That loud creaking sound you hear is the Eurozone getting ready to collapse.
Prepare for fallout…
Ed Harrison, from Credit Write Downs, reports:
“Euroland is coming apart at the seams. Belgian/Bund spreads are now also over 200bps along with Italy and Spain. Belgium has just entered the periphery and France is not far behind.
Right now there are four to five separate groups in Euroland’s sovereign debt crisis. First, there is Greece, assumed by everyone to be insolvent and the only country to default via its bailout package which reduces creditor repayments by 21%. Then there are Ireland and Portugal. These two countries have also received bailouts but have not defaulted. Next are Spain and Italy, what I have called “the new Ireland and Portugal”. These two countries are seeing their spread to German bunds widen considerably and yields explode above 6%. Fourth is a new and worrying development with Belgium and France becoming untethered from the core. Spreads are widening for these two countries in a way which is dangerous. Finally, there is the core of Germany, Finland, Austria, the Netherlands, Luxembourg, Malta, Slovakia and Slovenia. Estonia and Cyprus are special cases: one is new to the zone and the other has unique problems that I won’t discuss here. That’s 15 countries in six distinct categories (plus Estonia and Cyprus).
Greek, Irish and Portuguese yields have calmed due to the latest bailout. Spain and Italy are now on the hot seat. But my main concern is not Italy and Spain; it is Belgium and France. [read full report]
Tyler at ZH, notes:
“At exactly 9 am, half an hour into Trichet’s press conference, the world’s most undercapitalized hedge fund: the European Central Bank, demonstratively came in and started buying Italian bonds in hopes the market will forget just how broke the European continent truly is. This is the third major intervention by a central bank in capital markets in the past 24 hours following the SNB and the BOJ. Next up the Fed, and everything going to hell. Because even as Italian bond yields drop below 6%, the selloff in Portugal bonds is accelerating and the 10 Year yield is now 15 bps wider at 11.34%. We have a question: at what point does the ECB have to officially start printing Euros before its capitalization goes negative?” [read full report]
Reggie Middleton, the man who predicts banking collapse better than anyone I know, has gone all in on a “serial bank run in Europe and the Eurozone,” which he refers to as “Lehman 2.0 (x 4).” I posted his take on this on Monday, see: “Get Ready For Lehman 2.0 – The EU Dominos Are Falling Fast.”
Now he’s back with a watchful eye on French bank Société Générale:
France, As Most Susceptible To Contagion, Will See Its Banks Suffer
“…. the big thing in the media nowadays is the sovereign debt crisis. But this crisis is but one part of the solvency puzzle, albeit a big one. Basically, the banks are saying we have XX billion Euro on our balance sheets, when in actuality they have 80% of XX billion euro, at the same time asset values are steadily declining, chewing up equity along the way. I illustrated this in detail in the video above. You see, the concerted efforts of global financial central planners world wide have distorted the valuation and pricing of real asset markets. This distortion has led many to believe that the crash/correction of 2008 is over without us ever having to face true reversion to the mean. Let me be the one to tell you, that just ain’t happening… Reference Do Black Swans Really Matter? Not As Much as …
I have always been of the contention that the 2008 market crash was cut short by the global machinations of a cadre of central bankers intent on somehow rewriting the rules of economics, investment physics and global finance. They became the buyers of last resort, then consequently the buyers of only resort while at the same time flooding the world with liquidity and guarantees. These central bankers and the countries they allegedly strive to serve took on the debt and nigh worthless assets of the private sector who threw prudence through the window during the “Peak” phase of the circle of economic life, and engaged in rampant speculation.
The result of this “Great Global Macro Experiment” is a market crash that never completed.
I will go into the impending continuation of the real estate debacle in a later post, but the impetus behind the debacle is the topic du jour, Is Another Banking Crisis Inevitable? In said piece, I made it clear that the global banking lie that the so called “risk free” assets carried on the books are not only far from “Risk free” but have wiped much, if not most of the tangible equity from banking books. When, not if, but when, these banks are forced to make a market price transaction, hell will break loose. My post last month, Eighteen Percent of the EU is Literally Junk, Carried As Risk Free Assets at Par Using 30x+ Leverage: Bank Collapse is Inevitable!!!, basically says it all.
If one were to even come close to marking the EU banks books to reality, market prices, or anything in between, the Lehman situation would look tame in comparison!”
Reggie than points to French bank Société Générale, by featuring this new report from the Financial Times:
“Société Générale has warned that its profit target for 2012 will be “difficult to achieve” as a writedown linked to its Greek exposure weighed on quarterly results.
…Frédéric Oudéa, chairman and chief executive, cautioned that the group’s €6bn net income target for 2012 looks hard to reach “within the scheduled time frame”.
…However, he said that second-quarter results demonstrated the “resilience” of Société Générale, despite the inclusion of a €395m pre-tax writedown due to Greek government bonds held by France’s second-biggest bank.
The writedown is due to Société Générale’s pledge to play a role in the Greek bail-out plan finalised in July in which all the Greek bond holdings of the French banks maturing before 2020 will be involved. BNP Paribas and Crédit Agricole have also made provisions concerning the loss to bondholders.
Société Générale has no bonds which mature after 2020, a spokeswoman said, adding that the writedown includes sovereign bonds held by Geniki Bank, Société Générale’s Greek subsidiary.
Net income in the three months to June 30 was below consensus analyst expectations at €747m on revenue down 2.6 per cent to €6.5bn, but including the impact of the writedown.
Net income for the first half declined 22.5 per cent to €1.66bn on revenue down 1 per cent to €13.12bn. The group posted half-year earnings per share of €2.05, down from €2.75 last year.
The bank’s shares fell 6.94 per cent to €30.25 in early morning trading.
Société Générale, which last year unveiled a plan to double net profit by 2012, said that targets had assumed a return to a normal economic environment which “has not occurred,” naming the recent eurozone and US debt crises, as well as the political turmoil in the Middle East and Africa as concerns.”
[Read Reggie's full BoomBustBlog report here.]
Plenty more to come…
4:30 pm EST Update: Market has plunged 513 points so far today.
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