Via Mark J. Grant, author of Out of the Box,
Spain---The Farce Continues
“A popular Government, without popular information, or the means of acquiring it, is but a Prologue to a Farce or a Tragedy; or, perhaps both.”
In the spirit of the European Bank Stress Tests and in the continuum of the Ring around the Rosie concocted by Brussels we are about to be handed another slew of numbers that will show that Spain is fine, prospering and running along just with no difficulties at all; thank you. This data is being prepared by the German firm Oliver Wyman, the German consulting firm. You may recall that we were supposed to have audited financials by the end of September, which was promised by Spain, however that was apparently canceled and there is no such audit underway. So much for the promises of Spain.
I can tell you now, with surety, that the evaluation that we will be handed by Oliver Wyman will have all of the value of the paper found in the “banos” of any restaurant in Madrid. My viewpoint is based upon two fundamental points of logic; first is that Spain admittedly engages in “dynamic provisioning” which means that they manipulate their books to their advantage and second is that the Oliver Wyman report audited nothing, checked nothing, validated nothing but merely took the data handed to it by Spain and the Spanish banks and accepted it as factual which I can assure you; it is not given their property valuations. Given the newest bank fantasy test, the only stress being some Spanish politician keeping a straight face while he tells the world that this proves that Spain and her banks are solvent and only have a minor liquidity problem; I will warn you on the eve of its release that it is garbage and should be either ignored or used for your investment committee as a an example of how not to do things in a fiscally responsible company.
Upon being handed toilet paper it is wise to recognize it for what it is and to use it accordingly.
The Unconditional, Uncapped & Conditional ECB
On 6 September 2012 the Governing Council of the European Central Bank (ECB) decided on additional measures to preserve collateral availability for counterparties in order to maintain their access to the Euro system's liquidity-providing operations.
"Change in eligibility for central government assets: The Governing Council of the ECB has decided to suspend the application of the minimum credit rating threshold in the collateral eligibility requirements for the purposes of the Euro system's credit operations in the case of marketable debt instruments issued or guaranteed by the central government, and credit claims granted to or guaranteed by the central government, of countries that are eligible for Outright Monetary Transactions or are under an EU-IMF program and comply with the attached conditionality as assessed by the Governing Council."
" … Expansion of the list of assets eligible to be used as collateral: The Governing Council of the ECB has also decided that marketable debt instruments denominated in currencies other than the euro, namely the US dollar, the pound sterling and the Japanese yen, and issued and held in the euro area, are eligible to be used as collateral in Euro system credit operations until further notice. This measure reintroduces a similar decision that was applicable between October 2008 and December 2010, with appropriate valuation markdowns."
I think they included, but declined to innumerate, feta cheese crates, olive oil containers, various ouzo bottles, gyro sandwich shop receipts, phyllo triangles, pita leftovers and the little round wooden containers of goat cheese. With a four trillion dollar balance sheet and paid-in capital of $13.8 billion the ECB is the most leveraged government institution on Earth. The supposition here, of course, is they can print money if necessary but I ask the quite serious question of the value of that money as printed. They are already printing, of course, as demonstrated by the Greek and Spanish banks in their newest concoction of “Euroloans” and there may come a time when investors or the ratings agencies or both are going to wake-up to the fact of what is really going on and that, my friends, will be quite a moment which is why I continue to warn about Europe and to advise avoiding exposure because the day will come, the day will arrive, when reality is recognized and then the moment will not just be “Oh My” but “Oh My God” and I fear that he won’t be around that day to deliver any manna from Heaven.
Loans to Financial Intermediaries, Non-Financial Corporations and Households
Outstanding Amounts (Billions) July 31, 2012
Insurance/Corps Other Financials Non-financial Corps Households Total
$107.3 $1,508 $6,060 $6,760 $14,435.3
Source: Monthly Bulletin - Euro Area Statistics Online • Data last updated on 20-09-2012
These ECB loans total almost the entire GDP of all of the EU-17. Now you may ask a quite reasonable question at this point; how does the ECB have fifteen trillion dollars in loans outstanding and only have a balance sheet of four trillion dollars? It is an interesting trick; no doubt! The way they do it is to state that many of these loans are guaranteed by other governments and hence are risk free (the way they are actually counted) or that they are contingent liabilities (and not counted) or that they are guaranteed by some bank that is guaranteed by their sovereign nation (not counted) and so these loans do not appear of the balance sheet of the ECB but here they are as provided by data from the ECB themselves. A Revelation?
The Law of Nations forestalls the crash but the Law of Averages virtually guarantees it while the precise moment of impact is unobtainable that is exactly why I am so cautious and so determined in my viewpoint that exposure to Europe should be avoided. The impact is surely coming and in my mind; it is only a question of “When?”
“The idiocy will continue as long as the practices of Judas are believed to have been sanctified by a higher authority. The moment of the Last Supper will be inspirational to both the believers and those that chose not to believe. I am quite prepared to enjoy the Revelation in its full Biblical consequence.”