Eurolosers

As the 5th summit in 19 months ends in abject success (we agree to meet again in March being success) and the Brits quite rightly tell the little upstart Frog to f*ck off....
Cameron Finally Tells Sarkozy Where to Go; New treaty Splits European Union; Extreme Legal Complications Already; Expect Discord to Rapidly Spread

UK prime minister David Cameron was ready to sign on the Merkozy treaty dotted line if he got exceptions to some UK-unfriendly rules.

When Sarkozy refused to go along, the two got into a nice verbal feud, and Cameron finally said what he should have said months if not years ago as reported by Yahoo!Finance in New treaty Splits European Union

"What was on offer is not in Britain's interest so I didn't agree to it," he told reporters in Brussels.

"We're not in the euro and I'm glad we're not in the euro," he said. "We're never going to join the euro and we're never going to give up this kind of sovereignty that these countries are having to give up."

...and, on it rolls...

Swedish Prime Minister Fredrik Reinfeldt signaled after the meeting it was unlikely his country would join the accord.

"It would be very odd signing up to a treaty pointing out as if we were a eurozone country," he told The Associated Press. "And that was never the aim."

The new agreement between the 23 EU countries, according to experts, however, could lead to numerous legal problems, because the rules must not contradict rules of the EU treaties.

Cameron calls into question whether the proposed new fiscal union is allowed to use EU-institutions. "The institutions of the European Union are the European Union, the 27," said British Prime Minister.

....etc etc. The shit should well and truly be on the fan around May.

Meanwhile, the German's have a Minsky moment and realise WTF is going on (its un PC but WTF, I'm getting sick of this shit)...

Gotti Hasn't Drunk The Kool Aid

Robert Gottliebsen has been impressing me of late. It seems he hasn't drunk the 'everything is fine, carry on' juice. In today's Business Spectator he paints a poignant picture of where the property ponzi bubble came from and where its going.

A wake-up call for Australian banks

Australian banks have been money-making machines because they have paid low rates to bank depositors and supplemented their consequent low Australian deposit base by borrowing between 40 and 50 per cent of their funding requirements from the global wholesale market. (It’s currently around 40 per cent). The banks have then used their fund avalanche not so much to support businesses, but to fund houses. Australian dwellings have become among the most expensive in the world because of the widespread availability of bank credit.
 

What Standard & Poor’s is telling the bank CEOs, Treasurer Wayne Swan and the Australian public is that it is highly likely that longer-term this game can't continue. Because of the deep problems in the European and US banking communities, plus the demand for funds in Asia, massive wholesale bank borrowing to fund housing markets will not be available unless you are prepared to pay much higher rates of interest.

The wake-up call to Australian banks requires them to become less dependent on wholesale bank deposits and begin to fund much more of their loan book at home. Secondly, banks will need to be much more active in funding businesses that create jobs to generate the capital city employment needed to enable homeowners to service their loans. 
 

And finally, the banks better hope that the mainland Chinese cutback in apartment buying is not a signal for a wholesale mainland Chinese withdrawal from our apartment markets in Sydney and Melbourne (The sting in a China property tale, November 23). Then we really would have trouble.

Australian Debt Clock

"A Global Financial Crisis of Epic Proprtions"

First, who is Kyle Bass?

See my post Debt Sustainability: Which Countries Are Beyond the Point of Return and Why

This guy is good. Sorry no video embed available, click on pic to start video...

This is not a cyclical rebound from a crisis we had two years and you should NOT be buying stocks because a P/E ratio is low relative to historical S&P behavior because the E is wrong. We are going to see declines and people don't know how to position themselves for declines. We are at peak earnings now! Earnings only look good because if you take all the bad assets and put them on the public balance sheet.

Is your super in cash or equities?

Bass's letter to clients:

Hayman_Nov2011

Euro Failure Is Systemic

Mervyn King: the eurozone crisis is 'systemic' (Video embedded in link)

The Bank of England Governor Sir Mervyn King urges banks to brace themselves for a potential eurozone collapse amid fears that Britain is caught in a second credit crunch.

Sir Mervyn said financial systems around the world are vulnerable to the eurozone debt crisis and its underlying causes - but warned a resolution was "beyond the control" of any UK authority.

Appearing in his role as chair of the interim Financial Policy Committee, the Governor said: "In the UK, we most try to bolster the resilience of our financial system to better withstand the storms that may come in our direction."

The report comes after Downing Street warned last night that Britain was in the grip of a second credit crunch, and six central banks, including the Bank of England, acted to encourage lending between banks and stave off economic stagnation.

 
'Central Banks' Coordinated Move Has Solved Nothing'

Global stock markets on Wednesday were euphoric after the major central banks around the world made it easier for banks to access dollars. But the euro-zone debt crisis rages on nonetheless. At the most, say German commentators, Wednesday's move merely buys some time -- but not much.

On the one hand, Wednesday's coordinated effort taken by central banks around the world provided a needed shot in the arm to uneasy global stock markets. It was a clear message that the European Central Bank, the US Federal Reserve, the Bank of England and the central banks of Canada, Japan and Switzerland were not going to leave the global economy in the lurch.

And the effects were instantaneous. Germany's leading DAX index spiked by more than 5 percent, in France the jump was over 4 percent and the Dow in New York likewise made gains. Even the euro jumped in value against the dollar.

On the other hand, however, Wednesday's announcement is a clear sign that the problems facing the global financial system are serious. The move will lower the interest rate charged on short-term dollar loans among banks, an attempt to keep the supply of dollars flowing, which is critical to overseas business transactions. But the last time such a measure became necessary was in October 2008, at the height of the financial crisis that erupted in the wake of the collapse of investment bank Lehman Brothers.

Indeed, European Central Bank President Mario Draghi warned on Thursday that the ongoing debt crisis rocking the euro zone may spill over into the real economy. "Downside risks to the economic outlook have increased," he said in a speech to the European Parliament. The comments were enough to put a brake on the stock market rallies seen in Europe on Wednesday.

Seen on Macrobusiness by a poster named "flawse":

you are placing bets on decisions that are being made by people who don’t know how we got to where we are, don’t know where we are and haven’t a clue where to go from here.

Thats it in a nutshell.

Australian Banks Downgraded

5 days after I wrote Australian Banking Crisis, I read that our banks have been downgraded.

S&P cuts ratings of big four banks

Standard and Poor's has cut the credit rating of some of Australia's major lenders, including the big four banks and investment bank Macquarie Group Ltd.
 
The changes are part of a shift in assessment criteria at the ratings agency, which saw it cut the ratings of 37 US banks earlier in the week.
 
ANZ Banking Group Ltd, Commonwealth Bank of Australia Ltd, National Australia Bank Ltd and Westpac Banking Corp Ltd have all had their credit ratings downgraded from AA to AA-.

Macquarie Bank's A long term rating has been affirmed, while Macquarie Group was cut by two-notches, from A- to BBB+

The new approach takes into account offshore financing levels and Australia's high level of foreign debt.

Where have they put all the money (over $600 Bilion nett) they have borrowed overseas? Into a property bubble.

Tick, tock, tick, tock - Australian Debt Clock.

China's Economic Slump

The Coming China Collapse: Economic, Political Or Both?

Even with this enormous credit expansion, recent estimates (.pdf) still place the number of Chinese living on less than $2 per day at approximately 480 million, over a third of the entire population. The credit push has lead China to consume more than half of the world's cement, 47% of the world's coal and 48% of all iron ore. This, for a country whose GDP is just 10.7% of the entire global economy and hundreds of millions wallow in poverty.

Sustaining the credit expansion in an attempt to prevent a recession has built the world's largest house of cards. Estimates have put the number of vacant apartments built as high as 64 million. Entire ghost cities have been constructed and sit virtually empty. The homes are simply unaffordable. The average Beijing citizen's entire annual income would purchase just 10 square feet of residential property. In the commercial sector, China holds the record for the world's largest shopping mall. Currently it is 98% vacant.

China's real estate bubble, one of the few remaining, is losing air at an astonishing speed. In just the past few weeks, hundreds of real estate brokerages have shuttered and thousands of workers have been laid off. The private SouFun Group in Beijing announced that the number of transactions fell by more than half in six of the 35 cities it surveyed just this month compared to last year. At least some declines were seen in 80% of the cities it surveyed.

Fear of punishment kept a lid on public protests in China for decades. However, a recent wave of protests might be enough to foment into an unstoppable movement. In August, an estimated 12,000 people gathered in Dalian demanding the closure of a chemical plant. In a defeat for the government, the protests ultimately succeeded and authorities announced the plant would be closed. That protest and victory by civilians was just one recent example. While Beijing still has success stifling news of dissent and protests from reaching the outside world, the sheer numbers have been overwhelming. According to Sun Liping, a professor at Tsinghua University, as many as 180,000 separate protests and other unrest occurred in China last year. That is nearly 500 for each and every day of the year.

Beijing has been forced to close off sources of easy credit to keep inflation from running rampant. The tightening brings copper to a tipping point where massive business defaults could occur, pushing prices even lower. In turn, the slowing of China's real estate market could be pushed into a freefall that makes the rest of the world's problems look miniscule. Pile all of those potential economic disasters on a poor and angry populace seeing success in fighting government for the first time in decades and the outcome will be anything but stable. In fact, China may not be the largest country on the planet for many more years. What was once called China could be dozens of smaller states fighting for the scraps left after the fall of Beijing.

I shudder to think of the economic consequences to European and American countries if the scenario plays out.

Economic Trouble in the West Shows Signs of Catching Up With Asia

HONG KONG — Asia’s ability to stay resilient amid the West’s economic troubles is slowly waning.

For much of this year, the economies of the Asia-Pacific region appeared to be blissfully isolated from the turmoil in other parts of the world. Asian stock markets fell along with those in the rest of the world, but the region’s economies continued to power ahead.

Within the last few weeks, however, cracks have emerged in the region’s mighty economies, and analysts and policy makers have become more concerned about the painful disruption that could spill into Asia as the situation in Europe continues to deteriorate and the United States’ growth remains subdued.
Exports from Asia have been softening for months as demand in Europe, in particular, has slowed. Although many countries depend less on exports than they once did, the sector remains crucial for economies like those of Taiwan and South Korea and for the small, open economies of Hong Kong and Singapore, economists say.

“The potential risks for Asia have increased” as the European crisis has moved beyond small peripheral economies like Greece, enveloping larger countries like Italy, Spain and even France, said Frederic Neumann, co-head of Asian economic research at HSBC in Hong Kong.

China won't save us – safeguard your wealth now

Thank goodness for China.

The US is going nowhere. Europe's heading back into recession. But China should be able to keep global growth going.

And even if China suffers a few bumps along the road, it's the superpower of the future. So best invest in it now.

At least, that's the story the bulls are sticking to.

Sadly, it isn't likely to work out that way. With China now facing some huge problems, the country is a long way from being a 'safe haven' for investors.

Let me explain why – and then we'll take a look at where you should really be looking to invest your money in these uncertain times.

China PMI Falls for First Time Since 2009

China’s manufacturing contracted for the first time since February 2009 as the property market cooled and Europe’s crisis cut export demand, a survey showed. 

The Purchasing Managers’ Index fell to 49.0 in November from 50.4 in October, the China Federation of Logistics and Purchasing said in a statement today. The median estimate in a Bloomberg News survey of 18 economists was 49.8. A level above 50 indicates expansion.

The central bank last night announced the first cut in banks’ reserve requirements since 2008, moving two hours before the U.S. Federal Reserve led a global effort to ease Europe’s sovereign-debt crisis. The move will add about 370 billion yuan ($58 billion) to the financial system and more reductions may follow as the government seeks to support growth, Citigroup Inc. said
.
Today’s report “clearly adds to the urgency for easing,” said Yao Wei, a Hong Kong-based economist with Societe Generale SA. “The PMI is showing weakness across the board and this would seem to be the reason the government cut banks’ reserve requirements. If this trend continues we should see another cut pretty soon.”

Global Central Banks Ring Gold Buyers' Bell

Peter Schiff is one of my most respected financial commentators, he called the sub-prime collapse and the equity crash of 2007-2009.

Today’s unprecedented announcement by the world’s most powerful central banks was a loud and clear bell ringing to buy precious metals. The move, disguised as an attempt to help the fragile state of the global economy, is in reality a move to prop up failing banks in Europe and the US. By reducing interest rates paid for dollar swaps, central bankers are in effect increasing the quantity of global dollars in circulation.