The volume of searches for the phrase 'Bank Run' has just hit an all-time high - higher now than even during the peak of the Lehman Brothers 'moment'. While English dominates the language choices, the Europeans (Dutch, Germans, and French) are extremely 'interested' as are the Chinese...but it appears the Singaporeans are running the most scared (as we noted here) is perhaps not surprising, followed by the Irish and the Americans - with Germany a disappointing 10th - perhaps they really do not care as much as everyone's bluff-calling hopes. It seems the fears of real 'bank runs' are becoming virtually 'viral' - not a good sign for the stability of the fictional-reserve-banking-dependent status quo.
We have spent a considerable amount of time in the last week or two explaining just why depositor withdrawals (or bank runs) are the death knell for the Euro experiment. We first described the 'run on banks and governments' on the basis of the potential for overnight loss of 'fungibility' back in December but the escalation last week in Greece (and the contagion to Spain's Bankia) signals things are shifting to 11 on the amplifier of Euro-Fail. This evening brings new information from The Guardian that 'Police are urging Greeks to keep their money in bank accounts rather than putting it at risk of theft, amid further uncertainty about whether the austerity-struck country will remain in the eurozone.' Greece's national police spokesman, Thanassis Kokkalakis, told Reuters: "Many people have withdrawn their money from the banks fearing a financial crash, and they either carry it on them, find a hideout at home or in storage rooms. We urge people to trust the banking system, leave their money there, or at least in a safe place, not hide it at home" Is anyone picturing Cramer and his 'Bear Stearns' call? Speculation of a Euro-wide deposit guarantee scheme was quashed somewhat by yesterday's dismally predictable non-event summit - especially given the only three-week span to the next elections. That leaves Greek citizens juggling the possibility of having their home robbed against the probability that the government, via GEURO-isation, will do it for them in the bank.
As Bankia Bailout Costs Grow Exponentially, Is A Stealth Bank Run Taking Place... And What Happens To Ronaldo?Submitted by Tyler Durden on 05/24/2012 18:44 -0400
Note the following sequence of events, bolded numbers, and dates:
- Bank Of Spain Formally Nationalizes Bankia, Says Insolvent Bank Is "Solvent", Adds There Is No Cause For Concern, Zero Hedge, May 9
- Spain is taking over Bankia by converting its 4.5 billion euros of preferred shares in the group’s parent company into ordinary shares, BusinessWeek, May 21
- Spain said on Wednesday its rescue of problem lender Bankia would cost at least 9 billion euros ($11 billion), as the government tries to clean up a banking system that threatens to drag the country deeper into the euro zone crisis, Reuters, May 23
- Bankia SA will have to ask the Spanish government for more than 15 billion euros as part of its effort to restore its financial health, state-owned news agency EFE reported Thursday, citing financial sources, Dow Jones, May 24
Hopefully we aren't the only ones to notice how the bailout cost has oddly doubled almost on a daily basis.
The impression that bankers and regulators have seems to be that banks are doing customers a favour by holding onto their money and occasionally losing it all buying junk securities. Nope. In a free market, banks that tried to charge customers for the privilege would be laughed out of the marketplace. Banks — by their very definition as intermediaries — generate profits from making good investments, not by charging customers for the privilege of holding their money. Unfortunately this isn’t a free market, and banks can (and probably will) co-ordinate with each other to keep the market uncompetitive. Barriers to entry make it difficult to impossible for new players to enter the market and dislodge the status quo.
Not like this will come as a surprise to anyone in the aftermath of last week's abysmal FaceBook IPO which pretty much killed all retail interest in equity markets, but in the last week, the "dumb" money pulled another $3.5 billion out of domestic stocks per ICI, bringing the total tally to 13 consecutive weeks of outflows, and 52 weeks of outflows in the past 56 weeks, with redemptions amounting to $46 billion in 2012, compared to just $6.5 billion for the same period in 2011. Algo-matic, the 20 remaining Primary Dealers and whatever hedge funds are left can pass hot grenades amongst each other: the retail money (RIP) has found other ways to amuse itself.
There was a time when the CME was rushing to hike crude, gold and silver margins. That seems like an eternity ago. So was the appointment of Obama to the role of margin hiker-in-chief, and his most recent witch hunt to rid the world of all evil speculators (oddly, the speculators are only evil when driving the price of oil higher, never that of stocks). Anyway, as of minutes ago, the CME just cut margins for Crude (CL) and Gold (GC) by 13% and 10% respectively. At this point we doubt it will do much if anything. Those who care, know that the only real assets are those that one has possession of, not held by proxy of an exchange which just can't wait to spring the trap and hike margins the second Bernanke announces the NEW QE. Sorry: the people just aren't going to fall for that one again.
Having hit its highs in the pre-open, equity markets drip-drip-dripped lower all day, retracing their late-day exuberance relative to credit markets and broad risk-assets by the middle of the afternoon. Even financials had given back almost all of their post 230ET ramp yesterday but then - IT happened again. Italy's Monti made the same technocrat-fed comments as yesterday and financials take off again leading stocks higher (only to come back 10 minutes later and back-pedal on his hard facts). This time though - was different. Yesterday's rumor-ramp added 2.5% to XLF (the financials ETF) but this time it only managed to spur a 0.5% gain before the effects faded. Coincidentally - the ramp pushed ES (the S&P 500 e-mini futures) up to VWAP where sure enough we saw heavy volume with large average trade size step in to briefly stall the rally - which then managed to push on to near the day-session's highs (but notably all on its own again). ES very much repeated the same pattern as yesterday but with lower average trade size still - ending the day exuberant but on its own. The USD kept pushing higher though - with the divergence with stocks now very large - (as EUR leaked lower - even as AUD rallied on the rumor-ramp) but this USD strength did not weigh as angrily overall on commodities today. Late Europe rumors of another LTRO pushed stocks up and dragged gold and silver up rapidly but they all gave it back by the close. With the USD up 1.5% on the week, Oil, Copper, Gold, and Silver are in the same currency-driven range between down 1.25 and 2% on the week - perhaps suggesting yesterday's plunge in PMs has seen a short-term end to the liquidation factors (though for how long). Into a long weekend, it seemed volume remained decent enough but once again average trade size was very low (suggesting little conviction here and/or algos giving pro-size exits). Treasury yields rose all day (ending higher by 3bps or so) pulling back to near Tuesday's closing levels. VIX tracked down to 21.5% (losing less than 1 vol on the day) and is once again cheap relative to credit/equity's view.
Here in the U.S., I think that The Bernank’s plan was to pretend they didn’t need to print more money, get commodity prices down and then hope that the economy would respond favorably to that development. This wouldn’t have negated the need for more printing; however, it would have bought time and allowed for a potentially lesser degree of action. Instead, what has happened is that the global ponzi is completely and totally incapable of holding itself together without consistent and increasingly large infusions of Central Bank money. The debt burden is too large, the mal-investments too pervasive, the corruption too systemic. The whole house of cards that is the global economy will vanish into dust rather quickly without more and more printing. So what do you think they are going to do? If I am correct, and the U.S. economy itself is now in the early stages of what will probably turn into a serious economic slowdown, then it will not be easily stopped with incremental Central Bank policies. The fact that they have waited this long and the fact that the global economy is in the midst of a serious slowdown tells me one thing. They are way behind the curve and by the time they realize this it will be too late to stem the momentum. That said, I do expect them to respond and the fact that things will have gotten much worse than they expected will mean a major response. I’m not talking operation twist part deux. I mean a serious print. Potentially the BIG ONE.
And it was shaping up to be such a good year. According to the latest just released HSBC hedge fund performance update, increasingly more funds are starting to lose it, certainly for the month, but increasingly more for the year. How many LPs will be eager to keep on paying 2% management fees (forget performance) to funds who at best are long AAPL (at least 226 of them), and at worst have underperformed the S&P, for the second year in a row, by anywhere from 5 to 15%?
The latest from the mathematically challenged country:
- GREEK OPINION POLL SHOWS 85% IN FAVOR OF EURO
- GREEK OPINION POLL SHOWS 12% OPPOSE EURO
Yet at the same time...
- GREEK OPINION POLL SHOWS SYRIZA WITH 30%
That's right - 30%, or a polling record high, support anti-bailout Syriza. Finally, something like 120% want to shove Merkel's memorandum in her face, or any other orifice, although that number is based on our own, highly unscientific estimates. Basically, the Greeks don't care what currency their debt is denominated in, as long as it is not paid...
The word 'encumbrance' has received a lot of headlines in the last few months - and rightfully so - after we pointed out the impact that LTROs had in subordinating senior creditors of European banks. As Morgan Stanley points out, this is a considerable problem for bondholders as 'in a wind-down scenario, senior unsecured holders have recourse to fewer assets and hence face a higher loss given default (LGD)'. In understanding just how bad things are for European banks, it is important to focus on 'how much loss-absorbing capital there is beneath you in the bank’s liability stack, as this is the capital that will take losses before senior creditors in the event of a bail-in' which means looking at deposits as well as secured encumbrance. What is very apparent from the pictorial representations of banks’ liability structures is that rather than encumbrance from covered bonds/LTRO etc. the bigger issue for encumbrance of senior unsecured investors is the potential threat from depositor 'runs'. The hope of another LTRO is limited by collateral as policy-makers are well aware that, in a world where failing banks are to be resolved through resolution frameworks and senior creditors are to take losses to shield taxpayers’ funds, banks may not have enough ‘bail-in-able’ debt, given their growing reliance on secured funding sources. With deposits increasingly impaired - and/or the potential for contagious bank runs if we see Grexit, Europe's problem is 'all about the bank runs' now and we were told yesterday how far off that is - though the crisis 'event' may bring deposit guarantees (and the implicit exchange of sovereignty for monetary support) sooner.
The story of Facebook’s disappointing IPO is a gripping tale, and it holds some valuable lessons. But it concerns an event that has already happened. Forget Facebook — there are far more interesting events in play and that will affect you, if only at the margins. They haven’t happened yet, and they may not happen at all. But if they do, you’d sure as hell better have a plan.
Yesterday it was a record low 5 Year yield, today it is the 7 Year. Tim Geithner just issued a fresh $29 billion in 7 Year bonds at a new all time low yield of 1.203%, on top of the When Issued 1.200%,and paying a cash interest of 1.125%. Those concerned that the belly of the curve may not enjoy the benefits of Twist can put those fears at rest. The internals were non-eventful, with a 2.80 B/C, just shy of the 12 TTM average of 2.81, Directs taking down 15.70%, Indirects 42.73% and Dealers left with 41.57% of the auction, an improvement from yesterday when they were stuck with over 50% of the takedown. And so, with this final weekly auction, total US debt rises to $15.75 trillion.