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HomeEuropean Bank Stress Tests? Nein, Danke!!
Posted by Larry Doyle on June 1st, 2010 8:58 AM |
How do you think the wizards in Washington are feeling about the European bailout structured two weeks ago at their behest? In those two weeks, the Euro has plummeted another 5%, equities continue to suffer, and credit spreads continue to widen.
Our Washington wizards are looking back into their bag of tricks and now recommending another of their ’shell game’ proposals to their European counterparts. Which proposal might this be? How do you spell charade? Try, bank stress tests.
Treasury Secretary Geithner is pressuring European central bankers to perform and release bank stress tests as a precursor to restoring financial health and stability into the European system. The Wall Street Journal highlights Geithner’s recommendation this morning in writing, U.S. to Push Europe on Stress Tests:
The U.S. intends to urge Europe to disclose publicly the results of bank stress tests as a way to calm jitters over the health of the Continent’s financial system, U.S. officials said. (more…)
Is the Federal Reserve Behind the European Bailout? Audit the Fed!! [UPDATED with video]
Posted by Larry Doyle on May 10th, 2010 12:52 PM |
Is the American taxpayer ultimately bailing out the European Union? Far fetched? Don’t be so sure.
While the focus of the European bailout has been on the European Central Bank, the European Union, and the IMF, little attention is being given to swap lines which were reopened between the Federal Reserve and the European Central Bank.
The ECB has steadfastly fought the idea of breeching the principles which formed the European common currency (the Euro) in order to fashion a bailout for the EU. Did the ECB crater to political pressure by the EU? Or, did the risks of the bailout shift from the ECB to another large central bank? Such as? The Federal Reserve! (more…)
Euro Crisis Merely Delayed, Not Averted
Posted by Larry Doyle on May 10th, 2010 8:39 AM |
They blinked.
The European Union and European Central Bank stole a play from the wizards in Washington to avert an immediate currency crisis in the EU and the potential ripple effect around the world. Did they do the right thing? For me, the question of addressing the fiscal crisis within the EU is not one of right or wrong; rather, when the crisis comes, how large will it be and how long will it last?
The trillion dollar package provided by the European Central Bank, the European Union itself, and the IMF is a combination of loan guarantees and quantitative easing. Shock and awe and punish those who would dare sell the Euro short, right? Clearly, the massive injection of capital will squeeze those who have shorted the Euro, but what about the long haul?
The EU is subverting the very tenets upon which the union was founded. Those tenets precluded this type of financial bailout. (more…)
Today’s Market Meltdown Is Due to Europe’s House of Cards
Posted by Larry Doyle on May 4th, 2010 10:33 AM |
Thanks to 12th Street Capital for bringing my attention to Europe’s Web of Debt highlighted the other day in The New York Times. The tangled web of interconnected liabilities is only exacerbated by exposures in the credit derivatives market. This situation is very similar to the interconnected Wall Street meltdown in 2008. Think of Greece as Bear Stearns and Spain as Lehman for example. (The image below is too large to fit in the allotted space on this site, so click on the image to view its entirety.)
Banks and governments in these five shaky economies owe each other many billions of euros — converted here to dollars — and have even larger debts to Britain, France and Germany. Arrow widths are proportional to debt amounts.
Today’s market meltdown is directly related to this tangled web.
LD
Why Is the Euro Plummeting?
Posted by Larry Doyle on March 25th, 2010 9:38 AM |
The Euro is plummeting in value because of the ongoing fiscal problems in Greece and the recent downgrade of Portugal’s sovereign credit, correct? Well, these are the most recent developments, but the problems go much deeper than that.
Although the very nature of short term mentality in a heavily dominated short term trading environment would point to these problems within Greece and Portugal as the primary reasons for the problems with the Euro, let’s work a little harder and navigate a little deeper.
First off, we need to accept the premise that we are experiencing structural changes in the context of a secular market. Our friends in Washington and on Wall Street (as well as other global financial centers) work very hard to present our current economy and market as possessing merely cyclical risk. Don’t buy it. (more…)
When Will Euro-PIGS Fly?
Posted by Larry Doyle on February 5th, 2010 10:56 AM |
Wall Street has more than bulls and bears. Trading desk banter often refers to the presence of ‘pigs’ in the market. Years removed, I can still hear traders saying, “this market’s a pig,” “this bond’s a pig,” and “that account is a pig.” Well, with my morning coffee I saw a new utilization of this famed reference. I chuckled but also realized the seriousness of the new pig reference in regard to the increasingly dire fiscal situation in the European Union.
What are the PIGS across the pond? Portugal, Italy, Greece, and Spain.
The Wall Street Journal highlights the disastrous fiscal situation in these countries in writing, Sovereign Risk Meets Sovereign Reality:
After months of shrugging off debt problems in Dubai, Greece and other smaller economies, markets yesterday seemed suddenly aware of the risks of sovereign default. (more…)
Europe Sneezes, Asia Gets A Cold
Posted by Larry Doyle on May 18th, 2009 5:00 AM |
The European Union reported a 2.5% decline in 1st quarter GDP the end of last week. Market pundits claim that this report and quarter will represent the trough for the recession in Europe. I personally do not see any meaningful evidence to support that assertion. Europe has been slow to address the massive capital shortfalls in its banking system. The EU has reluctantly adopted measures of quantitative easing and has been slow to drop its overnight lending rate.
What have been the ramifications of the EU’s tardiness on the monetary and fiscal stimulus fronts? RTT News reports, Euro Moves Lower Versus Rivals After GDP Report. 1st quarter output in Europe plummeted and economic growth revisions across individual countries showed greater declines.
I have always viewed eastern Europe as being The Weakest Link in our global economy. The EU’s enormous exposure to eastern Europe is a MAJOR drag on its financial institutions and, in turn, its economy. The 1st quarter GDP report is a clear indication of the impact that the Weakest Link Is Weakening, much as I had written a few months ago.
Can this European weakness be contained? Can stronger economies pull Europe out of the economic ditch? Weren’t these the same questions we posed in regard to the rising delinquencies and resultant foreclosures in sub-prime mortgages?
The immediate reaction to the European weakness in Asian markets is a swift selloff. Japanese equities are down almost 3% overnight (10pm EST) due primarily to the weakness in Europe. As Bloomberg highlights, Japanese Stocks Slump on Panasonic Loss Forecast, Europe GDP. Bloomberg asserts:
“Europe’s spending less on stimulus, so their ability to recover from the recession is weaker than the rest of the world.”
Additionally, Bloomberg provides further European color:
Gross domestic product in the 16-member euro region fell 2.5 percent from the fourth quarter, the biggest decline since the data were first compiled in 1995, the European Union’s statistics office in Luxembourg said on May 15. That exceeded the 2 percent contraction economists expected in a Bloomberg survey and followed a 1.6 percent drop in the prior three months.
“Concerns are building about the health of Europe,” said Ryuta Otsuka, a strategist at Toyo Securities Co. in Tokyo. “That’s having an effect on the currency market and creating a headwind for export companies.”
Why isn’t Europe more swift and aggressive in providing fiscal and monetary stimulus? Germany’s hyperinflation during the post World War I era has left an indelible scar upon that country. I found the insights into Germany’s period of hyperinflation provided in an excerpt of Paper Money by ‘Adam Smith’ (George J.W. Goodman) to be highly informative.
In pausing to review the depth and magnitude of these economic issues, it is readily apparent that our global economy is connected not only across borders but also across historical eras.
LD
