UPDATE: EURUSD ended under 1.2400, and 2Y Bunds at 0.00% yield. Financials underperformed in stocks and credit with senior bank spreads back up to 300bps and LTRO Stigma jumping 12bps to 177.5bps (near record wides). All European equity indices are down for the week with Spain’s IBEX unsurprisingly the biggest loser down almost 8%. ~~~NNNNN~~~
Spain Bank Bailout Doomed
This is just the beginning of the Bankia fallout for Spain. We will continue to see drops and shifts in the European markets for weeks to come, as the rest of the direct and indirect losses are revealed. But the point is, the structural flaws have now been categorically proven to go well beyond just the sovereign bond question – the entire European economy’s solvency is the foundational question at issue, as I have previously written, and this question is a very dynamic one.
Hope and confidence have kept the patient alive a long time now, but eventually fear and exhaustion must prevail… Fear is already prevalent, and economic exhaustion is increasingly evident in the sell-offs occurring across European markets.
For context, we must understand that the average citizen of an EU country has lost 10% of their purchasing power so far this year (EUR-USD=1.345 [2012 peak on 2/28/12] down to 1.240 today) just on the devaluation of the Euro currency itself. This appears to them both as inflation, and in reduced availability of desirable goods which are imported.
Now factor in losses on investments and assets such as houses and businesses, and the losses this year alone rise to ~25% for an average male in the 35~45 age range. and this model assumes that said 35~45 y/o male still has the same employment and receives the same compensation as last year… which is a declining portion of the European working population.
Worse still is the fact that, as dismal as a ~25% loss is, that supposes a professionally established person with some financial means. What about the 18~25 year old male, who has far less in assets and is not established in his trade or profession? While definitive data is difficult to distill from the published reports, it appears that a typical 18~25 y/o European male in an entry-level position is some ~35% financially worse off than he was just one year ago, and sees things as decaying rapidly. Said representative ‘Euro’ male knows he has a ~1:5 chance of loosing his job in the next 12 months, and has little faith that he will be able to find a replacement job of the same pay grade.
These are average figures – in Greece, Spain, and Italy, things are actually worse. Spain’s economy is already back in recession, with a very negative outlook. Spanish unemployment is up to 24%, and unemployment of 18~25 year olds in Spain is reported to be near 50%. One in four Spanish households now have no breadwinner. Spanish retail sales are now falling at 10% year-on-year. All of this begs the question, “can you call it a bank run when the people are withdrawing their money from banks just to buy groceries for the week?” Of mounting concern is the fact that France’s fiscal stability has now been called to question, as well.
We are witnessing the radicalization of Europe through this loss of confidence – as more an more young people experience reductions in their standard of living, they become increasingly succeptible to agitation and radicalization from fringe-groups, thus destabilizing the whole EU construct further, both in the economic and political arenas. Nationalism is surging throughout Europe, these days, and that bears very dark implications.
George Friedman of Stratfor has provided some excellent perspective on European Nationalism – “European nationalism has always had a deeper engine than simply love of one’s own. It is also rooted in resentment of others. Europe is not necessarily unique in this, but it has experienced some of the greatest catastrophes in history because of it. Historically, the Europeans have hated well. We are very early in the process of accumulating grievances and remembering how to hate, but we have entered the process. How this is played out, how the politicians, financiers and media interpret these grievances, will have great implications for Europe. Out of it may come a broader sense of national betrayal, which was just what the European Union was supposed to prevent.
In short, Europe is off the cliff, and now experiencing the rapid acceleration which will put them in free-fall – economically, politically, and in every other way.
And if you doubt that the US is far behind, please note that, “In a sign of heightened anxiety in Washington, top U.S. Treasury official Lael Brainard was dispatched to hold talks in Greece, Germany, Spain and France ‘to discuss their plans for achieving economic stability and growth in Europe’, the Treasury Department said.”
As an old paratrooper I can tell you that, “it’s not the fall that kills you…it’s the sudden stop at the end.”
WE HAVE BEEN WARNED
28May2012 – 2230EDT – Yep, I’m probably crazy, but I’ve gotta call it as I see it – below is proof that the dam has silently burst, and I expect that in the coming weeks we will see the outright collapse of the European banking system as the reality of the BFA/Bankia FRAUD soaks into the economic fabric. There is no “firewall” or bank stabilization program big enough, and they can’t print money fast enough (not that it really has to do with liquidity, anyway – now it is purely about trust).
Do you remember Enron? This is bigger.
Do you remember AIG? This is worse.
Do you remember Lehman Brothers? Now you are getting close. But there really is no historical reference to rely upon, short of comparing it to the economic impact of WW-II. There – I’ve said it. This string of events will have a devastating impact comparable only to all-out war encompassing the entire ‘first world’, as WW-II did.
…because Bankia is just the beginning. Dozens of other Spanish banks are in the same condition. In Italy, the majority of banks are overloaded with EU Bonds and stocks in other European banks – as bad as the BFA/Bankia situation is, it can only get worse from here. That’s right, I am saying it can only get worse…and the triple contagion (sovereign debt overload, prolific bank insolvencies, and the end of discretionary household income) will spread very quickly, now that the veil of liquidity is failing to conceal the manifold sins of European leadership.
How long will it take for the consequences to arrive in the United States? That’s like trying to guess-timate how long it will take to get soaked when looking up at darkening thunder-heads from horizon to horizon, and hearing the first clap as nature prepares to relieve herself of a little stress…but I’d say not very long at all. How bad will it be here in America when it hits? I’m going to go long and say that, by November, we will be plunging downhill towards the deepest depression ever experienced in modern history. We will not be alone – the entire world is going to ‘get wet’ along with us.
(Zerohedge.com) It is rather amazing what one finds when a company which previously had allegedly posted a profit of €41 million, somehow becomes insolvent, needs a nationalization to avoid a full out liquidation, and gets bailed out by the state. One of the first things one finds is that the profit pitched to that particular class of gullible idiots, known as shareholders, was an outright lie. And yes, on that one very rare occasion when an auditor refuses to sign off on a bank’s financials, in this case Deloitte, run far, and run fast. Instead what one finds is a massive loss. From Reuters: “BFA, the parent group of nationalized Spanish bank Bankia said on Monday it had restated its 2011 results to reflect a 3.3 billion euro loss, rather than a 41 million euro profit, following a bailout from the state. In a statement to the stock exchange regulator, BFA said the restated loss reflected a review of its loan portfolios and capital needs after a new audit and as part of the clean-up plan implemented by the government.”
(Zerohedge) First it was the CEO of Bankia whose departure via Golden parachute seems incredible in its absolute lack of shame; and now, as Bloomberg reports, Miguel “Mafo” Ordonez – the Governor of the Bank Of Spain – has resigned – with 2 weeks notice.
BANK OF SPAIN GOVERNOR TO LEAVE ROLE ONE MONTH EARLY
ORDONEZ TO LEAVE ON JUNE 10
Did he maybe find some unmissable Costa Del Sol real estate opportunities forcing him to get out of dodge just that much earlier? If so, could he maybe spread the love and give everyone else the hot tip (aside from Spanish taxpayers of course)? ~~~NNNNN~~~
It’s not just bank officers who are vacating their lofty positions – musical chairs being is also being played in European parliaments of late, and a presidential election here in November, consensus has gone out the window, which sets the stage for global economic warfare. This economic war will ensure that the European Monetary Union, and then the entire EU Program, will come to a swift end, once these “leaders” are forced to give up the farce of claiming that bailouts and eurobonds can solve this crisis.
(Marketwatch) Wake up. You were warned: America’s new Age of Austerity is already here. Till the elections, nobody else will tell you the truth about what comes with this slowdown: Plan on classic economic austerity. Maybe not austerity as deep as the euro zone’s Spain and Greece. Yet maybe deeper than the 1930s as Nobel economist Paul Krugman writes in his new book, “End This Depression Now.”
Yes, America’s already in a depression. Wake up America, to a long bear market, a recession cycle, to austerity where everything slows down, income, jobs, retail, global trade, and market returns. Listen to the latest warnings just last week:
•Wall Street Journal warns “New Signs of a Global Slowdown … Weak reports in U.S., Europe and China suggest economies are slipping in sync.” Yes, a global economic slowdown is “in sync.” Not just a typical summer market dip. Not even a double-dip recession. But a dark long scenario we’ve all been fearing. And with it, deep, dark austerity.
•Los Angeles Times warns: “Europe’s woes put drag on world growth … even powerhouse Germany may be faltering.” Not just the euro zone, “but reports of economic trouble are turning up in China, India, South Africa, Brazil and elsewhere.” Austerity is here.
•New York Times headline fans the flames of a metastasizing global contagion: “China’s Output Slows Sharply: Ripples Feared. Nationwide real estate downturn, stalling exports and declining consumer confidence.” Yet China was totally predictable. A few months ago our headline read: “World Bank warns: China is a ticking time bomb.” Now, kaboom.
•Foreign Policy: Yes, austerity’s coming, and maybe with it, a new president: “Five World Events That Could Swing the U.S. Election” headlined the latest Foreign Policy. And any one could also totally alter the trajectory of a economic slowdown or recovery. Polls show jobs and the economy are the “most important issue for them in choosing a president.” But those five global “events” could send the economy and the election “careening along a very different path than the one it’s traveling down today: Iranian showdown; European nose dive; Chinese economic slowdown; domestic terrorist attack; and an “Unknown Unknown,” an unpredictable Black Swan killer.
Clearly, this is to be a global event – Germany, France, Italy, Spain, Greece, and England already have the provisions for capital controls and tight border control in place. The mentality is clear – “Keep the money in, and the refugees out.” And what about America? Well, we have DHS and FEMA with over a billion rounds of ammo and hundreds of “resettlement camps” – interpret that as you will.
(Der Spiegel) The more European leaders talked at a dinner last Wednesday, the grimmer Angela Merkel looked. One after another, they spoke out in favor of the joint assumption of debt and against the strict austerity course Berlin is calling for. The chancellor stared silently at the man who was responsible for this change of mood — France’s new president, François Hollande, who noted with satisfaction that there was “an outlook for euro bonds in Europe.”
Merkel disagreed, saying that euro bonds are not the right tool, but to no avail. Only a minority stood behind the German leader. Even European Council President Herman Van Rompuy said, at the end of the dinner, that there should be “no taboos,” and that he would examine the idea of euro bonds. “Herman,” Merkel blurted out, “you should at least say that some at this table are of a different opinion.” ~~~NNNNN~~~
Yeah, I am betting that outright WAR will break out in Europe in the coming two or three years…I will be amazed if they avoid it. I will be equally amazed if the US decides and manages to avoid becoming embroiled in it, when it happens… Yeah, I know – too shocking to believe, right. But below is another bit of proof that the European market is already collapsing – not just the stock markets and the banks, but commodities production and consumption, also – their economies have already contracted to the point of collapse, and cannot withstand any more without going off the cliff. This is now a crisis of confidence – no amount of money and/or ‘happy lies’ will fix it.
Consider: PetroPlus and BP are the two largest petroleum refining companies in Europe… PetroPlus filed bankruptcy 6 months ago, and not even BP was willing (or able?) to purchase the Coryton refining facility back. All the equities and commodities markets of Europe are on a knife edge, and there is no way they will be able to withstand the BFA/Bankia, let alone the bank collapses which will come after like dominoes.
(Zerohedge) Back in 2007, BP sold its Coryton refinery, one of the largest in the UK, to Swiss refiner PetroPlus for $1.4 billion. Fast forward 5 years later where we find that shortly after PetroPlus filed for bankruptcy, and was forced to proceed with a firesale of its assets, the European end demand market is so abysmal that a buyer could not be found for even a 30% off firesale. As Reuters reports, following a failure to sell Coryton for the low, low, price of $1 billion, the refinery, in dire need of CapEx investments, will be shutting down, and taking about 10% of UK refining capacity with it. “Insolvent Swiss refiner Petroplus’ Coryton refinery in the UK is likely to close after its administrator PricewaterhouseCoopers (PwC) said on Monday that it had failed to find a buyer that could pay $1 billion for the site. Petroplus filed for insolvency in December after it could not meet its debt obligations. “The current economic environment, the challenge of raising $1 billion (£625 million) of funding for the refinery, including the $150 million capital expenditure ‘turnaround’ project ultimately proved prohibitive in the face of an over supplied European refinery market for both buyers and investors.”
WE HAVE BEEN WARNED – THE TIME IS NEAR
Warmest regards always,
~ Those who discard Liberty, do so at their own peril!