The True Elephant In The Room Appears: Trillions In Commercial And Industrial Loans To Europe's Insolvent CountriesSubmitted by Tyler Durden on 07/17/2011 20:29 -0500
With the market's attention over the past year exclusively focused on bank holdings of insolvent European sovereign debt, which as is now well known had been declining for months, many if not all forgot that banks also have credit exposure via far simpler conduits: retail and commercial debt. And as an analysis of the full disclosure in the EBA's second stress test exposes, banks are on the hook for literally trillions in various plain-vanilla commercial and retail loans to individuals and businesses. WSJ's David Enrich summarizes it best: "Friday's test results shed light on another potential problem for Europe's banks: huge piles of residential mortgages, small-business loans, corporate debt and commercial real-estate loans to institutions and individuals from ailing countries. As those economies struggle, the odds of rising defaults grow." Oops.
Moody's which is already not all that loved in Portugal, is about to make some more friends after it just downgraded the 7 biggest Portuguese banks, all of which, incidentally, passed the Stress Test that nobody remembers any more.
It is simply a damn shame that it has come to this. What the political powers that be in Europe have done in their grasp to disseminate obvious mis/disinformation is to sow the seeds for history's first Pan-European bank run! It is more than obvious to the entire world that 18% of the EU is Literally Junk, Carried As Risk Free Assets at Par Using 30x+ Leverage. What is the purpose of attempting to conceal facts hidden in plain site?
The bond vigilantes did their job with respect to Italy. While Greece, Portugal and Ireland are, in my opinion, insolvent nations that need debt relief or restructuring, it seems clear to me that the market does not want to attack Italy out of any speculative spite. As long as the sensible fiscal policies of the last decade are further built upon, I am confident Italy can exit the eurozone debt crisis in acceptable health...Although I think the current risk-off phase could last a little longer in the very short term, for the latter half of July and heading into August I am bullish and favour another risk-on phase. In this coming risk-on phase I expect to see over late July and August my S&P targets are 1350/1370, with a possibility of a bigger move to 1440. And 1250/1220 S&P remain my bear alert levels. Over a Multi-Week/Multi-Quarter horizon, I remain bearish and risk-off, as outlined in my previous note. I have high conviction on this call.
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If We Don't Break Up the Giant Banks NOW, They'll Be Bailed Out Again and Again ... Dragging the World Economy Down With ThemSubmitted by George Washington on 07/13/2011 12:50 -0500
Last chance ...
Eighteen Percent of the EU is Literally Junk, Carried As Risk Free Assets at Par Using 30x+ Leverage: Bank Collapse is Inevitable!!!Submitted by Reggie Middleton on 07/13/2011 11:31 -0500
I have found what looks like the next TWO (That's right! Two as in number 2) Lehman Brothers and Bear Stearns sitting right there smack in the middle of plain site in Europe. The meltdown should occur just as it did here in the US, save the world 2nd largest hedge fund probably will not have the resources to pull that funny little, furry financial creature from the family Leporidae out of their hat like the world's largest hedge fund did in 2008.
So far, every iteration of the trite, overused and cliched "X is not Y" has meant to generate confidence, when all it really does is inspire laughter. Today we get Nomura's stimulus advocate Richard Koo giving a different spin on the "Greece is not Argentina" perspective.
Despite a sovereign downgrade of Ireland to "junk" by Moody's late last night, risk-appetite was observed in the market, led by out performance in Italian asset-classes after Moody's said that Italy is not in the same situation as Ireland due to its market access. This supported EUR across the board as well as the European equities, which together with comments from PIMCO that it is using the latest sell off in Italian bonds to increase its own holdings, weighed on bunds. Bunds came under further pressure following speculation that official names were checking European bond prices, and the peripheral Eurozone 10-year government bond yield spreads narrowed across the board. Weakness in the USD-Index provided strength to EUR/USD, GBP/USD and commodity-linked currencies, however, some weakness was observed in GBP/USD following the release of jobless claims change data from the UK, which showed the biggest jump in two years in June.
Despite empirical evidence that someone big stepped an and bought the bejeezus out of Italian bonds yesterday ahead of the Bill auction, and despite Willem Buiter's warning that tomorrow's critical BTP auction will fail absent ECB intervention, some of our transatlantic colleagues were panning long-winded essays that it is supremely irrational for the ECB to even think it can control the Italian bond market because of X, Y and Z. We, on the other contend, that precisely because it is supremely irrational is why the ECB will do it. And now we have evidence that if nothing else (and we will know for sure next week if the ECB bought the bonds after the weekly SMP details are released over the weekend, as else it would show that the PBOC is actively buying Italy bonds in the secondary market). And in the absence of actual buying, yoday we get another view at just how the ECB thinks it can manipulate markets. From Dow Jones: "Moody's junking Ireland is of particular concern "as many market participants have more hope for the Irish recovery story relative to Greece and Portugal," says ING rates strategist Padhraic Garvey. "Moody's have a different view." Garvey also says that the ECB asked for prices of sovereign bonds Tuesday but "there was no evidence that the ECB actually bought peripheral paper." Translation- the ECB sends out a OWIC (Offers Wanted in Competition), and dealers are supposed to soil themselves knowing full well that even if Trichet does or does not bid, other dealers may. Game theory 101.
Italy has now become the new victim as worries of a debt crisis contagion, as it is euro zone's third largest economy and the next weak link in the region. Italy's predicament could also be partly attributed to the political power struggle. If the Italian sings a good political opera, the United States gets an Emmy for its political soap.
Why would anyone think that a monetary system whereby poor states spend and get bailed out by rich (i.e., successful) states would ever work? The euro is a failed concept and will tear Europe's monetary system apart.
Who would have thought a few years ago that Moody's would be one of the biggest supporters of the gold bulls..."Moody's Investors Service has today downgraded Ireland's foreign- and local-currency government bond ratings by one notch to Ba1 from Baa3. The outlook on the ratings remains negative. The main driver of today's downgrade is the growing likelihood that participation of existing investors may be required as a pre-condition for any future rounds of official financing, should Ireland be unable to borrow at sustainable rates in the capital markets after the end of the current EU/IMF support programme at year-end 2013. Private sector creditor participation could be in the form of a debt re-profiling -- i.e., the rolling-over or swapping of a portion of debt for longer-maturity bonds with coupons below current market rates -- in proportion to the size of the creditors' holdings of debt that are coming due."
Keep your eye on the ball and don't be fooled by all the ugly macro smoke...
Unable to keep with the events in Europe which are now literally changing on an hourly basis? Fear not: SocGen's James Nixon has compiled the most succinct explanation for why we are where we are, and why things will get much worse, before they get even remotely better. In a nutshell, everything you know about the existing proposals is finished: what is currently on the table is "a wider strategy which includes lowering the interest rate on lending to Greece and returning to the idea of bond buybacks." Ah, yes, the Goldman proposal. However did we know we may end up precisely here. The problem with this proposal is that all bond buybacks at prices below par are, and always have been, considered by the rating agencies as immediate events of technical default. How this eliminates the ECB liquidity scramble bogeyman we have no idea. At this point we are absolutely certain that the only thing on the Eurozone and ECB's plate is to baffle everyone with steaming pile after pile of bullshit so unbelievable, that people are stunned for days, buying bankers valuable time to convert even more freshly printed paper into hard assets. In the meantime, there is no actual plan to deal with the problems of untenable debt, or at least not one that does not involve the outright monetization of debt and thus, the spurring of hyperinflation, which unfortunately is the last recourse to wipe out the tens of trillions in bad debts dispersed proratedly across Europe's insolvent banking system.