Bank Run Has Begun

[Estimated Profit]

http://www.bloomberg.com/news/2011-09-21/lloyd-s-of-london-posts-697-million-pound-loss-on-disasters-1-.html

 

http://www.bloomberg.com/news/2011-09-20/siemens-deposits-more-than-500-million-euros-with-ecb-ft-says.html

 

Lloyds has pulled it's money from certain banks in the Eurozone (unmentioned) Siemens has moved 500 Million Euro from SocGen... This is huge. Once confidence is gone in a bank that bank is doomed. Once confidence is removed from the system the dominoes fall.  I don't want to be alarmist but this seems a very big deal.

 

These were headline stories yesterday and the day before but they need to be searched to find them now. Strange this isn't getting more press than it is here in Canada and the US.

[Cardboard]

Don't worry the market has noticed. Both Citigroup and Bank of America are close to break their 52 week lows while JP Morgan has and Morgan Stanley is in a freefall. There is much more behind these stock drops than just a reduction in yield spread due to twist. There is a fear for survival. It needs to stop very soon or the dominoes will start to tumble. Not sure if a European TARP is enough this time.

 

Does any of you has good contacts to buy penicilin and antibiotics? I have no problem finding canned food, guns and ammo, but medicine are tougher.  ;)

At this point or rate, I am not even sure that we will make it until Dec 21, 2012....

 

Cardboard

[twacowfca]

Don't worry the market has noticed. Both Citigroup and Bank of America are close to break their 52 week lows while JP Morgan has and Morgan Stanley is in a freefall. There is much more behind these stock drops than just a reduction in yield spread due to twist. There is a fear for survival. It needs to stop very soon or the dominoes will start to tumble. Not sure if a European TARP is enough this time.

 

Does any of you has good contacts to buy penicilin and antibiotics? I have no problem finding canned food, guns and ammo, but medicine are tougher.  ;)

At this point or rate, I am not even sure that we will make it until Dec 21, 2012....

 

Cardboard

 

That's my birthday!  Beam me up Scotty.  :)

[AZ_Value]

Don't worry the market has noticed. Both Citigroup and Bank of America are close to break their 52 week lows while JP Morgan has and Morgan Stanley is in a freefall. There is much more behind these stock drops than just a reduction in yield spread due to twist. There is a fear for survival. It needs to stop very soon or the dominoes will start to tumble. Not sure if a European TARP is enough this time.

 

Does any of you has good contacts to buy penicilin and antibiotics? I have no problem finding canned food, guns and ammo, but medicine are tougher.  ;)

At this point or rate, I am not even sure that we will make it until Dec 21, 2012....

 

Cardboard

 

Lol

[Myth465]

Call me crazy but I am quite happy. Happy as can be. I only have 8% cash, but am quite tired of this. Europe needs to do something, and it seems as though the can has been kicked into a wall.

 

When offered a fork in the road you cant keep going straight. I would prefer a down 20% blood bath to 6 more months of this BS.

[twacowfca]

Call me crazy but I am quite happy. Happy as can be. I only have 8% cash, but am quite tired of this. Europe needs to do something, and it seems as though the can has been kicked into a wall.

 

When offered a fork in the road you cant keep going straight. I would prefer a down 20% blood bath to 6 more months of this BS.

 

When you come to the fork in the road--take it!

 

-- Yogi Berra

[BargainValueHunter]

Don't worry the market has noticed. Both Citigroup and Bank of America are close to break their 52 week lows while JP Morgan has and Morgan Stanley is in a freefall. There is much more behind these stock drops than just a reduction in yield spread due to twist. There is a fear for survival. It needs to stop very soon or the dominoes will start to tumble. Not sure if a European TARP is enough this time.

 

Does any of you has good contacts to buy penicilin and antibiotics? I have no problem finding canned food, guns and ammo, but medicine are tougher.  ;)

At this point or rate, I am not even sure that we will make it until Dec 21, 2012....

 

Cardboard

 

Wouldn't lack of confidence in EUROPEAN banks HELP American banks in the long term?

 

In the short term everything is wobbly but where are the Asians and Arabs going to place and manage hundreds of billions of dollars overseas long term?

 

Looks like American big cap banks are nearly OVERcapitalized unlike their European counterparts.

[MrB]

Myth, I think this one is a marathon, so the BS is it; started in 2007 and we're most likely not even halfway. We probably need to get used to it. The good news is I once had a long chat with someone from Orbis (http://www.orbisfunds.com/performance.aspx Japan - 5.9% annual USD return since 1998) and the discussion focused on how they were able to maintain positive returns in Japan over the last decade.

The answer; good old fashioned value.

 

I would prefer you being right on this one though. Would be great if this could be over in 6 months, but unless we have a significant meltdown I don't see it happening. Too much that needs to deleverage and nobody anymore that can gear up. Maybe the whole world can follow Japan into a 200% Debt/GDP?

[Rabbitisrich]

There is even evidence that China has started its slowdown (Rio Tinto, Alpha Natural, manufacturing) and Chanos probably has a good point that China's growth is overstated due to deferred or disguised loan losses. Something similar happened with Japan in the 80s and 90s, which explains why the japanese people improved household income and consumption during the collapse of real estate and equity pricing.

 

Michael Pettis has a good article on the subject: http://mpettis.com/2011/09/big-in-japan/

[MrB]

http://www.lesechos.fr/investisseurs/analyse_seance/investir_00381612-le-cac-40-en-forte-baisse-tous-les-secteurs-touches-222892.php

Use Google Translator if you cannot read

Ffrench

 

.... EADS drops 5.93% to 21.34 euros. French banks have stopped funding aircraft purchases because of their difficulties in raising finance in dollars, wrote Les Echos. Airbus would be more affected than its rival Boeing, whose access to credit in the United States is easier, the newspaper said...

 

 

Furthermore...did not catch exactly what was said, but on Bloomberg TV it was reported today that apparently no new corporate bonds were sold over the last two 1/2 months in Europe. Apparently a record. Cannot find a source though.

[MrB]

"Furthermore...did not catch exactly what was said, but on Bloomberg TV it was reported today that apparently no new corporate bonds were sold over the last two 1/2 months in Europe. Apparently a record. Cannot find a source though."

 

Just caught that snippet again. "No conventional bond sold by a European bank in the last 2 1/2 months...a record"

[S2S]

PIMCO CEO Mohamed El-Erian column in today's FT:

 

French banks could tip Europe back into a full-blown banking crisis

 

Conventional wisdom may now be only half right when it comes to solving Europe’s mess. Fixing the sovereign debt problem is still necessary, but it may no longer be sufficient. Europe must also move quickly to stabilise the banks at its core in ways that go far beyond what the European Central Bank announced on Wednesday. As senior BNP Paribas executives prepare to tour the Middle East in an attempt to raise fresh funds and shore up confidence, other banks must also show greater urgency and seriousness in dealing with capital and asset quality shortfalls.

 

Much of the discussion on the crisis is based on the assumption that sovereign debt is both the problem and the solution. Initially, this was correct. The combination of too much debt and too little growth pushed the most vulnerable countries (Greece, Ireland and Portugal) into a classic debt trap. Timid policy responses then fuelled contagion waves that undermined other sectors.

 

The problem today has become much more complicated. In addition to being on the receiving end, some of these sectors have become standalone sources of regional dislocations.

 

Italy is, of course, the most visible example. Interest rates on what is the third largest government debt market in the world remain stubbornly high in spite of persistent market intervention by the ECB. Wednesday’s rating cuts of some of the country’s leading banks, following Standard & Poor’s downgrade of the country’s sovereign debt on Monday, complicates matters.

 

Yet, as notable as this is, it is not the most immediately threatening issue for a global economy that, in the words of Christine Lagarde, IMF managing director, has entered “a dangerous phase”. The rapidly burning fuse is in the European banking system, particularly in France, and Europe is getting very close to yet another tipping point.

 

The facts are striking and worrisome. Private institutions around the world, and even some public ones, have sharply reduced short-term lending to French banks. Credit markets now put their risk of default at levels indicative of a BB rating, which is fundamentally inconsistent with sound banking operations. Bank equity now trades at a 50 per cent discount to tangible book value on average. To make things worse, the ratio of market capital to total assets has fallen to 1 – 1.5 per cent (compared with six to eight per cent for healthier banks).

 

These are all signs of an institutional run on French banks. If it persists, the banks would have no choice but to delever their balance sheets in a very drastic and disorderly fashion. Retail depositors would get edgy and be tempted to follow trading and institutional clients through the exit doors. Europe would thus be thrown into a full-blown banking crisis that aggravates the sovereign debt trap, renders certain another economic recession, and significantly worsens the outlook for the global economy.

So far neither the authorities nor the banks have done, or are doing enough to stop – let alone reverse – this trend. While the ECB has stepped in to offset the liquidity crunch, including by relaxing collateral requirements to make it easier for banks to access the central bank’s repo window, capital cushions and asset quality remain unaddressed. As a result, Europe is on the verge of losing control of orderly solutions to its debt crisis.

 

To counter this, fiscal authorities and banks must work with the ECB on three immediate, simultaneous and drastic measures. They must inject capital through public-private partnerships, including through Tarp-like mechanisms, present a realistic assessment of the asset side of the balance sheet and enhance depositor protection. Greater burden sharing with the private sector may also prove necessary.

 

Through the bitter experience of the last two years, Europe now understands that a sovereign debt problem is difficult to solve. It must now realise that the challenges and costs to society multiply astronomically when this is accompanied with a banking crisis; and it must act accordingly.

 

The writer is the chief executive and co-chief investment officer of Pimco

[A_Hamilton]

Don't worry the market has noticed. Both Citigroup and Bank of America are close to break their 52 week lows while JP Morgan has and Morgan Stanley is in a freefall. There is much more behind these stock drops than just a reduction in yield spread due to twist. There is a fear for survival. It needs to stop very soon or the dominoes will start to tumble. Not sure if a European TARP is enough this time.

 

Does any of you has good contacts to buy penicilin and antibiotics? I have no problem finding canned food, guns and ammo, but medicine are tougher.  ;)

At this point or rate, I am not even sure that we will make it until Dec 21, 2012....

 

Cardboard

 

I disagree. The freefall in MS/JPM has to do with declining activity in the investment bank-principal transactions (of which operation twist simply worsens) and little to no M&A activity. You really think money is flowing out of JPM on solvency concerns? And what bank is the money going to if there are JPM solvency ("fear for survival") concerns?

[Viking]

I liked reading Grantham's comments posted yesterday; I also re-read his last quarterly letter. He suggest most investors are not ready for the fireworks ahead (he references the bear market of the early '70's).

 

We frame future expectations from past experience. In 2007 & 2008 this was a terrible strategy. As stated many times before it looks to me that Sept 2011 is shaping up to be another of those inflection points where it is highly likely we will see things we have NEVER experienced before.

 

I am not trying to be melodramatic. I am just trying to stay true to my first and second rule (capital preservation). Time to buy? I will get more interested when the S&P falls below 1,000.

[txlaw]

i would say you will have a tarp plan in place before the open monday in Europe.

 

I was thinking the same thing.

[alwaysinvert]

I liked reading Grantham's comments posted yesterday; I also re-read his last quarterly letter. He suggest most investors are not ready for the fireworks ahead (he references the bear market of the early '70's).

 

We frame future expectations from past experience. In 2007 & 2008 this was a terrible strategy. As stated many times before it looks to me that Sept 2011 is shaping up to be another of those inflection points where it is highly likely we will see things we have NEVER experienced before.

 

I am not trying to be melodramatic. I am just trying to stay true to my first and second rule (capital preservation). Time to buy? I will get more interested when the S&P falls below 1,000.

People always think they are experiencing extraordinary times and the same of course translates to investors. There has not been one single point in human history when people haven't thought the situation was unique. Of course, this is true to a great extent, but I'm  just not sure how that is helping anyone. What's happening in the world in terms of macro events is very important but not knowable.

 

I prefer to act on logic, and my logic says there are cheap things out there at this very moment.

[Parsad]

i would say you will have a tarp plan in place before the open monday in Europe.

 

I think you will probably see something as well.  Cheers!

[Myth465]

Myth, I think this one is a marathon, so the BS is it; started in 2007 and we're most likely not even halfway. We probably need to get used to it. The good news is I once had a long chat with someone from Orbis (http://www.orbisfunds.com/performance.aspx Japan - 5.9% annual USD return since 1998) and the discussion focused on how they were able to maintain positive returns in Japan over the last decade.

The answer; good old fashioned value.

 

I would prefer you being right on this one though. Would be great if this could be over in 6 months, but unless we have a significant meltdown I don't see it happening. Too much that needs to deleverage and nobody anymore that can gear up. Maybe the whole world can follow Japan into a 200% Debt/GDP?

 

I think the deleveraging will continue for another 5 years or so give or take a few. What I am referring to though is this EU Greece default stuff, and the Congressional issues on this side of the pond. Both sides have been doing nothing about their respective crisis and I am happy that the market is now forcing action.

 

I would like the EU to decide what they are going to do and do it.

I would like the American public to have the debate concerning if shutting down the government every other week is really a viable strategy.

 

I would like both to happen over the next few months, instead of over the next few years regardless of what it does to my portfolio.Just tired of hearing about it. LOL

 

The news hasnt changed in 2 years for Europe and 6 months in the US. It gets a bit old....

[given2invest]

Call me crazy but I am quite happy. Happy as can be. I only have 8% cash, but am quite tired of this. Europe needs to do something, and it seems as though the can has been kicked into a wall.

 

When offered a fork in the road you cant keep going straight. I would prefer a down 20% blood bath to 6 more months of this BS.

 

Yah I agree.  Let's just crash and get it over with.

[oec2000]

Call me crazy but I am quite happy. Happy as can be. I only have 8% cash, but am quite tired of this. Europe needs to do something, and it seems as though the can has been kicked into a wall.

 

When offered a fork in the road you cant keep going straight. I would prefer a down 20% blood bath to 6 more months of this BS.

 

Yah I agree.  Let's just crash and get it over with.

 

Be careful what you wish for?  ;D

[enoch01]

Call me crazy but I am quite happy. Happy as can be. I only have 8% cash, but am quite tired of this. Europe needs to do something, and it seems as though the can has been kicked into a wall.

 

When offered a fork in the road you cant keep going straight. I would prefer a down 20% blood bath to 6 more months of this BS.

 

Yah I agree.  Let's just crash and get it over with.

 

How much of a crash do you think we'll get, from here, when we have headlines like:

 

"Sum of All Fears: Stocks, Commodities Tumble Over Risk of Recession, European Implosion"

 

http://finance.yahoo.com/blogs/daily-ticker/sum-fears-stocks-commodities-tumble-over-risk-recession-201442627.html

[Valuebo]

Somehow in 2 months a lot of people went from "The economy will survive." to "Apocalypse is near, Europe will implode and it doesn't matter that stocks are cheap because I *know* they will go down further.". These days it isn't hard to spot bipolarity in individuals abandoning all rationality.

 

I have no problem with people being bearish now, but I find it odd if they have extremely less stock exposure now than 3-6 months ago. Most people (not here I think) claiming they will only buy if we drop another 10-20% won't be buying if we get there either. They will just miss the boat and add to their fear dating from 08-09.

[Estimated Profit]

Most people (not here I think) claiming they will only buy if we drop another 10-20% won't be buying if we get there either. They will just miss the boat and add to their fear dating from 08-09.

 

I don't think there will be much proplem with trigger pulling from this bunch here.

 

I'd appreciate it if anyone can tell me how much leverage is still in the system (margin used by individuals and investment banks etc.).  As far as the drop that happened in 08 - 09 a lot of that was from margin calls en masse. If the amount of leverage being used in the markets has been reduced, we may not see the massive precipitous declines like we saw back then.

 

That said, if Banks need to raise capital to support their businesses, you want to have dry powder for the fire sale that has yet to begin. I guess it would be analogous to banks having their assets foreclosed upon by their creditors. I want to have money available to buy their beachfront property at forclosure prices.  ;D

[Uccmal]

I have no problem with people being bearish now, but I find it odd if they have extremely less stock exposure now than 3-6 months ago. Most people (not here I think) claiming they will only buy if we drop another 10-20% won't be buying if we get there either. They will just miss the boat and add to their fear dating from 08-09.

 

That about sizes it up.  Everyone else is buying long bonds today.  The usual collective insanity has set in.  That hefty 2.8% yield on the 30 year.  Can you imagine locking in your returns for a theoretical 25+ yrs at 2.8% - say 2 % after tax.  You can get bigger dividends from dozens of stocks from companies that are cash rich.

[Rabbitisrich]

I have no problem with people being bearish now, but I find it odd if they have extremely less stock exposure now than 3-6 months ago. Most people (not here I think) claiming they will only buy if we drop another 10-20% won't be buying if we get there either. They will just miss the boat and add to their fear dating from 08-09.

 

That about sizes it up.  Everyone else is buying long bonds today.  The usual collective insanity has set in.  That hefty 2.8% yield on the 30 year.  Can you imagine locking in your returns for a theoretical 25+ yrs at 2.8% - say 2 % after tax.  You can get bigger dividends from dozens of stocks from companies that are cash rich.

 

And TIPS are still offering negative yields. The market is betting on disinflation/deflation and inflation shocks. I also see a lot of people arguing for a "total return" perspective on bonds, which seems like a fancy way of describing greater fool expectations.