The Buyers Have Left The House

Via Mark J. Grant, Author of Out of the Box,


“We are on strike against the morality of cannibals.”
                                               -Ayn Rand
Slowly, surely the largest investors in the world are no longer buying the debt of Europe. Recently the Chinese sovereign wealth fund, China Investment Corp., said that they were done and would no longer be buying European debt. The institutional readers of “Out of the Box” number somewhat more than 5,000 money managers and I can report that one after another they are either seriously pairing back on their holdings or exiting Europe. The risks are just too great and the way Europe does business is also having a serious effect. You see, Europe does not count any contingent liabilities, sovereign guaranteed debt, derivatives, bank guaranteed debt, regional guaranteed debt or promises to pay for various entities as part of their calculation for their debt to GDP ratios. The CEO, CFO and the Board of Directors of an American corporation would go to jail for Fraud for operating in this manner but this is the devised scheme in Europe. This is also why it sets my teeth on edge each and every time I see some country brandishing their debt to GDP ratio in the press; it is just factually inaccurate or to be more succinct---it is a lie.
Let us consider what is happening with Bankia in Spain. The Spanish government’s bank fund has $7.40 billion left in its coffers according to the government. Bankia will require about $23 billion in recapitalization. Spain is floating the idea of guaranteeing Bankia’s debt so that Bankia can then pledge it to the ECB and get cash and since it is a guarantee and not a direct issuance of sovereign debt then Spain is waving the banner, and proudly, that it will not affect their debt to GDP ratio. There is a certain kind of madness about all of this and it is taking place in Spain, Portugal, Ireland, Italy, Greece, Belgium et al. What can clearly be said then is that the numbers we are given, the data that is flouted day in and day out as accurate is nothing short of a con game built on a Ponzi scheme that rests on the back of a financial system that has been purposefully designed to distort the truth.
Regardless of your opinion about all of this there are consequences to this type of manipulation that are in the process of becoming realized. Eventually, when hopes and prayers give way to reality, losses are taken and I submit that we are just at the beginning, just at the start, of seeing realized losses begin to hit balance sheets. A case in point would be Credit Agricole who reported that they had suffered a $3.4 billion loss because of their exposure to Greece, eliminated their dividend and watched the price of their stock sink to an all-time low which is down 72% on the year. Then with the new European bank scheme where regulators, not the judicial system, will decide just who will get what in the case of any bank impairment you can be sure, 100% positive, that the regulators will decide for the benefit of the State and the investor can go hang. While it is certainly true that many European institutions are coerced, forced may be more accurate, to buy the sovereign debt of their country or other European countries the sugar rush from the LTRO is waning while the rest of the non-coerced world is fleeing from European sovereign and bank debt like Floridians from a hurricane.  To be sure markets have been gamed before but this is one bubble that will make the American financial crisis or the debacle seem insignificant in size when the moment comes that it is pushed past the point of redemption. The European nations and banks have performed a neat new trick, nailing themselves to the Cross, and it is now only for Pontius Pilate to pick up the spear and begin.
“He who created us without our help will not save us without our consent.”

                                -St. Augustine