The € EURO thread

[Toro]

lol

 

[Trajan]

well, looks like the BJ's are humming and the Spanish have eaten their own 'Spanish fly' to get them up, yields on the Spanish 10 year rose above 6.9% yesterday.


and now? a monty python moment- for something completely crazy, as in insane as in the same actions with the expectation of different cooked results, we will have another round of bank stress tests.

first time, tragedy, ...second time as farce.

 

[KissMy]

well, looks like the BJ's are humming and the Spanish have eaten their own 'Spanish fly' to get them up, yields on the Spanish 10 year rose above 6.9% yesterday.


and now? a monty python moment- for something completely crazy, as in insane as in the same actions with the expectation of different cooked results, we will have another round of bank stress tests.

first time, tragedy, ...second time as farce.

Their 'Spanish fly' must be working. Looks like Merkel is getting cozy with Sarkozy

 

[Toro]

Yesterday, European bond yields reversed intra-day and closed on their lows or near their lows. At 6am this morning, they are down hard on ECB buying. Technically, it looks like yields may - may - have put in a near-term top, which would be good for risk assets.

 

[Trajan]

some interesting not so surprising news.....we'll see how deep this river really runs next week.


The flight from European sovereign debt and banks has spanned the globe. European institutions like the Royal Bank of Scotland and pension funds in the Netherlands have been heavy sellers in recent days. And earlier this month, Kokusai Asset Management in Japan unloaded nearly $1 billion in Italian debt.



At the same time, American institutions are pulling back on loans to even the sturdiest banks in Europe. When a $300 million certificate of deposit held by Vanguard’s $114 billion Prime Money Market Fund from Rabobank in the Netherlands came due on Nov. 9, Vanguard decided to let the loan expire and move the money out of Europe. Rabobank enjoys a AAA-credit rating and is considered one of the strongest banks in the world.



American money market funds, long a key supplier of dollars to European banks through short-term loans, have also become nervous. Fund managers have cut their holdings of notes issued by euro zone banks by $261 billion from around its peak in May, a 54 percent drop, according to JPMorgan Chase research.

more at-
http://www.nytimes.com/2011/11/19/b...pean-nations-and-banks.html?_r=2&pagewanted=2

 

[Toro]

That's been happening for some time. It's why yields have been blowing out.

 

[Zander]

The problem with the Eurozone is simple - the Eurozone must find at least €3 trillion (give or take) to pay for the sovereign debt “haircuts” and bank losses. Some argue it is only €2 trillion and others argue for €6 trillion. Whatever it is, it is such a large number that it cannot be found by borrowing or creating a special fund. The ONLY way to deal with it is to allow the ECB to print, essentially putting a floor underneath Eurozone bonds, especially those of Italy and Spain, both of which governments are too big to save by conventional means.

But Merkel is saying NEIN!!!! She is against printing more EURO's because it will cause inflation and lower the value of the Euro, possibly a lot!

Germany is now stuck in a game where the costs of leaving the euro are extremely high. But the costs of bailing out the worst members of the Eurozone are also extremely high. Either way they are facing huge costs. It is not a choice of whether they will bear a huge cost burden, but just what form that burden takes.

Somewhere in Germany I will bet you there is a memo on what it would take for Germany to leave the euro and who would go with them. Just saying........

 

[FireFly]

France may be getting a downgrade this weekend.

I heard that too, now it appears they are waling that back. look italy is going to bring it all down, france? thats, I don't even know how describe that cataclysm.

The France downgrade is back on!

The odds of the EURO collapsing have risen to over 40%

The US Debt to GDP ratio surged past 100%. We are heading towards default within 6 years.

 

[PeteEU]

The problem with the Eurozone is simple - the Eurozone must find at least €3 trillion (give or take) to pay for the sovereign debt “haircuts” and bank losses. Some argue it is only €2 trillion and others argue for €6 trillion.

And those that argue 6 trillion are idiots.. the total debt of the EU is only 9 trillion for god sake out of a 15 trillion economy. The debt of the Eurozone is between 7 to 8 trillion euros.. So these morons are saying that the Eurozone should basically write off all their debt?

Whatever it is, it is such a large number that it cannot be found by borrowing or creating a special fund. The ONLY way to deal with it is to allow the ECB to print, essentially putting a floor underneath Eurozone bonds, especially those of Italy and Spain, both of which governments are too big to save by conventional means.

But Merkel is saying NEIN!!!! She is against printing more EURO's because it will cause inflation and lower the value of the Euro, possibly a lot!

Wow sorry but you or someone you are quoting dont understand economics and the Germans. First off... Germany WANTS a lower value of the Euro... they are an export country and need a lower valued Euro.. it is one of the reasons that Germany cant and wont leave the Euro. But the real reason is a historic one.. Printing money is so much against the German economic model due to flash-backs to the hyper-inflation days of the 1920-30s.

Germany is now stuck in a game where the costs of leaving the euro are extremely high.

To say the least.. a new German currency would be so strong (since the UK pound and US Dollar are being devalued) that German exports will crash. That is of course on top of the administration costs of switching currency (not to mention time)..

But the costs of bailing out the worst members of the Eurozone are also extremely high.

Not really. This is not about bail-outs, because Spain for one does not need one.. nor Italy. This is about confidence in the Euro and Eurozone and structural issues for both the Eurozone and individual European countries. If Italy can get growth going via fixing its structural problems, then it can easily pay its debt. Spain's debt is 64% for god sake,.... how on earth is that a problem and need a bail-out? Does that mean that China needs one too since it has 30+% debt vs GDP?

Either way they are facing huge costs. It is not a choice of whether they will bear a huge cost burden, but just what form that burden takes.

Of course there are costs, and it wont be cheap. And those costs will continue to go up as long as the politicans cant get their act together.. basically Merkel needs to compromise on the whole idea of printing money. But most of all to fix the Eurozone, you will need a treaty change and that opens up a whole different can of worms.

Somewhere in Germany I will bet you there is a memo on what it would take for Germany to leave the euro and who would go with them. Just saying........

Of course there is, just as there is a memo on the US invading Canada and California ceding from the union. Dont mean it is going to happen. There are so many negatives for Germany and very few positives if any... for leaving the Euro.

 

[PeteEU]

France may be getting a downgrade this weekend.

I heard that too, now it appears they are waling that back. look italy is going to bring it all down, france? thats, I don't even know how describe that cataclysm.

The France downgrade is back on!

Yes by Anglo-American owned ratings agencies who receive most of their income from companies that have a vested interest in a downgrade. Not to mention ratings agencies that have zero credibility since they listed Lehman Brothers as AAA the day before the bankruptcy.

The odds of the EURO collapsing have risen to over 40%

Yes, and one has to ask why...

The US Debt to GDP ratio surged past 100%. We are heading towards default within 6 years.

Its been higher than 100% since late 2008. As for heading for a "default", not bloody likely as long as the US dollar is the reserve currency. Also the interest rate the US pays on its debt is pathetically small and much of the debt is long term.

 

[Toro]

Yes by Anglo-American owned ratings agencies who receive most of their income from companies that have a vested interest in a downgrade.

This is not a serious answer.

 

[Toro]

Spain's debt is 64% for god sake,.... how on earth is that a problem and need a bail-out? Does that mean that China needs one too since it has 30+% debt vs GDP?

Spain is a problem because the marks on the banks' assets are nowhere near market prices. Bond markets are assuming that Spain will eventually have to backstop its banks and Spain's debt will soar.

China doesn't need a bailout but when you aggregate debt at the municipal and provincial level, then debt is much higher since a lot of debt in China is at the local level. Also, it is widely assumed that Beijing will recapitalize the banks, like it did in the 1990s, which will either increase debt or cause assets to fall since Beijing may unwind some of its massive currency reserves to do so. Plus, unlike the PIIGS, China has its own currency.

 

[FireFly]

I heard that too, now it appears they are waling that back. look italy is going to bring it all down, france? thats, I don't even know how describe that cataclysm.

The France downgrade is back on!

Yes by Anglo-American owned ratings agencies who receive most of their income from companies that have a vested interest in a downgrade. Not to mention ratings agencies that have zero credibility since they listed Lehman Brothers as AAA the day before the bankruptcy.

The odds of the EURO collapsing have risen to over 40%

Yes, and one has to ask why...

The US Debt to GDP ratio surged past 100%. We are heading towards default within 6 years.

Its been higher than 100% since late 2008. As for heading for a "default", not bloody likely as long as the US dollar is the reserve currency. Also the interest rate the US pays on its debt is pathetically small and much of the debt is long term.

But of course, and Greece did not just default on 50% of it's debt.

And Mexico did not default on it's debts 15 years ago.

How about the Asian Contagion 12 years back?

 

[PeteEU]

Yes by Anglo-American owned ratings agencies who receive most of their income from companies that have a vested interest in a downgrade.

This is not a serious answer.

It is a VERY serious answer. The problem with the ratings agencies other than two countries basically control them, is that they get their income from the very companies that dependent on ratings to run their business.. There is a built in conflict of interest in the system and it has shown its ugly head more than once, as has national bias.. hence the anglo-American comment.

Any other country with 10% budget deficit and debt ratios over 70% and if not 100%, would have their ratings on at least a downward watch if not downgraded, but that simply is not happening with the UK (still AAA) and it took one hell of a while for the US to be downgraded (and only by one rating agency) despite having a clusterfuck of a political system that cant get anything done.

 

[PeteEU]

Spain's debt is 64% for god sake,.... how on earth is that a problem and need a bail-out? Does that mean that China needs one too since it has 30+% debt vs GDP?

Spain is a problem because the marks on the banks' assets are nowhere near market prices. Bond markets are assuming that Spain will eventually have to backstop its banks and Spain's debt will soar.

The Spanish banks (the big main ones) have always been considered some of the best and most stable banks out there. They did not jump into the sub-prime mortgage mess of the US because they were not allowed due to regulations and the corporate ideals, which also meant they continued to have profits (and still do) despite the economic crisis.

The problem banks in Spain are the Caja's, which are small regional and local banks. There use to be about 75 of them but they have now been cut down considerably to the high 20s (if not lower) and there is still consolidation going on. They account for about 3% of the total banking market in Spain last I looked. Back stopping these banks would cost relatively nothing and only add a few % to the over all debt vs GDP ratio. The main big banks have the ability to absorb any losses on the building sector collapse and have done so over the last 4+ years and passed the capital requirements of the stress tests with flying colours and have since increased their capital requirements because the Bank of Spain required it so.

So explain your comment.

China doesn't need a bailout but when you aggregate debt at the municipal and provincial level, then debt is much higher since a lot of debt in China is at the local level.

Never said it did. Having debt does not mean automatically you need a bail-out, but that is the attitude there is in the markets and among especially the kitchen table right wing economists that are dominating the political discourse in the US and certain countries and have infected the market with this idiotic economic theory that all debt is bad.

For example.. Italy.. 120% debt vs GDP.. world goes in panic mode and says it is too much and Italy cant pay its loans. What the world forgets is that Italy has a primary surplus already, and that we never have gotten out of the US sub-prime mortgage failure, so there is next to no growth. If growth came back then that would mean higher tax income and that would mean a surplus... then the 120% debt would not be a problem and would go down. Now of course Italy has a lot of structural problems in the labour market and society as a whole that prevents mega uber growth the markets like but if they fix those some what, then growth should come back under normal circumstances. And lets not forget, a very large portion of Italian debt is owed to the Italians themselves!

But no everyone is living in the now, and are very short term focused... and of course very pessimistic and unrealistic...which means morons come with comments of cutting 6 trillion euros worth of debt out of a 7.5 trillion debt burden in the Eurozone .. fine do so.. would mean most countries would have NO DEBT left!

Also, it is widely assumed that Beijing will recapitalize the banks, like it did in the 1990s, which will either increase debt or cause assets to fall since Beijing may unwind some of its massive currency reserves to do so. Plus, unlike the PIIGS, China has its own currency.

PIIGS have their own currency as well.. it is just not as flexible as it should be because of the Germany hatred to printing money. Now if the Eurozone could get its act together and fix its structural problems in the Euro then do you expect the markets to say okay? I doubt that... the Eurozone is a good place to keep focus away form the real clusterfucks of the US and UK and use as a blame game when the whole house of cards come collapsing in the US.

Personally I hope Merkel and the Germans get over their hatred of printing money.. because we need to print money to counteract the devaluation of the pound and dollar, but also use that money to be able to fix the structural problems in the south of Europe.

 

[PeteEU]

The France downgrade is back on!

Yes by Anglo-American owned ratings agencies who receive most of their income from companies that have a vested interest in a downgrade. Not to mention ratings agencies that have zero credibility since they listed Lehman Brothers as AAA the day before the bankruptcy.



Yes, and one has to ask why...

The US Debt to GDP ratio surged past 100%. We are heading towards default within 6 years.

Its been higher than 100% since late 2008. As for heading for a "default", not bloody likely as long as the US dollar is the reserve currency. Also the interest rate the US pays on its debt is pathetically small and much of the debt is long term.

But of course, and Greece did not just default on 50% of it's debt.

Greece has not defaulted. CDSs have not be triggered (yet) so there is no default.

And Mexico did not default on it's debts 15 years ago.

Technically Mexico did not default as far as I understand it. The US bailed Mexico out and once Mexico got its act together, the US made a profit on its investment.

How about the Asian Contagion 12 years back?

Yea.. that was

 

[FireFly]

Greece has not defaulted. CDSs have not be triggered (yet) so there is no default.

Yeah right, tell that to MF Global. A write-down is a default!

Technically Mexico did not default as far as I understand it. The US bailed Mexico out and once Mexico got its act together, the US made a profit on its investment.

Yeah, the US made some money on the Mexicans, But they lost half of the value of their Peso currency in the process.

 

[Toro]

The Spanish banks (the big main ones) have always been considered some of the best and most stable banks out there. They did not jump into the sub-prime mortgage mess of the US because they were not allowed due to regulations and the corporate ideals, which also meant they continued to have profits (and still do) despite the economic crisis.

The problem with Spanish banks is Spain. The Spanish banks look more profitable than they really are because they have not marked the value of their loans to market. Spanish banks made loans against this.

And now, they have this.

Spanish banks, under pressure to cut property-backed debt, hold about 30 billion euros ($41 billion) of real estate that’s “unsellable,” according to a risk adviser to Banco Santander SA (SAN) and five other lenders.

“I’m really worried about the small- and medium-sized banks whose business is 100 percent in Spain and based on real- estate growth,” Pablo Cantos, managing partner of Madrid-based MaC Group, said in an interview. “I foresee Spain will be left with just four large banks.”

Spanish lenders hold 308 billion euros of real estate loans, about half of which are “troubled,” according to the Bank of Spain. The central bank tightened rules last year to force lenders to aside more reserves against property taken onto their books in exchange for unpaid debts, pressing them to sell assets rather than wait for the market to recover from a four- year decline.

Land “in the middle of nowhere” and unfinished residential units will take as long as 40 years to sell, Cantos said. Only bigger banks such as Santander, Banco Bilbao Vizcaya Argentaria SA (BBVA), La Caixa and Bankia SA are strong enough to survive their real-estate losses, he said. MaC Group is an adviser on company strategy focused on financial services.

‘Unsellable’ Real Estate Assets Threaten Survival of Smaller Spanish Banks - Bloomberg

Soaring yields and CDS for Spain isn't some lame Anglo-American right-wing plot. The market simply believes Spain has taken on too much debt. Spain had an even bigger housing bubble than the US, relatively speaking. And no, the problem is not just the cajas.

You are in for a rude shock.

For example.. Italy.. 120% debt vs GDP.. world goes in panic mode and says it is too much and Italy cant pay its loans. What the world forgets is that Italy has a primary surplus already, and that we never have gotten out of the US sub-prime mortgage failure, so there is next to no growth. If growth came back then that would mean higher tax income and that would mean a surplus... then the 120% debt would not be a problem and would go down. Now of course Italy has a lot of structural problems in the labour market and society as a whole that prevents mega uber growth the markets like but if they fix those some what, then growth should come back under normal circumstances. And lets not forget, a very large portion of Italian debt is owed to the Italians themselves!

As you can see, Italy's debt has been above 100% of GDP forever.

Rising yields on Italian debt isn't the fault of the collapse of the US subprime market, nor the fault of "right-wing economists." It is the fault of the Italians. The fact that it is happening now is no surprise. When there is a liquidity crisis, the weaker hands get shaken out first. It doesn't matter if the debt is owned by Italians anyways, not when monetary policy is being run out of Frankfurt and Berlin.

PIIGS have their own currency as well.. it is just not as flexible as it should be because of the Germany hatred to printing money. Now if the Eurozone could get its act together and fix its structural problems in the Euro then do you expect the markets to say okay? I doubt that... the Eurozone is a good place to keep focus away form the real clusterfucks of the US and UK and use as a blame game when the whole house of cards come collapsing in the US.

Spain is a house of cards. Europe's banks are weak and undercapitalized compared to the US and much of the rest of the world. Blaming it on the British and Americans is really lame, like an alcoholic blaming everyone else for his problems. You Europeans wanted a German currency with German interest rates. You wanted low interest rates and cheap credit, and all the benefits that came with that. You got it. Now you have to live with the aftermath. I imagine Germany will cave eventually, but not before you feel some pain first.

 

[Toro]

Yes by Anglo-American owned ratings agencies who receive most of their income from companies that have a vested interest in a downgrade.

This is not a serious answer.

It is a VERY serious answer. The problem with the ratings agencies other than two countries basically control them, is that they get their income from the very companies that dependent on ratings to run their business.. There is a built in conflict of interest in the system and it has shown its ugly head more than once, as has national bias.. hence the anglo-American comment.

Any other country with 10% budget deficit and debt ratios over 70% and if not 100%, would have their ratings on at least a downward watch if not downgraded, but that simply is not happening with the UK (still AAA) and it took one hell of a while for the US to be downgraded (and only by one rating agency) despite having a clusterfuck of a political system that cant get anything done.

You said they are run by companies that have a vested interest in downgrading the debt of the countries. That is not a serious answer. You did not address that in your post.

And you should be more worried about the clusterfuck going on in Europe and the laughable inability of its institutions to get anything done first before whining about what is going on elsewhere. Europe is the fulcrum of the globe's problems right now, not America.

 

[Toro]

I'm looking at our banking data, which includes two big Spanish banks, BBVA and Banco Santander. We normalize accounting around the world and mark to market the assets on the balance sheets. We then bring on all off balance sheet items and aggregated them into total assets. We have done this for over 100 global banks. As of the end of Q2, Santander is one of the weakest banks in the world, with tangible common equity to fair value assets at 2%. BBVA is better but is still weak at about 4%. And remember, this was at the end of June, before the markets collapsed during the summer. Perhaps ironically, the country with the weakest banking system is Germany, which is another reason why Germany will eventually cave and start printing money.

This methodology had Dexia - which passed the laughable European stress tests - as the weakest bank with negative equity. It was also a very good indicator at predicting which banks were in trouble in 2008. FTR there was no correlation between Tier 1 capital and individual bank stress in 08 & 09.