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Guest Post: Which Dominoes Are Next To Fall In Europe?
Submitted by Charles Hugh-Smith of OfTwoMinds blog,
If things fail from the periphery to the core, perhaps dominoes fall that way, too.
Wondering which dominoes are next to fall in Europe? Correspondent David P. provides a list based on a simple but powerful precept: follow the smart money. In this case, the smart money entered the at-risk banking sector of a particular nation to skim the fat premium offered by its higher interest rates--rates that reflected the higher risk. The smart money then exits the nations' banking sector before the inevitable solvency crisis triggers capital controls and depositor expropriations (the comically misleading "bail-in").
Why is any money left in at-risk periphery banks? David and I discussed two dynamics.
David describes the first--chasing yields:
1. "The Chasing of Yield in a Time of Financial Repression. People chase those nickels, and since nobody (had) yet been hit by the steamroller, it was all fun and games. A good chunk of them are in time deposits, and now they can't escape. And a decent chunk is local money, too."
2. The assumption that small depositors would be protected from losses in the event of a bank failure. There was little reason for anyone to doubt that even in the worst-case scenario, depositors would be protected by one central authority or another.
3. The crisis has been averted or pushed forward into the future. Large depositors undoubtedly recognized the risk but likely reckoned that the European Central Bank's remarkable success at kicking the debt-crisis can down the road would stave off any real crisis indefinitely.
As we saw in The Real Cyprus Template (the one you're not supposed to notice), once the smart money exits the at-risk banking sector, it is allowed to fall. This suggests that one way to identify which dominoes are likely to fall next is to look at the smart money's deposits in each nation's banks.
If the smart money has pulled most of its capital out, ECB and Eurozone authorities have a diminishing stake in propping up the domino. As a result, its fall becomes increasingly likely.
Here is David's commentary and accompanying charts of seven European nations. I have arranged David's charts in a roughly periphery-to-core order.
In Cyprus, one group of depositors seemed to have the inside track on the danger of remaining as an "uninsured depositor" in the two big Cypriot banks. That group, for Cyprus, is classified by the ECB's statistics group using a long and incomprehensible ECB series name - BSI.Q.CY.N.A.L20.A.1.U5.1000.Z01.E. Here's a link if you are interested in the raw data. Translated into English, this is basically "Eurozone Banks outside Cyprus." Or more succinctly put, Smart Money.
So what is that group is doing in other eurozone nations? We are not going to monitor every nation, rather, only the ones where Smart Money could conceivably make a decent profit by being there. This is quantified by the interest rate differential.
In the charts below, the black line represents the percentage of total deposits in that country that come from Smart Money. The lower the percentage, the lower the damage to Smart Money from any default. And one thing we've learned since 2008 is, core nation politicians will not hesitate to throw any peripheral nation under the bus in order to avoid any losses to Smart Money. The red line is the interest rate spread - the higher the number is above 0, the more profitable it is for Smart Money to remain. So if its profitable, and Smart Money is for some reason fleeing, you might want to pay attention! Regardless, if Smart Money is mostly gone, that means the people in charge of the Eurosystem can pull the plug on the country's banking system at any time without fear of loss to their own banking system.
First is Cyprus, to provide an example of what a deposit situation looks like when the core system political class feels comfortable torpedoing a periphery banking system.
Thank you, David, for the commentary and charts. As David observed in our email exchange, "Things fail from the periphery to the core." With this in mind, we might arrange the dominoes in this order: Slovenia, Portugal, Malta, and then Spain.
Though Spain and Italy are considered core E.U. nations, we should probably differentiate between political and financial cores and peripheries. Should a self-reinforcing crisis of liquidity, solvency and loss of trust gather momentum, Italy's debt situation could reach critical mass, regardless of its political status as a core nation.
Similar political and financial crises could arise in The Netherlands and France,too, though these crises will probably not be triggered by an exit of core-EU mobile capital.
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Based on the another story this morning, Slovakia has 65% reserves in gold.
My vote would be Slovakia, then, gets "liberated" by bankers next.
Selling gold is the new template?
The price of 10000 tons (the total Eurozone reserves) is currently not capable of covering the debt loads. We need a drastical gold revaluation to the upside.
Drastical?
It does have a certain air of truthiness to it.
@seek
~~~
Bingo ~ we have a winner [you took the words right off my keyboard]... Have a beer! :-)
Did everything crash today?
Seems like the ABN-AMRO "gold no longer deliverable" story is about to take a twist for the worst.
Has the nazi Bundesbank pillaged neighboring Nederland from it's gold.....AGAIN?
Helmut Kohl: I ACTED LIKE A DICTATOR TO IMPOSE THE EURO.
http://www.telegraph.co.uk/news/worldnews/europe/germany/9981932/Helmut-...
The Netherlands is on the list, yes. They have 612 tonnes to rob. Easy pickings.
"We gave you a perfectly good banking system and you had to go fuck it all up. Shame on you, people of the world. Now only your gold will appease our modest thirst. Give us all your gold, bitchez."
<3, CBs.
Sind Switzer.
won't happen until after the gold has been sold.
I agree with you here EK...
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The 'bigger' picture here [assuming this is correct & this is the template]... That this is bullish for gold in the long run & that it supports that Sinclair [LINKED INTERVIEW] yesterday...
If somebody still has that link, they can put it up here... The theory was that central banks are on the verge of basically 'flipping the switch' on gold [& instead of manipulating it down, they'll try to 'manipulate it back up' because they need to put a damper on what's being drained to China]... That said ~ until 'THE DOMINOES' here fall, they still need to get their hands on it... In this way ~ it would probably play out in a way that these Cypress>Slovakia>?>? dominoes fall rather quickly... [Sorry ~ Laos & Equador aren't in the Eurozone]
If one wanted to get 'fancy' with the conspiracy part of it... It is not a stretch of the imagination that the whole BTC charade [& 'levered' BTC etf's & all], are being used as decoys to keep THE SHEEP otherwise distracted...
I'll laugh my ass off if the latest run in BTC doesn't LEVEL OFF at exactly a 10:1 ratio of $SILVER, or, roughly a 10xSLV proxy... [If that were to happen ~ I would seriously start to question WHO 'Satoshi Nakamoto' is]... What would be hysterical [if that were the case], would be that the bankers would have successfully created an engine to keep 10x the liquid cash AWAY from buying bullion...
Bitcoiners would be the central banks best friend...
For the record, the Banca d'Italia media communications guy in 2011 said "its all gold, no receivables" when asked what percentage of the enormous Italian gold was gold receivables.
However I trust him as far as I could throw him..
"*CYPRUS OUTLOOK REVISED TO STABLE FROM NEGATIVE BY S&P"
All fixed now. Just killed Cyprus Banking Sector which accounts for 65% GDP and
it's all good. What they gonna do now? Do fishing for a leaving something?
WOW, Gold is now in the FREE fall. Less than 1 hour left for Crimex close.
Gold is in Free fall? Shit, I am going to need a bigger truck. Long GM...
Cyprus is (hopefully) going to do what it does best - fish, grow wonderful produce and welcome the biggest per capita travel in the EU. Cyprus should NOT try to compete with the big boys in either manufacturing or finances. Of course, the same can be said of almost all the Southern PIGS. Pre-EU they were lazy tourist destinations set in the "old ways" of family, church, land and neighbots. Now they're train wrecks. Italy was once noted for its incredible hand-made leather and clothes, great wine, produce and hot women. Now it's noted for unemployment, despair, no growth, no kids and no hope.
bingo!
It does not matter who is next. If governments choose to allow depositors to be wiped out, it will only accelerate the end of the banking system - and the next world war. Moral hazard and trust motherfuckers. So long a fraud remains the status quo, possession will rapidly become the law and all eCONomies will be more local than you can imagine. Those who profit from the risk, should suffer the fucking consequences when the risk blows up.
hedge accordingly.
the US template for that was MFGlobal. derivative exposure is paid out before depositors.
what a shock that change of law benefits the big banks. one would have thought the mom and pop investor would be up to his eyeballs in interest rate swaps.
In 2010, when BofA stock was near $4 per share. I told someone I was buying and they called me stupid because they said that banks like BofA and JPM were going to fail. When my response was "These banks own your representation and will do extremely well as everything under the fucking sun is monetized, including your ass", the guys called me an idiot. Whatever, stupid sheep. So long as these banks are printing the money and making the "laws", they will never "fail". Nothing short of war/revolution will really change anything now.
No one wil have any idea what they're fighting for/against. You think a couple billion people who are no longer self-reliant will turn to each other for help? You can hope for it.
"all eCONomies will be more local than you can imagine..."
~~~
Right on!...
So if you happen to like Italian olive oil, or Indian Food, Thai Food, Chinese Food, Lebanese food, or whatever... You better get your ass over to the Asian, or specialty market & stock up on the exotic spices & things you'll need...
Plain rice & peanut butter get boring after awhile...
+1 "Nothing short of war/revolution will really change anything now." I' ALL IN LOP! Burn Wall Street & DC down and hang the Banksters!
Clue: If we have a "world war" at the current level of weapon sophistication all the survival handbooks, gold and guns will be useless. The only way out is the slow denouement instead of a huge collapse. Not as fun or exciting but definitely safer .
If the farmer found a way to make artificial fleece fibers, he doesn't need to shear the sheep anymore...which means...it's off to the slaughter house. Meanwhile...the sheep are mumbling "It can't happen here...they need us...Baaaaaaaa baaaaaa :)
That's a shitload of Greece.
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Tyler, I do not understand. I did not see ANY of these terms mentioned in the article: "Greece," "Greek," or "Athens." Am I missing something?
-- Paul D. Bain
PaulBain@PObox.com
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It is difficult now because countries need a centralised bank to get access to QE, but the EU currency and transmission issues are terrible.
I think things will come to a another 'head' soon.
This is intended design. Notice all the snipers of EU small fries coming from countries with sufficient CB backing. The Germans, City o' London, and New York are pillaging. China, Russia, and Japan are butting in on the action. I'm pretty sure Japan is fucked in this scenario, if China/Russia can get their "frenemies" relationship solid enough to combat the bankster unit, they could be serious competition.
It is difficult now because countries need a centralised bank to get access to QE, but the EU currency and transmission issues are terrible.
I think things will come to a another 'head' soon.
I'm from the Troika. I saw your distress signal and I'm here to help!
(Just remember not everyone who shows up when you yell for help is there to help you.)
Hell, I'm from World Bank and I want to help too.
They will not let this shit blow up.....There may be casualities...But the system is rigged to perfection and there is no other way to run it.
"They" won't have a choice when the supply lines break.
Nothing predictable will happen. Guaranteed!
Smartest thing I've seen written today. +1
so the longs have never been more leveraged long in this market. There are no shorts left and retail is completely gone. That means the market can't possibly climb any higher. These are the things we have all been agreeing to for the last two months. Also, it's just primary dealers flipping the same crap back and forth.
what else we got?
BOJ buying JGB from Japanese Banks => Japanese banks buying French and other foreign bonds from foreign pension funds/insurers/banks => Those ppl buying everything with a (dividend) yield higher than the swap rates they use to discount liabilities.... It's just madness, complete madness. But when/what/who ends it....
@fonzanoon ~ "what else we got?"
~~~
You're stranded on a desert island with 3 people... It's fine for awhile while there are coconuts & things, but what happens when the last coconut is gone?
This is the part that the team of the two people on the island that like each other the best start looking at the third dude as dinner...
& after that meal is done?... Well ~ fill in the blanks...
Of course ~ if Bernanke were around, he could just print up some more coconuts... Yeah ~ that would work...
This is nothing more than a coordinated take down of soverign banks by the central nations , much like the take down of Bear and Lehman. To the victor goes the spoils, and the loser gets fiat.
Doc you say this ends in a few big banks getting destroyed eh?
Oops... That should read takedown of sovereign nations by the central banks. My dyslexia got the better of me.
But Tommy says im alright spider
http://www.zerohedge.com/news/2013-04-10/europe-fixed-again
So, John Corzine wasn't quite smart enough to be 'smart money' but the elite like him enough to keep him out of prison.
yeah, a real POS. just shows that you don't even have to be savy or smart to rake in the dough, just connected. But then again most criminals are butt ugly stupid.
Corzinee, you are not only dishonest and stupid, you are ugly.... butt ugly.
Sickest.markets.ever
Of course we have the FED pumping 85 bln per month, now BOJ joining the party, Primary dealers going crazy etc. etc. but these moves are ALSO caused by "normal" investors going long(er). WTF is wrong with those guys... Anybody buying stocks at these levels deserves to loose 70% purchasing power over the next 3-5 years (and thats not just some wild guess). Shiller's PE is now almost 24 (compared to 16 long term average), i.e. 33% overvalued. But all bear markets go to a single digit Shiller PE before a new bullmarket starts => a 70% drop in real terms would just be a "normal" pattern.
http://www.multpl.com/shiller-pe/
The Euro elites plan to eventually use all gold reserve holdings of all member states to back the euro. Not just the 15% already transferred. So it should not be a shock that the gold gradually gets hovered up as part of the 'crisis' solution. Its a Stabilization Fund after all, just like the IMF...
Excellent article.
The correlation for Cyprus was almost perfect, beginning 2009, when yields shot up & the hunt for returns was on, up until mid-2010 - Greek troubles.
Italy looks to be mirroring Slovenia & Portugal - the ones with the most recent capital flight are probably going to blow up more violently than the rest.
Like immune response. First exposure to an allergen (Cyprus) is pretty subdued, but with antibody/cell mediated immune response prepared after first exposure, the body will respond quite violently with an immune/anaphylactic response to the next.
France would be a good candidate for a major "tax". Not like they're taxing incomes at 75% already, or anything. :)
FFFFFForward!
It was really all about getting the gold from the start anyway.
Complete scam going on.. They bombarding media with the subjects like:
"Gold Prices Slump as Fed Considers Scaling Back"
Ok, and if Fed Considers Scaling Back, then why the heck
stocks are rallies then? Absurd.
No more pizza delivery in Europe?!
That totally sucks, man!
This is totally going to mess up the acronym
Isn't it interesting how when the market goes against you, it's "wrong"?
This is how to lose money.
Slovenia, Portugal, Malta, Spain, Italy and France.
http://maxkeiser.com/2012/08/20/youri-carmas-carte-figurative-europes-re...
"Regardless, if Smart Money is mostly gone, that means the people in charge of the Eurosystem can pull the plug on the country's banking system at any time without fear of loss to their own banking system."
Interesting view - indeed the EuroSystem has... compartments
BTW, No speculation about who owns this "Smart Money"?
Anyway, it's a big wave sloshing around, seeking yield and safety...