Consumer confidence indices collapsed to levels not seen in years or even decades. Yet the toughest, most indefatigable creature out there struck again.
There is no shortage of hatred for the biggest banks. Indeed, the Occupy Wall Street movement is leading a national revolution against these byzantine, powerful Goliaths for the economic devastation they have caused. This makes it difficult to choose the worst of the bunch. That said, a strong case can be made that Bank of America deserves the title of the nation's most despised bank. Here are ten reasons to take your money out of Bank of America - and park it at a credit union or community bank near you. (And yes, that may be near impossible if you have a mortgage with them, as refinancing away from any big bank nowadays is a nightmare.)
Here are the EBA's latest stress test results, or, more specifically, the worthless exercise of how much capital European banks need to get to both 9% Tier 1 as well as to build a "temporary capital buffer against sovereign debt exposures to reflect current market prices." Let's not forget that in the last two stress tests, the EBA found something like a grand total of €5 billion in capital deficiency. This time, the joke is again on the EURUSD traders, as the number for Tier 1 at 9% satisfaction is €106 billion, below the €200 billion projected by the IMF, the €400 billion projected by Credit Suisse, and €1 trillion calculated by Goldman Sachs. Granted the number excludes a further €40.6 billion in sovereign capital buffer, so altogether the number is about €147 billion. Furthermore, if you live in Ireland, you are in luck: none of your nationalized, insolvent banks need additional capital. Neither do banks in Hungary, which is about to be downgraded by the rating agencies, Finland or the Netherlands. Stunningly, Dexia which 5 months ago, sailed through the EBA's farce of a test with flying colors now needs a whopping... €4.1 billion. This is a bank which a few weeks ago had around €47 billion in collateral calls. As for banks that need the most capital to reach their targeted capital buffer of 9% Tier 1, Greece needs €30 billion, Spain needs €26 billion, and Italy needs €14.8 billion. Oh yes, France, which contrary to previous media reports of needing to liquidate hundreds of billions, apparently somehow only needs €8.8 billion. Here is our napkin math: take whatever the EBA estimates, and multiply it by 10. You will then be only 25% less than what the final capital shortfall is. Unfortunately for the EBA, the number of idiots who will fall for this "third time is the charm" farce can be counted on one finger (at best).
Whitney Tilson Explains Why He Went Long Netflix, Says He "Hasn't Lost His Mind", Cites Business Insider To "Defend" ThesisSubmitted by Tyler Durden on 10/26/2011 10:59 -0500
And now the "letter" we have all been waiting for...
As Merkel ends her speech to the Bundestag on her way out to the Euro Summit, here are the main rhetorical conclusions:
- MERKEL SAYS JUSTIFIABLE TO MAXIMISE EFSF FIREPOWER
- MERKEL SAYS GERMANY `IS NOT THE NAVEL OF THE WORLD'
- MERKEL SAYS EURO CAN'T BE ALLOWED TO FAIL
- MERKEL CITES 'HISTORIC DUTY' TO PRESERVE EUROPE, EURO
But none of that compares to what just was the use of the nuclear mutual assured destruction option, to wit
- Merkel: No one should take another 50 years of peace in Europe for Granted
And scene: Hank Paulson would be so proud
We are far enough away from the onset of the Great Recession that another down-wave in the depression (or a new recession if you go by NBER) is either here or due soon. It may not be a severe downturn, as housing and autos would be falling from first- or second-floor windows in that case, but it would be occurring on the backdrop of a weakened structure, and thus the financial effects could be more severe than the economic effects (which could be severe or mild). Here is what you need to do.
With less than 48 hours left until Europe's latest and greatest summit on Wednesday (no point in keeping count: it is certain that yet more extensions wil be demanded and granted, letting the EURUSD have just that much more space from where to fall) Europe has, as it usually does in the 12th hour after it whips out the abacus, realized that the EFSF in its latest incarnation is Dead on Arrival (as expected). So what does Europe do? Why come crawling to Uncle Sam of course, only in this case it manages to save face as the uncle is really Aunt Lagarde, one of Europe's own, and ironically up until 4 months ago, the Finance Minister of what has emerged as the most distressed core European country. From the WSJ: "Europe may ask the International Monetary Fund to create and run a special new fund to help solve its debt crisis, according to a person familiar with the matter. The idea is one of several options still in the formative stage that European officials are considering as a way to prevent the crisis from engulfing its largest economies. The IMF and world financial leaders fear that if Europe doesn't act forcefully now, it could push the global economy into a recession and spark another global financial meltdown." And yes, there is a reason why three weeks ago we made big news out of the IMF scrambling to "Double Bail Out Capacity To $1.3 Trillion, May Issue Bonds." Because when in doubt always follow the money, or in this case the US taxpayer bailout, because this is what the IMF's turbo intervention will be: it will always give the right answer.
Ray Dalio On Whether The Current "Hopeless, Mob-Rule Deleveraging " Can Lead To The Ascent Of Another "Hitler"Submitted by Tyler Durden on 10/24/2011 19:19 -0500
Yesterday we presented the complete must watch Ray Dalio interview and transcript from his Charlie Rose appearance in which he explained how, in his increasingly skeptical view, we are now "out of ammunition" as there are "no more tools in the toolkit." Today, he layers on top of this rather bleak macroeconomic perspective some very disturbing observations, specifically, what the realization of the dead end situation facing monetary and discal authorities means when confronted with a violent (metaphorically) deleveraging, and a violent (quite literal) social mood. In an FT op-ed he writes; "We are in the midst of a deleveraging, we are nearly out of ammunition and we are at each other’s throats. Being in a deleveraging and nearly out of ammunition is a very difficult position to be in. But, being at each other’s throats is our biggest problem." Needless to say this won't be the first time we have found ourselves in such a predicament: one very vivid example from history beckons: "Frustrations increase, the established ways of doing things come under attack and frustrations over the ineffectiveness of government creates the perceived need for someone to gain control of the mess. Plato spoke of this dynamic. It was the reason Hitler was elected in 1933."
Dalio: "There Are No More Tools In The Tool Kit" - Complete Charlie Rose Transcript With The Head Of The World's Biggest Hedge FundSubmitted by Tyler Durden on 10/23/2011 23:02 -0500
When it comes to reading the world's "tea leaves", few are as capable as Ray Dalio, head of the world's biggest (macro) hedge fund, Bridgewater Associates. So when none other than Ray tells PBS' Charlie Rose that "there are no more tools in the tool kit" of fiscal and monetary policy to help America kick the can down the road, perhaps it would behoove the respective authorities to sit down and listen. Or not... and just to buy S&P futures in hopes that record career risk is big enough to force every other asset manager in the market to do the dumb thing and follow the crowd of lemmings right over the edge. Luckily, there are those who have the luxury of having both the capital and the time to not be drawn into the latest sucker's rally. More importantly, Dalio shares some truly unique perspectives on what it means to run the world's largest hedge fund, his perspective on Occupy Wall Street and demonizing wealth and success (in a way that does not imply crony capitalism unlike some others out of Omaha), his views on taxation, on China, on the markets, on Europe and its insolvent banks, most imporantly on the economy and why the much pained 2% growth (if that) will not be nowhere near enough to alleviate social tensions, such as those that have appeared over the past two months. Dalio's conclusion, in responding to whether he is optimsitic or pessimistic, to the current environment of broad delevaraging of the private sector, coupled with record releveraging of the public, is that he is "concerned." And that's why, unlike the recently unemployed David Biancos of the world, who never exhibit an ounce of skepticism, Dalio is among the wealthiest men in the world (and hence a prime target of the #OWS movement).
In 1932, approximately 80 years ago, 43,000 marchers (17,000 veterans) descended upon Washington D.C. The Bonus Expeditionary Force, also known as the “Bonus Army”, marched on Washington to advocate the passage of the “soldier’s bonus” for service during World War I. They set up a camp with tents to bring attention to their cause. After Congress adjourned, bonus marchers remained in the city and became unruly. On July 28, 1932, two bonus marchers were shot by police, causing the entire mob to become hostile and riotous. The government turned the U.S. military upon its citizens. Army cavalry units led by General Douglas MacArthur dispersed the Bonus Army by riding through it and using gas. Fifty five veterans were injured and 135 were arrested. Critics of the marchers described them as communists, troublemakers, and criminals. Fast forward 80 years and we have protestors setting up camp in a public square, not far from where the same exact banks that caused the Great Depression have created the Greater Depression. The biggest Wall Street banks have gotten bigger. The Federal Reserve, in collusion with the Wall Street banks, has engineered a two year stock market rally, while the average American has seen their wages decline, food and energy prices soar, home prices fall, and banks paying them .1% on their savings. Anger and disillusionment continue to build in this country like a volcano preparing to blow. Some people are angry at Washington politicians. Some are angry at Wall Street. Others aren’t sure who to be angry at. The evil oligarchy of bankers, corporate titans, and bought off Washington politicians that control the agenda and mainstream media, continue to scorn, ridicule and denigrate the middle class of America. Their financial engineering is failing. They’ve gone too far. The debt accumulation is unsustainable. The mood of the country has darkened and talk of revolution and the shadow of impending violence is growing.
The math of the European bailout (using the EFSF or otherwise) is so easy even a cave-EUReaucrat can do it: It doesn't work. But leave it to Europe's financial ministers to figure this out in the literally last minute. As Bloomberg reports, "A 10-hour meeting in Brussels failed to yield a blueprint for banks’ role in a revamped Greek rescue as European finance ministers haggled over what they called a “credible firewall” against fallout from deeper writedowns." And now it's 5 start dinner time: "The ministers’ meeting broke up at about 7 p.m. after reaching agreement that European banks may need about 100 billion euros ($139 billion) in capital after marking their sovereign-debt holdings to market values, according to a person familiar with the discussions. This amount is needed to reach a core tier 1 capital level of 9 percent based on a European Banking Authority test, said the person, who declined to be identified because discussions are private." No, it's not, it's a joke. The number, once again for those who dare to approach "stuff" mathematically is anywhere between €400 billion and €1 trillion. But we give the EUReaucrats another 2 months before they comprehend this simple fact. Which means that tomorrow's summit which was supposed to be the "come to God" meeting which was expected to resolve all of Europe's problems, much to our, and every other non-momo's relentless snickering, will be a complete and total disaster. But fear not: because Europe has another 3 whopping days after that until Summit #2, when everything will be fixed. For realz.
Goldman Sees An "Unusually Uncertain" Future And Another Debt Ceiling Hike Just In Time For The Presidential ElectionSubmitted by Tyler Durden on 10/22/2011 14:42 -0500
Even if the European Lack of Union does, miraculously, come up with some short-term resolution of a mathematically unsolvable crisis (at its core, the problem is that there is simply far more debt than there are assets, let alone cash flow, period, end of story) suddenly the market's will refocus its attention on the question of our own intractable math: i.e., how will America, suddenly once again the "neo-decoupled" source of global growth (don't look now but the Shanghai Composite is at multi-year lows even post the bank bailout from two weeks ago so the "dynamo" sure won't be Beijing), proceed to lead the world out of its latest slump? The answer is simple - it won't. At least not according to Goldman Sachs, which once again focuses on what everyone so conveniently chooses to ignore - the complete fiasco that is America's fiscal situation. Here is a reminder: "The fiscal policy outlook is unusually uncertain, and this uncertainty will persist even after the “super committee” reaches a decision by its deadline roughly one month from today." The European math is not the only one that does not work: "Even if reforms are agreed to next month, further legislation will need to be passed next year to address the expiring 2001/2003 tax cuts and the potential constraint of the statutory debt limit (again). Some lawmakers may also want to intervene to alter the automatic spending cuts that would take effect in early 2013 if the super committee fails to reach its $1.2 trillion deficit reduction target." For those who enjoy solving insolvable problems: you take your 2.0% (tops) Q3 GDP, and cut it by 2.5%, and that's the growth rate in 2012. Why? "In FY2011, several temporary provisions added to the budget deficit. These included the payroll tax cut; emergency unemployment compensation; spending from the American Recovery and Reinvestment Act of 2009 (ARRA), and expensing for corporate investment. Together, these account for almost 2.5 percentage points of GDP in FY2011." With the GOP dead set on making the president seem like an economic disaster, you can kiss these "temporary" boosts goodbye. And, the kicker, as far as the president is concerned, is that as Steve Jobs predicted, he most likely will not have a second run for one simple reason. "Based on our FY2012 deficit forecast along with non-deficit financing needs and accumulation of Treasuries in federal trust funds (which count toward the debt limit) borrowing authority might be exhausted by November or December of 2012, not long after the presidential election." Or, not long before the presidential election if the US continues to spend at the current rate. In which case, Jobs will be once again 100% spot on.
And end the Fed ...
Berlusconi Screws Over The Wrong Person: ECB Shake Up Imminent Following Big French-Italian Relations SNAFU?Submitted by Tyler Durden on 10/21/2011 13:00 -0500
Just when one thought the Italian PM could not possibly come up with yet another massive SNAFU, he does it once again. This time however he may have screwed over the wrong (non-underage) person. Last night, after the FT had previously leaked (incorrectly once again) that the Italian head would pick ECB executive Lorenzo Bini Smaghi to head the Bank of Italy following Mario Draghi's departure to head the ECB, Berlusconi instead chose a relatively unknown Ignazio Visco to head the Italian Central Bank. The move, while largely symbolic as it hardly matters who is in charge of the Italian bank but is of great import from a "national pride" perspective, managed to infuriate French leader Nicholas Sarkozy, who had previously made it clear he would advance his support of incoming ECB head, former Goldmanite and current Bank of Italy head, Mario Draghi, only if Bini Smaghi would be pulled and his seat would be vacated to allow a Frenchman to enter the ECB. That did not happen. So with the latest faux pas out of Berlusconi, he is now poised to destabilize not only Italian-French relations, but the percevied stability of the ECB if the Frenchman decides to make it an issue vis-a-vis his support of the incoming President. All in all, this is yet another reminder of the total and utter chaos that dominates Europe every single day. And somehow the broad public is supposed to believe that Europe can come up with a solution to an insolvable math problem...