Thursday, 29 December 2011

The Chinese Insolvencies Begin

Will "it" (financial Armageddon) come from the West (Europe) or the East (China and Japan) in 2012? Or, will be a synchronous pincer movement? Time will tell.

The China Daily says it will be an unhappy New Year for Chinese banks.

Provincial borrowers defer loan payments

Hunan Provincial Expressway Construction Group is delaying payment on 3.11 billion yuan ($490.5 million) in interest, documents governing the securities show this month. Guangdong Provincial Communications Group Co, the second-largest debtor, is following suit. So are two others among the biggest 11 debtors, for a total of 30.16 billion yuan, according to bond prospectuses from 55 local authorities that have raised money in capital markets since the beginning of November.

As local governments delay payments for projects commissioned as part of the stimulus to ward off recession in 2009, less money is available for bank lending even as China is taking steps to inject more into the economy. The central bank has held interest rates at 6.56 percent since July to boost the economy, while the US Federal Reserve and the Bank of Japan have kept benchmark rates near zero since 2008.

"When companies start to roll over debt they're not retiring debt, and banks aren't retrieving their capital, so you're crowding out new lending," Patrick Chovanec, a professor at Tsinghua University in Beijing, said in a Dec 13 interview. "This is a problem that's going to start to bite next year." 

Local governments had 10.7 trillion yuan in debt at the end of last year, 79 percent due to banks, (Jesse's contagion-ometer says thats $1.7Trillion USD!!) according to the country's first audit released in June. So-called local financing vehicles that meet collateral requirements can have a one-time extension on their loans, Zhou Mubing, vice-chairman of the China Banking Regulatory Commission, said at a conference on Oct 24 organized by the Internet portal, according to a transcript of his comments on the website.

$1.7Trillion USD? I wonder if Wayne Swan reads or gets briefed on the Chinese news?

Even after the reduction in interest payments, Gansu Provincial Highway said that interest and principal payments in 2011 will amount to 3.33 billion yuan, more than its 2010 cash flow of 3.04 billion yuan, according to bond-marketing materials.

"This prospectus is telling us that banks can expect to only receive roughly half of what would have been expected in interest payments," Charlene Chu, a Beijing-based banking analyst with Fitch Ratings, said of the Gansu disclosure. 

Chinese New Year is 23rd January  2012 and its the Year Of The Dragon (no kidding!).


Saturday, 24 December 2011

Merry Christmas From Jesse

To the 3 people who read this blog, Merry Christmas and Happy New Year.

Your visits and comments are appreciated.

Feliz Natal e ano novo feliz

Irish (Gaelic): 
Nollaig Shona agus Athbhliain faoi mhaise duit

Buon Natale e nuovo anno felice

Χαρούμενα Χριστούγεννα και καλή χρονιά

Feliz Navidad y Feliz Año Nuevo

Merry Christmas Peasants - From America's Kleptocrats

Matt Taibbi has written a poignant piece in Rolling Stone. America's ultra-rich are very appreciative of the tax payer funded bailouts that fund their thievery. Read the whole article in the link.

A Christmas Message From America's Rich

“Who gives a crap about some imbecile?” Marcus said. “Are you kidding me?” 
“If I hear a politician use the term ‘paying your fair share’ one more time, I’m going to vomit,” said Golisano, who turned 70 last month, celebrating the birthday with girlfriend Monica Seles, the former tennis star who won nine Grand Slam singles titles. 
Cooperman, 68, said in an interview that he can’t walk through the dining room of St. Andrews Country Club in Boca Raton, Florida, without being thanked for speaking up. At least four people expressed their gratitude on Dec. 5 while he was eating an egg-white omelet, he said. “You’ll get more out of me,” the billionaire said, “if you treat me with respect.” 
Asked if he were willing to pay more taxes in a Nov. 30 interview with Bloomberg Television, Blackstone Group LP CEO Stephen Schwarzman spoke about lower-income U.S. families who pay no income tax. “You have to have skin in the game,” said Schwarzman, 64. “I’m not saying how much people should do. But we should all be part of the system.” 
Capitalists “are not the scourge that they are too often made out to be” and the wealthy aren’t “a monolithic, selfish and unfeeling lot,” Cooperman wrote. They make products that “fill store shelves at Christmas…” 

"Qu'ils mangent de la brioche" (Let them eat cake)

Thursday, 22 December 2011

50 Frightening Facts...On The US Economy

The Roman Empire lasted five centuries, at this rate the American Empire won't complete one. Some startling facts below with embedded links to sources.

#1 A staggering 48 percent of all Americans are either considered to be "low income" or are living in poverty.

#2 Approximately 57 percent of all children in the United States are living in homes that are either considered to be "low income" or impoverished.

#3 If the number of Americans that "wanted jobs" was the same today as it was back in 2007, the "official" unemployment rate put out by the U.S. government would be up to 11 percent.

#4 The average amount of time that a worker stays unemployed in the United States is now over 40 weeks.

#5 One recent survey found that 77 percent of all U.S. small businesses do not plan to hire any more workers.

#6 There are fewer payroll jobs in the United States today than there were back in 2000 even though we have added 30 million extra people to the population since then.

#7 Since December 2007, median household income in the United States has declined by a total of 6.8% once you account for inflation.

#8 According to the Bureau of Labor Statistics, 16.6 million Americans were self-employed back in December 2006.  Today, that number has shrunk to 14.5 million.

#9 A Gallup poll from earlier this year found that approximately one out of every five Americans that do have a job consider themselves to be underemployed.

#10 According to author Paul Osterman, about 20 percent of all U.S. adults are currently working jobs that pay poverty-level wages.

#11 Back in 1980, less than 30% of all jobs in the United States were low income jobs.  Today, more than 40% of all jobs in the United States are low income jobs.

#12 Back in 1969, 95 percent of all men between the ages of 25 and 54 had a job.  In July, only 81.2 percent of men in that age group had a job.

#13 One recent survey found that one out of every three Americans would not be able to make a mortgage or rent payment next month if they suddenly lost their current job.

#14 The Federal Reserve recently announced that the total net worth of U.S. households declined by 4.1 percent in the 3rd quarter of 2011 alone.

#15 According to a recent study conducted by the BlackRock Investment Institute, the ratio of household debt to personal income in the United States is now 154 percent.

#16 As the economy has slowed down, so has the number of marriages.  According to a Pew Research Center analysis, only 51 percent of all Americans that are at least 18 years old are currently married.  Back in 1960, 72 percent of all U.S. adults were married.

#17 The U.S. Postal Service has lost more than 5 billion dollars over the past year.

#18 In Stockton, California home prices have declined 64 percent from where they were at when the housing market peaked.

#19 Nevada has had the highest foreclosure rate in the nation for 59 months in a row.

#20 If you can believe it, the median price of a home in Detroit is now just $6000.

#21 According to the U.S. Census Bureau, 18 percent of all homes in the state of Florida are sitting vacant.  That figure is 63 percent larger than it was just ten years ago.

#22 New home construction in the United States is on pace to set a brand new all-time record low in 2011.

#23 As I have written about previously, 19 percent of all American men between the ages of 25 and 34 are now living with their parents.

#24 Electricity bills in the United States have risen faster than the overall rate of inflation for five years in a row.

#25 According to the Bureau of Economic Analysis, health care costs accounted for just 9.5% of all personal consumption back in 1980.  Today they account for approximately 16.3%.

#26 One study found that approximately 41 percent of all working age Americans either have medical bill problems or are currently paying off medical debt.

#27 If you can believe it, one out of every seven Americans has at least 10 credit cards.

#28 The United States spends about 4 dollars on goods and services from China for every one dollar that China spends on goods and services from the United States.

#29 It is being projected that the U.S. trade deficit for 2011 will be 558.2 billion dollars.

#30 The retirement crisis in the United States just continues to get worse.  According to the Employee Benefit Research Institute, 46 percent of all American workers have less than $10,000 saved for retirement, and 29 percent of all American workers have less than $1,000 saved for retirement.

#31 Today, one out of every six elderly Americans lives below the federal poverty line.

#32 According to a study that was just released, CEO pay at America's biggest companies rose by 36.5% in just one recent 12 month period.

#33 Today, the "too big to fail" banks are larger than ever.  The total assets of the six largest U.S. banks increased by 39 percent between September 30, 2006 and September 30, 2011.

#34 The six heirs of Wal-Mart founder Sam Walton have a net worth that is roughly equal to the bottom 30 percent of all Americans combined.

#35 According to an analysis of Census Bureau data done by the Pew Research Center, the median net worth for households led by someone 65 years of age or older is 47 times greater than the median net worth for households led by someone under the age of 35.

#36 If you can believe it, 37 percent of all U.S. households that are led by someone under the age of 35 have a net worth of zero or less than zero.

#37 A higher percentage of Americans is living in extreme poverty (6.7%) than has ever been measured before.

#38 Child homelessness in the United States is now 33 percent higher than it was back in 2007.

#39 Since 2007, the number of children living in poverty in the state of California has increased by 30 percent.

#40 Sadly, child poverty is absolutely exploding all over America.  According to the National Center for Children in Poverty, 36.4% of all children that live in Philadelphia are living in poverty, 40.1% of all children that live in Atlanta are living in poverty, 52.6% of all children that live in Cleveland are living in poverty and 53.6% of all children that live in Detroit are living in poverty.

#41 Today, one out of every seven Americans is on food stamps and one out of every four American children is on food stamps.

#42 In 1980, government transfer payments accounted for just 11.7% of all income.  Today, government transfer payments account for more than 18 percent of all income.

#43 A staggering 48.5% of all Americans live in a household that receives some form of government benefits.  Back in 1983, that number was below 30 percent.

#44 Right now, spending by the federal government accounts for about 24 percent of GDP.  Back in 2001, it accounted for just 18 percent.

#45 For fiscal year 2011, the U.S. federal government had a budget deficit of nearly 1.3 trillion dollars.  That was the third year in a row that our budget deficit has topped one trillion dollars.

#46 If Bill Gates gave every single penny of his fortune to the U.S. government, it would only cover the U.S. budget deficit for about 15 days.

#47 Amazingly, the U.S. government has now accumulated a total debt of 15 trillion dollars.  When Barack Obama first took office the national debt was just 10.6 trillion dollars.

#48 If the federal government began right at this moment to repay the U.S. national debt at a rate of one dollar per second, it would take over 440,000 years to pay off the national debt.

#49 The U.S. national debt has been increasing by an average of more than 4 billion dollars per day since the beginning of the Obama administration.

#50 During the Obama administration, the U.S. government has accumulated more debt than it did from the time that George Washington took office to the time that Bill Clinton took office.
The root of the problems?
Of course the heart of our economic problems is the Federal Reserve.  The Federal Reserve is a perpetual debt machine, it has almost completely destroyed the value of the U.S. dollar and it has an absolutely nightmarish track record of incompetence.  If the Federal Reserve system had never been created, the U.S. economy would be in far better shape.  The federal government needs to shut down the Federal Reserve and start issuing currency that is not debt-based.  That would be a very significant step toward restoring prosperity to America.

One presidential candidate wants to end the Fed and stop ridiculous Romanesque military forays to foreign lands (he's done military time having used his medical degree in a role as a flight surgeon in the USAF in the 60s)...


I doubt the Kleptocrats at the Fed and the banking cabal will allow the racketeering to end that easily, the propaganda campaign against Paul is fierce. Expect more of the same and the spiral to get faster and tighter.

Wednesday, 21 December 2011

Gold Since Late 2008 When The GFC/Depression Kicked Off

September and October 2008.

15th September 2008, Lehmann Bros fails - Gold Closes @ $785
10th October 2008, +$146 or 18.5% in  25 days - Gold Peaks @ $931
24th October 2008, -$250 or 27% in  14 days - Gold Closes @ $681 (as Institutional Funds liquidate everything to meet investor redemptions as panic sets in).

(click on chart to expand) 

And, since 24th October 2008 (note the dotted line of support)? Up $950 or 140% in 3years and 2 months.

(click on chart to expand)

Where to when the Eurozone slides into the abyss in 2012 and the ECB is forced to 'print' Euros? Closely followed by the US Fed with its printing aka QE3 as the global credit freezes and the depression is in full swing.

Peso del Pacifico #5

Will it stay in the declining channel with a run up to the mid 1.02s and back down to the mid 90s in January?

(click on chart to expand)

Worrisome Times For The Shortage Freaks And Shills

More nails in the coffin or the 'housing shortage' spruikers. This time from Deakin's Philip Soos.

This is often balanced by the by the shills in the mainstream media pretending to be journalists (see The Implant for an example or the SMH/Age property articles) but the message is slowly getting through.

Blowing away the bubble deniers

For over half a decade in Australia, a fierce debate has occurred over whether a bubble exists in the housing market. The vast majority of experts, institutions and the public believe that the idea of a bubble is nonsense. On the other side of the coin, a handful of individuals have contested this notion, pointing out the flaws in the bubble deniers’ line of thinking.

We will look over some of the common arguments made by the bubble deniers, to see how they stack up with the facts.

Recourse lending
One of the major arguments made by experts and industry is that a housing bubble cannot exist because mortgages are recourse in Australia, rather than non-recourse. This means that borrowers are liable for the full amount of the mortgage, whereas non-recourse means that borrowers have no legal liability to pay back the mortgage if they default.
This is often compared to the United States, which is alleged to have non-recourse loans. This line of thinking asserts that borrowers took upon irresponsible amounts of mortgage debt to speculate on housing, knowing that if they defaulted down the track, they would not be liable to pay back the full amount.
This has led to the popular term called ‘jingle mail’, referring to the notion of a defaulted borrower mailing back the keys to their lender, and walking away from the property. This typically occurs when the borrower is in a position of negative equity, that is, the property is now worth less than the loan. The lender thus makes a loss on their accounts, to the value of the difference between the loan and the current market value of the property.
As the argument goes, non-recourse lending in the US was a major factor in the run-up in housing prices, whereas Australia has recourse mortgages, and thus does not have irresponsible amounts of mortgage debt.
There is one small problem with this view: it is total nonsense.
A study by two Federal Reserve economists debunks the notion that the US has non-recourse loans. Out of the fifty states, 11 are non-recourse. All of the remaining 39 states are recourse. On top of this, in some of the non-recourse states, the first mortgage may be non-recourse, but all proceeding mortgages are recourse. Also, it often depends on the legalities and judges’ decisions as to whether a borrower is required to pay back the full value of the loan in a non-recourse state.
Worse yet, some of the states that experienced the largest housing bubbles have recourse loans, for instance, Florida and Nevada, whereas California and Oregon, similarly affected, have non-recourse loans. Overall, there is no real difference between states that have recourse and non-recourse loans, apart from recourse borrowers who tend, on average, to hold onto their properties longer before defaulting.
Ireland experienced a colossal run-up in prices over the last decade, resulting in a crash and subsequent debt deflation that has ruined the economy. What is not said is that Ireland has recourse mortgages, governed by strict rules, and non-payment may even result in imprisonment. Clearly, recourse mortgages did not prevent a bubble from forming in the housing market.
The idea that recourse mortgages enforce responsible and conservative behaviour cannot be upheld. A cursory search through Google on this topic provides information that debunks this notion (like the above study). Yet, this has not stopped the leading ‘experts’ within the RBA, Treasury, the banking and real estate industry, and academia from repeating this falsified argument again and again over the years.
Housing prices always go up
Another popular myth that abounds is that housing prices always go up and never crash. If a bubble denier reluctantly admits that past downturns did occur, it certainly won’t occur this time around.
Australia’s recorded housing price history, going back 131 years to 1880, easily debunks this myth. The nine major increases in prices have been met by eight resulting downturns, with the only exception during a small three year period from 1961-1964, where prices leveled off. The table below, from my Prosper Australia report, shows this.

We are supposed to believe that the largest increase in housing prices in Australian history will not result in the same fate as eight of the nine have.
The housing shortage
This is probably the most popular argument used by the bubble deniers. The story is that as Australia is suffering from a chronic deficit of properties to shelter a growing population, so demand is greater than supply, leading to rising housing prices.
The problem with this argument is it can’t explain why prices started to rise in 1996 and skyrocketed from 2001 onwards. Annual population growth between 1996 and 2005 registered at approximately 1 per cent, taking off between 1.5 per cent and 2 per cent from 2006 onwards. (Fundamental supply and demand issues explain rent prices, not housing prices, which is why rents have increased from 2006 onwards).
2007 was the first time since 1950 that the population increased faster than the number of dwellings. If the housing shortage argument was correct, housing prices should’ve started to rise from around 2006-2007 onwards, not 1996. The historical data shows that there is no correlation, let alone causation, between population growth, dwelling supply and housing prices.  
According to the 2006 ABS census data, there were 830,376 unoccupied dwellings during the time the survey was taken, out of a total of 8,426,559, or 10% of the dwelling stock. Unfortunately, no indication is given to the status of the vacant properties (derelict, holiday house, undergoing sale, renovations, speculative vacancy).
The Melbourne-based organisation Prosper Australia performed an innovative study of vacant properties using water usage figures. Applying a conservative methodology, it was found that almost 45,000 properties were lying vacant in the areas under study, and extrapolated across Melbourne, 61,000 properties were lying vacant for more than six months. This gives credibility to the idea that speculators are withholding properties from the market to capture capital gains rather than rental income.
Australia’s peak housing body, the National Housing Supply Council, had to include the homeless, caravan park residents, those sleeping rough and couch surfers into their figures in order to arrive at an undersupply of dwellings.
This is reminiscent of every other country affected by a housing bubble whose experts and authorities claimed that rising housing prices were caused by a housing shortage.
Australian banks have lent conservatively
This is one of the more ludicrous defences made by the bubble deniers. Our mortgage debt stands at $1.2 trillion, or 90 per cent of GDP. If personal debt is included as well, as some analyses do, it totals 100 per cent of GDP. A report by the Bank of International Settlements shows that a ratio above 85 per cent becomes damaging to the economy.

That Australia has such a high ratio is unsurprising considering the major banks have lent up to 97 per cent of the value of the property (called the loan to value ratio or LVR) and some non-banking lenders have lent out a staggering 125 per cent. The housing debt to disposable income ratio has reached 160 per cent.
Comparatively, Australia has a greater mortgage debt to GDP ratio than the US. Australians have taken upon an enormous debt load to speculate on housing prices. Why bother to work? Australia is not unique in having a disbelief in the idea of a housing bubble. By definition, a bubble requires that complicity of the majority of people and institutions to believe that there is no bubble. Otherwise, individual rational action would be promptly taken, which would result in bursting the bubble in the early stages or preventing the formation of one altogether.
The only difference between Australia and other countries affected by housing bubbles is that bubble deniers are as plentiful as kangaroos down under.

Kris Sayce, another sharp tack, chimes in...

Why the End of the Credit Boom is the Only Reason Stocks are Falling

The real reason is the end of the credit boom.

Not So Smart After All

Yes. It’s simple. For years, big business executives have been praised as geniuses. And the Aussie economy has been labelled a miracle economy due to 20 years of growth.

In reality, it’s all about the credit bubble. Remember, a bubble can make anyone look like a genius when the market is going up.

It’s the same as the housing bubble. An entire generation of 50-60 something’s still think it was their know-how and street-smarts that caused them to buy a house for $10,000 in 1971 and sell it for $2 million in 2011.

Where in reality they benefited from nothing more than a good old-fashioned easy-money credit boom.

But based on that brief 40-year period, an entire industry was born – property spruiking.

The good news is, slowly but surely the message is seeping through to the mainstream that asset prices don’t always go up. But boy is it slow. Yet we note a good article on the Business Spectator website by Phil Soos, a researcher at Deakin University.

Mr. Soos pretty much says everything we’ve said for the past three years.

He even mentions the ridiculous National Housing Supply Council (NHSC) report that counted the homeless as proof of a housing shortage!

By the way, we’re waiting with bated breath for the latest NHSC report. According to correspondence we’ve had with them, the 2011 report is due this month.

It’ll be interesting to see what the report says on the housing shortage (especially the impact of homeless people) and whether it acknowledges falling house prices.

But back to our point…

It’s the Credit Boom What’s Done It

Whether it’s slower retail sales or falling house prices, there’s one thing that links both – slowing credit growth. It was credit growth that fuelled the boom. And it’s lack of credit growth that has halted the boom and is set to send Australia into a recession.

Bottom line: the only reasons you go into debt is if you want to buy something now because you aren’t prepared to wait to buy it, or because you think it will be more expensive in the future.

And credit growth compounds that belief. The more people borrow, the higher prices grow, which requires people to borrow more.

That happens until credit growth reaches breaking point (where we are now). The fact is there just isn’t enough new credit to repay the old credit… let alone enough credit to increase the supply of credit.

That’s why Myer is downsizing and closing stores… it’s why JB Hi-Fi is set to post lower profit growth… and it’s why the Aussie housing market is heading down the toilet.

The era of the miracle economy is almost over. It’s now just a matter of “when”, not “if” the Aussie economy finally hits the skids.
Bravo Mr Sayce, bravo.

It pleases me no end that more and more commentators are throwing a few facts out there. The main stream media and the spruikers only will turn AFTER the shit has hit the fan, just like Ireland, Spain and the USA. Tassie RE Trouble has an excellent article on Dr David Lereah (former US Spruiker-in-chief) called Hiatus you google him and get 99,200 hits.

David Leareah, random three:
David Lereah Watch
Time - 25 people to blame for the financial crisis

I like this one from 2006 (just as she is rolling of the bubble peak)
NAR Housing Report: Declining Home Prices Induces Heavy Spin

David Lereah, NAR’s chief economist, said home sales appear to be leveling out. “After a stronger-than-expected drop in July, the fairly even sales numbers in August tell us the market is at a more sustainable pace,” he said. “It keeps us on track to see the third highest sales year on record, but we do expect an adjustment in home prices to last several months as we work through a build up in the inventory of homes on the market.”

The national median existing-home price for all housing types was $225,000 in August, down 1.7 percent from August 2005 when the median was $229,000. The median is a typical market price where half of the homes sold for more and half sold for less. “This is the price correction we’ve been expecting – with sales stabilizing, we should go back to positive price growth early next year,” Lereah said.

Total housing inventory levels rose 1.5 percent at the end of August to 3.92 million existing homes available for sale, which represents a 7.5-month supply at the current sales pace – the highest supply since April 1993.

"We've been anticipating a price correction and now it's here. The price drop has stopped the bleeding for housing sales. We think the housing market has now hit bottom.''
Date of that quote: September 25th, 2006.

It would be worth a laughing icon except its brought the USA into technical bankruptcy and teetering on the edge of financial Armageddon

Next time you open a newspaper and read the journo shills just reproducing bullshit releases that the 'industry' and vested interests give them to publish, some bullshit on population growth and housing shortage or you read some 'Dr' vested interest industry insider proclaiming 'its a bottom' stop and remember Dr David Lereah.

Why The French May Want To Shut Their Cheeseholes Regarding Britain

Its M.A.D. (Mutually Assured Destruction) to not do so. The UK is the centre of the world's Ponzi Debt Bubble.

Psssst France: Here Is Why You May Want To Cool It With The Britain Bashing - The UK's 950% Debt To GDP

While certainly humorous, entertaining and very, very childish, the recent war of words between France and Britain has the potential to become the worst thing to ever happen to Europe. Actually, make that the world and modern civilization. Why? Because while we sympathize with England, and are stunned by the immature petulant response from France and its head banker Christian Noyer to the threat of an imminent S&P downgrade of its overblown AAA rating, the truth is that France is actually 100% correct in telling the world to shift its attention from France and to Britain. So why is this bad. Because as the chart below shows, if there is anything the global financial system needs, is for the rating agencies, bond vigilantes, and lastly, general public itself, to realize that the UK's consolidated debt (non-financial, financial, government and household) to GDP is... just under 1000%.

That's right: the UK debt, when one adds to its more tenable sovereign debt tranche all the other debt carried on UK books (and thus making the transfer of private debt to the public balance sheet impossible), is nearly ten times greater than the country's GDP. To call that "game over" is an insult to game overs everywhere.

So here's the bottom line: France should quietly and happily accept a downgrade, because the worst that could happen would be a few big French banks collapsing, and that's it. If, on the other hand, the UK becomes the center of attention (recall this is the same UK that allows unlimited rehypothecation of worthless assets, and the same UK that unleashed the juggernaut known as AIG-FP's Joe Cassano - after all there is a reason why the UK has 600% its GDP in financial liabilities - financial innovation always goes there where it is least regulated), then this island, which far more so than the US is the true center of the global banking ponzi scheme, will suddenly find itself at the mercy of the market.

At that point the only question is whether the vigilantes will dare to take down the UK, as said take down will result in an implosion in the very fabric of modern finance, much more so than what even a full collapse of France could ever achieve, or if due to the certain Mutual Assured Destruction that would follow a coordinated UK onslaught, the market will simply very quietly proceed to ignore the elephant in the room. 

PS Australian Bank Exposure to Europe? 

Australian Banks Given One Week To Prepare For European "Meltdown"

Not prepare for a meltdown within a week but report on preparation and response scenarios if (when?!) Europe goes into financial meltdown.

  • Australian Prudential Regulation Authority envision worst-case scenario of 12% unemployment, 30% drop in house prices, 40% fall in commercial property values, AFR says
  • Banks will assume that write-offs, other mitigation measures are unavailable; later stress tests might allow for such steps, AFR says
  • Australia’s banks have A$87.2b of exposure to Europe, or 2.7% of assets, with A$74.6b of it mostly tied to bank borrowers in France, Germany, Netherlands, AFR says, citing RBA statistics
The issue isn't losing $87.2B, its about a credit freeze bringing our Antepodean Ponzi scheme to an end and thats about $600B in nett overseas debt the banks are exposed to.

Hmmm 2012 could be quite a year.

Slipstream Trader Market Update - 21st December 2011


I've just introduced 'labels' by topic on the right side under under all the other stuff.

You can now look up my ranting history by topic.

Took me ages to allocate and distribute 178 posts hence my lack of posting.

Back soon.

Saturday, 17 December 2011

Agincourt, An Anglo French Stoush

I love this speech.

25th October 1415, Seventy Eight years after the Hundred Years War started, where peasant English archers defeated French Knights in full armour on destriers.

So now we have the French getting feisty again. What are the British doing, being part of this cabal of clowns? The British are in deep poo but they have their own currency and can dump these clowns.

Britain's fiscal position is worse than France's BUT they don't need to join France in shitter's ditch shackled to the PIIGS.

I love France, its history and the French. I love how THEY (Naval blockade and superior land forces) not the Colonial Army defeated Cornwallis at Yorktown to give America its  freedom. The food, the people, magnifique!

Its not about France or the French, its about citizens surrendering their democratic rights to a banking cabal that runs the governments, and, in that aspect I salute Mr Cameron and Britain.

The British have their own currency and can dig themselves out of the shit as they have in the past, or they may not, but at least they have not surrendered sovereignty to a banking cabal.

French leaders declare a war of words on Britain 

Christian Noyer, the governor of the Bank of France, said that Britain faced larger national debts, higher inflation and slower growth than France.
François Baroin, the finance minister, said Britain was “marginalised” and faced “a very difficult economic situation” because of Coalition policies.
The blunt remarks are the latest sign of Anglo-French tension following David Cameron’s refusal last week to back a new European treaty drawn up in response to the eurozone crisis.
George Osborne, the Chancellor, also provoked anger in France recently by suggesting it could be the next eurozone economy to experience a debt crisis. France and Germany want a new treaty to create a “fiscal union” of eurozone members, to control their deficits and reassure the markets.
Mr Baroin told the French parliament that the pact had been backed by every country in Europe, “with the singular, now solitary, exception of Great Britain, which history will remember as marginalised”. 

Ouch, a white glove with a feather inside.

The interest rate – or yield – on British government bonds is around 2.2 per cent. The French rate is around 3.2 per cent

No 10 said: “We have put in place a credible plan for dealing with our deficit and the credibility of that plan can be seen in what has happened to yields in this country.”

Senior British sources said French leaders were so panicked by the prospect of losing their AAA credit rating that they were trying to spread confusion by undermining the economic reputations of other nations. 

One government source said: “It’s so obvious what they are up to. They are in a completely different place to us. Where do you hide a tree? In a wood.”

David Ruffley, a Conservative member of the Treasury select committee, criticised the remarks. “This is another example of Gallic self-delusion on an epic scale,” he said. “They are tied to a currency that could become a basket case at any moment.”

Fitch warned of a downgrade France last night.
France’s AAA Outlook Cut as Fitch Reviews Italy, Spain Ratings

Whats funny is that the French are in debt to British banks, who have maximum French exposure. Interesting times.

Friday, 16 December 2011

Lagarde Sees A 1930s Depression on 'Escalating' Crisis

Take off the earrings and she looks like a French bloke I used to play Rugby with in the 80s, but, I digress.

The head of the IMF, former French Finance Minister, Christine Lagarde paints a sombre picture where NO COUNTRY (yoohoo Swanny, you listening?) will be immune, as the Euro crisis escalates.

IMF chief warns no country immune from crisis

IMF Managing Director Christine Lagarde, speaking at the U.S. State Department, said the outlook for the world economy is"quite gloomy" and warned that failure to act collectively could lead to protectionism and isolation reminiscent of the 1930s depression.

"There is no economy in the world, whether low-income countries, emerging markets, middle-income countries or super-advanced economies that will be immune to the crisis that we see not only unfolding but escalating," Lagarde cautioned.

"It is not a crisis that will be resolved by one group of countries taking action. It is going to be hopefully resolved by all countries, all regions, all categories of countries actually taking action."

The IMF has warned that it is likely to cut its 2012 growth projections, with the economy struggling with a worsening two-year euro zone debt crisis and sluggish U.S. growth. There are also signs from falling Chinese factory output that manufacturers are struggling with waning global demand and tighter credit conditions.

Credit is tightening and interbank spreads are going to the moon, expect a freeze on the first Euro bank failure in 2012.

Then this...

She cautioned, however, that democratic government processes often made quick fixes difficult, saying the collision of market expectations with political reality must be resolved.
Democracy, as in, "government by the people for the people" is making it difficult? Off course it is, looking at Greece and Italy, its by the banks and for the bankers, the peasants can wear austerity and suck it up.

Reality Will Jolt Australia

The National Australia Bank has fired a warning shot based on the rapid cooling of interbank lending.

NAB won't guarantee passing on future cuts

The National Australia Bank has warned that future official interest rate cuts might not be passed on in full to its customers. The NAB has cited the higher cost of sourcing money on global markets, and continuing uncertainty from the Eurozone debt crisis.

The Australian economy is based on a debt fuelled Property Ponzi, it needs cheap credit and lots of it or like all Ponzi schemes it collapses.

Switzerland Prepares

Meanwhile, the Swiss are under no illusions.

The Swiss Government Is Getting Ready For The Collapse Of The Euro

The Swiss government is preparing for a collapse of the euro, according to Swiss Finance Minister Eveline Widmer-Schlumpf.

She told parliament that a work group was studying the imposition of capital controls and negative interest rates to protect Switzerland from the capital flight that a euro collapse would engender (Handelsblatt).

A tidal wave of euros would drive up the Swiss franc, devastate Switzerland’s export economy, and devalue its vast wealth invested in other countries.

Signs of a Bank Run Starting

New Signs Of “Invisible” Bank Run in Southern Europe

The clients want their money, and they want it in cash. Whether it’s because they need it to get by, or because they fear the drachma will return, many Greeks are pulling their money out of their banks. The hemorrhage is so big it threatens to sink some banks altogether.

The situation looks critical in other euro zone crisis countries as well. So far, bank customers wanting to withdraw their money haven’t suddenly descended on the banks in droves. But in Ireland, Spain and Italy, an invisible – though no less threatening – bank run is ongoing. Statistics from national central banks show that billions of euros are flowing out of Irish, Spanish, Italian and even French banks.

The most flagrant example is Greece. There, since the end of 2009, deposits in commercial banks have dropped 25%, down 60 billion euros to 180 billion euros as of this past October. In Spain and Italy too, business clients in particular are turning away from their banks. "Companies have started withdrawing their funds from banks in Spain, Italy, France and Belgium," says Kinner Lakhani, an analyst at U.S. banking giant Citi.

At the two biggest Spanish banks, BBVA and Santander, deposits by businesses and institutional investors fell by more than 10% in the third quarter alone. Italy‘s Unicredit also lost 10% of its deposits, while rival Intesa suffered a whopping 16% loss. Also affected by lack of client confidence are some French banks, particularly Société Générale, but also market leader BNP Paribas.

For banks, the result has been serious liquidity problems. The drop in deposits is partly to blame, but the bank run is taking place on several other levels as well. Money market funds, struggling with high outflows, are no longer buying short term securities from the banks, and there are no takers for long-term bank bonds. Since the end of June, some 17 billion euros in unsecured European bank bonds have been sold. At the same time last year, that sum was 120 billion euros.

Many European credit institutions have been virtually squeezed out of the interbank market -- bankers are lending very little, whether it be in euros or dollars, to each other. That means the banks’ main financial sources have dried up. They are being drip-fed by the European Central Bank (ECB), which is generously keeping them going with short term credits.

Make no mistake, its now a  feedback loop. The panic has began but its whisper quiet...for now. There WILL be an Eurobank failure in 2012, then it won't be so quiet.

Maybe more than one bank.

20 Banks That Will Get Crushed If The PIIGS Go Bust

Friday, 9 December 2011


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)...

Monday, 5 December 2011

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

Saturday, 3 December 2011

"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:


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.

Friday, 2 December 2011

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.”

Thursday, 1 December 2011

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.

Monday, 28 November 2011


Death of a currency as eurogeddon approaches
The defining moment was the fiasco over Wednesday's bund auction, reinforced on Thursday by the spectacle of German sovereign bond yields rising above those of the UK.
If you are tempted to think this another vote of confidence by international investors in the UK, don't. It's actually got virtually nothing to do with us. Nor in truth does it have much to do with the idea that Germany will eventually get saddled with liability for periphery nation debts, thereby undermining its own creditworthiness.
No, what this is about is the markets starting to bet on what was previously a minority view - a complete collapse, or break-up, of the euro. Up until the past few days, it has remained just about possible to go along with the idea that ultimately Germany would bow to pressure and do whatever might be required to save the single currency.

Andrew Bailey: 'UK banks must brace themselves for euro break-up'
Andrew Bailey, deputy head of the Prudential Business Unit at the Financial Services Authority (FSA), noted that British banks are not heavily exposed to the eurozone, but said they must prepare for some countries to exit the single currency – or a complete break up.
"We cannot be, and are not, complacent on this front," Mr Bailey said. "As you would expect, as supervisors we are very keen to see the banks plan for any disorderly consequence of the euro area crisis. 
Hmmmm, aren't Barclays, Royal Bank of Scotland, Bank of Ireland and Allied Irish 'British'?

Europe Short on Cash as Bond Fears Deepen
The euro zone is stuck in a double crisis. On the one hand, investors are no longer interested in purchasing sovereign bonds. On the other, banks with such bonds on their books are being treated with extreme caution. A massive financial crisis threatens -- and it could be worse than the last.

Prepare for riots in euro collapse, Foreign Office warns
As the Italian government struggled to borrow and Spain considered seeking an international bail-out, British ministers privately warned that the break-up of the euro, once almost unthinkable, is now increasingly plausible.
Diplomats are preparing to help Britons abroad through a banking collapse and even riots arising from the debt crisis. 
The Treasury confirmed earlier this month that contingency planning for a collapse is now under way.
A senior minister has now revealed the extent of the Government’s concern, saying that Britain is now planning on the basis that a euro collapse is now just a matter of time.
“It’s in our interests that they keep playing for time because that gives us more time to prepare,” the minister told the Daily Telegraph. 

20 Banks That Will Get Crushed If The PIIGS Go Bust

We took a list of the largest European banks by assets and compared their market cap, common equity, and total exposure to PIIGS debt (thank you for the bank statistics, EBA!). Then we calculated exposure to PIIGS debt (sovereign and private) as a percentage of the banks' common equity. (Notice that HSBC, ING, and even Societe Generale are all absent from this list.)

So far our track record is pretty good--we predicted that Dexia was the most vulnerable bank outside of the PIIGS back in July. If the eurozone crisis continues to escalate, we will see more and more banks bow to the pressure of exposure and become unable to borrow money.
The List: Banks That Will Fail (A must read)

Foreign News: Eurobonds and contagion to Poland and Slovenia
The other major story is contagion. The English-language press has had considerable coverage of downgrades in Portugal, France and Hungary. What they have not got a lot on is the contagion into eastern Europe. Poland’s currency is tanking as a result. Moreover, the halt of Austrian loans into central Europe is creating a credit crunch there which will negatively affect the economy irrespective of the macro fundamentals (which are poor due to real economy effects out of Euroland). Slovenia, a former model country in the east, is the other major target of contagion.

I think we will have one more can kick to satisfy the markets temporarily. An IMF loan or some such bullshit that will put off Eurogeddon until early 2012. We can't let The Grinch steal Christmas via the Credit Default Swap sell App on his iPhone.

Edit Update. See what I mean (from Bloomberg as to why markets are up today)....

The IMF is preparing a 600 billion euro ($794 billion) loan for Italy in case the country’s debt crisis worsens, La Stampa reported, without saying where it got the information. As of Nov. 17, the Washington-based IMF had about $390 billion available for lending, which Managing Director Christine Lagarde has said may not suffice to meet loan demand if the global outlook worsens.

PS Meanwhile on the Debtstar...
Is the U.S. About to Invade Syria … and Pick a Fight with China and Russia?