Thursday, November 24, 2011
Six Plays On the European Banking Collapse
Europe is done. Finished.
The powers that be over there have completely lost control of
the markets. Germany just staged a horrific bond auction and
the ECB is intervening several times a day to stop Italy's bond
market (the world's 3rd largest) from imploding.
And that's just the tip of the iceberg.
The debt contagion has now spread to Spain, Italy, and even France.
It's quite possible France will lose its AAA rating in the near future.
We also have Germany threatening to leave the Euro outright if
the ECB prints money.
Which means... it's the End Game. No matter what, the defaults are
coming and the Euro will implode.
This is the reality for Europe. The whole system will be going down,
it's only a matter of time. And when it does collapse, it's going to
make Lehman Brothers look like a joke.
I know the markets have yet to fully realize this... but it took them a while
to realize 2008 as well. And when they did, things moved VERY quickly.
So if you have not already taken steps to prepare for systemic failure,
you NEED to do so NOW. We're literally at most a few months, and
very likely just a few weeks from Europe's banks imploding.
Take steps to prepare our loved ones and personal
finances for systemic risk:
You need to know:
1) how to prepare for bank holidays
2) which banks to avoid
3) how much bullion to own
4) how much cash is needed to get through systemic crises
5) how much food to stockpile, what kind to get, and where to get it
ask me at: generalfoundation@safe-mail.net
Labels: Crash, crisis, Euro crisis, Euro default, risk
Thursday, October 27, 2011
The Greek Deal Accomplishes Nothing... Systemic Risk is Coming
The markets are exploding higher this morning on news of the expanded Euro Bailout. The numbers at the moment are
- A 50% haircut for private Greek bondholders
- European banks have eight months to raise about $147 billion in capital
- An expansion of the European Financial Stability facility to $1.3 trillion.
First off, let's call this for what it is: a default on the part of Greece. Moreover it's a default that isn't big enough as a 50% haircut on private debt holders only lowers Greece's total debt level by 22% or so.
Secondly, even after the haircut, Greece still has Debt to GDP levels north of 130%. And it's expected to bring these levels to 120% by 2020.
And the IMF is giving Greece another $137 billion in loans.
So... Greece defaults... but gets $137 billion in new money (roughly what the default will wipe out) and is expected to still be insolvent in 2020.
Forgetting that any and all official estimates for Greece's financial condition have been off by a mile, not to mention that Greece still hasn't paid back its first round of bailout funds, this move is nothing short of moronic.
The reasons are:
- The default is not big enough (I expect Greek bondholders to get 20-30 cents back on the Dollar at best in the future)
- It accomplishes nothing of significance (Greece is still broke), and...
- It will trigger a credit event and has the makings of systemic risk.
Let's put some of the other numbers from this deal into perspective. According to the agreement, European banks are supposed to raise $147 billion in new capital by June.
Well, German banks alone need to raise $173 billion in new capital. So... this new capital "requirement" from the deal is pointless.
Indeed, the European banking system as a whole is insolvent.
Consider that with leverage levels of 26 to 1, European banks in general need to raise capital equal to 46% of ALL banking assets to bring their leverage levels in line with those of the US banking system (13 to 1).
With OVER $46 trillion in assets outstanding, this means that European banks would need to raise $21 TRILLION in capital to bring their leverage levels down to 13 to 1.
Yes... $21 TRILLION... an amount greater than one third of TOTAL GLOBAL GDP.
Now you see why the extra $147 billion in new capital is pointless. It's like pouring a bucket of water into a desert and expecting it to sprout a jungle.
Folks, let's get honest here. This deal accomplishes nothing. It's just more "kicking the can" to avoid the reality. The reality is that the entire European Banking system is leveraged at near Lehman Brothers levels. And European banks need to roll over between 15-50% of their total debt (depending on which country they're in) by the end of 2012.
The credit markets know this, which is why they're predicting more Greece haircuts in the future. It's also why IMF has decided to lend Greece another $137 billion... right as the country defaults.
Ignore this latest pop in stocks and the Euro. This mess isn't over... not by a long shot. And before the smoke clears, much of Euro will be in default/ banking collapses.
Labels: Default, europe, Greece, risk
