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"The Dirty Work Of Going Through Old Positions On Bank Balance Sheets Is Being Done Around The Clock As We Speak"

Tyler Durden's Photo
by Tyler Durden
Monday, Feb 28, 2022 - 03:30 AM

By Larry McDonald, publisher of the Bear Traps Report

When was the last time a geopolitical risk event walked through the door behind a tech crash? George Soros always said “when past excesses are being corrected - it is always a period of maximum risk.”

Going into the Ukraine-Russia tragedy, the ferocious “buy the dip” psychology was already impaired – now the matador just put forth his final sword. The wounded bull has been laid to rest. In the early 2000s, we called it “the other side of the mountain” – use vicious countertrend - short covering rallies to raise cash. We have clearly moved from a BTFD mentality to sell the rallies mode.

A bear has arrived for lunch and unfortunately, he's staying for dinner.

We have been up all night working the phones. It has been a Lehman weekend - as in a 24-hour scramble to find and calculate the risk - NOT the size of the risk.

The dirty work of going through old positions on bank balance sheets is being done around the clock as we speak. We do know the cost of default protection on French banks has diverged from UK-Asia-centric HSBC meaningfully.

After working at Soc Gen for three years we can tell you, the books on most EU banks are a cobweb of darkness. In 2016, when Glencore was going down, every week we found more and more risk tied to Glencore assets. The truth bled out very slowly.

Italian banks have been very close with Russia as well. The point is, it's very tough for politicians to "target" SWIFT sanctions into this darkness, very tough. In a loud voice the client said - “Larry - details matter BIGLY – we need to urgently to know exactly what is sanctioned here. They - Olaf - Macron - Biden - will try and dance around risk with a targeted SWIFT but they’re probably not qualified to do so.

They are messing with the plumbing of the global financial system. If they shoot from the hip, there could be large consequences.”

Politicians are reaching in the dark to find risk. If they sanctioned the CBR (central bank of Russia) and the transfer agents for Eurobonds, then Russia will default on all foreign debt immediately. And if Russia tries to find a back door through China - will the USA fine or sanction Chinese banks?

Over the weekend another client said "Germany can play SWIFT tough guy all they want - but Macron has to protect the vulnerable Soc Gen and Draghi is probably trying to ring-fence exposed, Moscow cozy Italian banks like Intesa and UniCredit.”

Lost in the Ukraine tragedy – the Fed ́s favorite inflation measure – core PCE has moved from 3.7% in September to 5.2% in January, and the war-torn invasion only pours lighter fluid on this fire. *SCHOLZ: GERMANY TO SPEND MORE THAN 2% OF GDP YEARLY ON DEFENSE + massive social costs across the EU to off set energy prices as well.

So long to the planet's global negative yield anchor. We are heading back to a 1967 – 1979 regime. Overweight hard assets, take down financial assets and buckle up.

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