE CAN GET AWAY WITH ANYTHING...SO THEY HAVE TO MAKE IT VERY SCARY AND HURT ALOT OF PEOPLE IN THE PROCESS.
Hey man, if you stop shouting... the nice people will send you some FREE REPORTS.
You can't eat free reports.
I guess no one's portfolio will go up when europe falls. All the sheep investors will do a run on the banks, and flee to the dollar and US treasuries. In a real society, Gold and Silver would have already gone to the moon. It appears that the masses still prefer worthless paper to real assets. I for one will stick with PMs.
Why are you STILL here Graham??
The world was supposed to end for the Umpteenth Time last week ( or was it last month, or year, or whatever point in time??)
If the World Has Ended, WHY ARE YOU STILL HERE???
???
EURO ZONE BANS NAKED SHORT SELLING & CDS RULE CHANGE,…
The proper response lies in adjusting the mechanics. If you want to kill speculation, you need to increase the cost of speculative credit. This is not yet the case, but two other flaws are now being adressed in Europe.
CDS (credit default swaps) derivatives owners will have to have the paper the CDS insures. This seems insignificant, but until now banks could trade insurance policies for risk they where not exposed to (for instance other peoples life insurances). This meant they had an incentive to bring about the insured defaults! This also meant a huge credit expansion that resulted in a highly connected ‘financial system’ that could ‘collapse’, through the ‘suicide ribbons’ each bank held of other banks. Tirggering a CDS means such a payout for the owner, that this could immediately crash the banks involved, and because they own CDSes on each other, they would all be history within hours. Now these ribbons will be cut, the start of recovery…
Naked short selling (selling short where the stock offered does not exist) will also be banned, it allows banks to trash a stock (by offering millions of shares for sale) without ever owning one share!
In other news it’s announced that the European Commission will now raid financial companies unexpectedly to clamp down on percieved euribor cartel acitivity and derivatives irregularities. Didn’t know the EC could do that, but this is again a positive development.
The EC also proposes to silence the rating agencies, which effectivly removes their ability to direct the market to put countries under financial stress.
The world ENDS next tomorrow/week/month.
BUT, BUT, BUT, BUY my newsletter soon . . .
. . . . Before I cannot print it any more due to Hordes OF ANGRY MONKEYS climbing all over you'all!!
"CDS (credit default swaps) derivatives owners will have to have the paper the CDS insures..."
Wow, the concept of "insurable interest" makes a comeback. Who would've thought...and in Europe no less. They're catching on...now if only the US would start behaving like adults in this regard (well, one can always hope).
Mister Bear. All these problems aren't new. They have survived all these years, they will continue printing new money until the debt becomes meaningless.
You meant to say;"debt becomes worthless", I'm sure. When we are all this deep in debt, who is going to supply the income stream to service the interest on the loan? Are we there yet? Yup.
Not a snowball in Hells chance printing counterfeit wealth is going to save, or solve, anything.. in fact printing will simply destroy the thing they're printing and cause yet more social and economic confusion, panic and anger we're being 'governed' by anarchists
How long can it go on? If it were purely a matter of economics, quite a while. But it isn't. Two enormous Black Swans incoming: 2012 US election and mega political crisis, with Republican Pty about to split wide open and various Democrat pols and apparatchiks openly speculating about having "no election" (ie, Martial Law), + the Iran War. Which will cut off most of China's/Japan's oil supply and force them to shed trillions in dollars/other paper. Again, the ZOGsters don't mind any of this, because there ain't no gold in Fort Knox. It's safe and sound in Israel.
Oh please, a bunch of lefty nits were predicitngW and Cheney would cancel elections and have FEMA camps 10 years ago, now some conservative nuts are predicting same thing from Obama, I heard the same thing about Reagan, FEMA in the 80s, about y2k etc....
Truth is they don't need military power to parasite us ( other than they use defnese contracts to fleece taxpayer), they just control our money supply, and do things like TARP out in the open and have, over past 30 years, implemented legal policies that have drained the once fat and broad middle class we had, so while US GDP is still very very high relative to most countries, much less of GDP goes to general population, public works, etc, and much more of it sits idly on corporate cash reserves or in accounts of a few smart, lucky, talented, whatever, rich people that have made it big.
Truth is we still have democratic controls and power over this process but for various reasons we have not put a priority on controlling our own money suppply system, banking system, corporate governance system, etc. We could have made things work best for common wealth, insisting on the most profitable balance of private market incentives and innovation along with checks and balances to ensure there was trust and transaparency in the system, ensure the system made the general economy thrive, Instead we have gladly voted for people that have outsourced our high paying jobs, looked the other way when massive fraud was committed, when bloated govt contracts for prisons and defense services were doled out like candy, bailouts for people that got rich taking crazy risks that were destined to crash.....this all has been done in the open, by both parties and all the recent presidents....but go on, if it gets you up in the morning, go on and think Obama is going to cancel elections....thing is, they don't need any of that to get there way with us, just look at how well they have done in last 30 years, and how poorly regular folks have done
YAWN . . . DOUBLE YAWN.
He'll still be saying this same shit five years from now.
YAWN.
Sleepf the deep and restful sleep of the fool. Fools have nothing to lose sleep over as their world is one of simple notions. Sllleeeeeppp.
Your spot on, spot on. This as they say is the end of the road to kicking the can down it. No more buying time, no more promises. It will be time to be honest to the people.
You and your clients were allowed to make hay in 2008 from the collapse. Few saw it coming and were positioned correctly.
Now the whole world knows about this coming collapse and has bought puts and made bets this way or that way. Nobody wants to be left holding the bag and everybody wants to make hay when the shit finally hits the fan - if it will.
There will be a RESET of grand scale and there is no trade to profit from a reset. Not one single trade allows you to profit when everything gets scaled back.
But Good Luck Investing!
I'm not so sure the "whole world" gets it. There is still lots of talk of "hyperinflation" everywhere (even on ZH), and most people I talk to are expecting the US dollar to become worthless in the next crisis. Sounds to me like the vast majority are positioned 180 degrees wrong for the deflationary collapse that is likely coming...
Im not so sure the whole world sees it coming this go round, but you do get the sense even the dimmest bulbs have a vague idea that this isn't going to end well. Like a spooked herd, they sense something bad is coming if not exactly what (let alone how to play it). Just the same, I think you're right a massive reset is coming that will welsh on trades that were properly positioned for the downturn. It's more than passing coincidence in this connection that there were hearings on ETFs (esp the inverse variety) and blurbs about how they add to volatility. Soon they'll be attacking put options and short selling.
If they are all insolvent why/how are they still operating? If they are still operating while insolvent why can't they keep operating forever?
Bank run....Ponzi schemes can go on for a very long time, until no new suckers are found, or trust is lost and people try to get their money back.
In the case of banking and sovereign debt, no new suckers can be found when the few with money refuse to lend it to those who need it and the rest of us can't make enough income to service the debts. ala Greece, they can no longer service their debt no matter how they try squeeze blood from the turnip, more austerity will not pay the debts, and there are no more suckers to lend money to Greece.....losses have been shifted to countries' balance sheets but that can't go on forever either as they will have debts more than they can pay just as Greece does.
This may go on a good bit but longer than seems possible, but eventually, a debt that can't be paid, won't be paid.
It's either a crash that restarts money supply, or long brutal, moribond austerity of debt slaves (see third world countries paying IMF debt in last few decades) or it's people taking control of their money supply.
I'm thinking in today's politics, we will get pain of debt spread to everyone via austerity...mostly this with some crashing, just as we got in 2008...even tho a complete crash/jubilee would be much better and people democractically controlling their countries money supply would be even better.
Sometimes even the most basic concepts have to be explained once again, just to keep the confusion from choking out what little cognition survives:
Don't confuse "insolvent" with "bankrupt". Insolvent means their liabilities exceed their assets, that is, if they were forced to settle accounts today, they would have less than zero net worth. Insolvent entities, whether persons, banks or sovereign states, can continue to operate as long as they can find someone to lend them more money on some terms, however onerous.
Why can't they keep operating this way forever? Because you can't service an unlimited amount of debt. Eventually debt service takes such a large slice of state revenue, there isn't enough left to mail out the pension checks and keep the free ouzo flowing. The technical term for this critical state is "all hell breaks loose".
The bigger they are the harder they fall...
Is there any way I get git me some of them FREE REPORTS, baby?
EFSF PROVES that the Facts Don’t Matter… At All
FTFY!
Crap now it's 14 months away till WE LOSE EVERYTHING?!?
Your diagnosis sounds analagous to going in for your annual physical and learning you: 1) need a new liver, 2) have pancreatic cancer, 3) test positive for full-blown AIDS, which is conveyed to you just as a 10.1 quake begins to shake the building. In other words, a terminal case.
But what will be the first domino to fall? They are leading the market to believe things will turn out alright. How long can it continue?
When will this happen please? I am still stuck with spy Nov 1000 puts... on a day like this we actually go up?
those should be pretty deep in the money no?
Should be obvious.. they cannot afford for it to go down much now..
It took 11 or 12 weeks for them to lose the handle of the 1200 - 1300 range in '08.
This time around they are acting with more abandon and have a lot more to lose.. but they can't keep it up forever.
First ones out of the Ponzi get to keep most of the prize.
Some smart longs are going to figure that out sooner or later.. the rest are toast.
I wouldn't want to be owning (or managing) equity mutual funds now.
Smart long?....
Inverted ETF?
you are fighting a sea of Trillions of currency units all stacked against you...and 80% of options expire worthless so your odds are NOT good.
magic helmet
ain't socialism a bitch.
you've seen the corporative version, now you'll see the statist version. The FDR twist going global.
That is probably true. Goes along with "markets can remain irrational longer than you can remain solvent."
i.