Best of the Week
Most Popular
1.SNP Offers Labour Deadly Death Embrace Alliance, Holding England to Ransom, Destroy UK From Within - Nadeem_Walayat
2.Gold And Silver – Most Widely Used Currency In Western World? Stupidity - Michael_Noonan
3.Election Forecast 2015 - Coalition Economic Recovery vs Labour Collapse - Nadeem_Walayat
4.Election Forecast 2015 - Debates Boost Labour Into Opinion Polls Seats Lead - Nadeem_Walayat
5.Why are Interest Rates So Low? Ben Bernanke, Confused as Ever, Starts His Own Blog to Prove It - Mike_Shedlock
6.Leaders Debate Election 2015 - Natalie Bennett Green Party Convincing Anti-Austerity More Debt Argument - Nadeem_Walayat
7.Labour Economic Collapse vs Coalition Recovery - UK Election Forecast 2015 - Video - Nadeem_Walayat
8.China’s Stock Market Mania; How High can Red-chips Fly? - Gary_Dorsch
9.Gold and Misery, Strange Bedfellows - 31st Mar 15 - Dan_Norcini
10.Ed Miliband Debate Election 2015 Analysis - Labour Spending, Debt and Economic Collapse - Nadeem_Walayat
Last 5 days
One Stock Market Where You Haven't Missed the Bull Market Boom Yet - 26th Apr 15
Migrant Crisis - Europe Has Completely Lost It - 26th Apr 15
What Obama's First-Ever Energy Review Missed - 26th Apr 15
Sheffield Hallam Election Battle 2015, School Places Crisis, Can Nick Clegg Win? - 26th Apr 15
Stocks Bull Market Looks to Resume - 25th Apr 15
Gold And Silver - The U.S. Is A Corporation. Precious Metals Stand In The Way - 25th Apr 15
When the Nuclear Money Option Fails - 25th Apr 15
The War on Cash Special Report - 25th Apr 15
China Economic Slowdown Story - Why “Didi Dache” Is a Phrase You Need to Know - 25th Apr 15
The Trans-Pacific Partnership and the Death of the Republic - 25th Apr 15
Stock Splitting Caused the Stock Market Crash - 25th Apr 15
China Stock Market Parabolic Mania’s Global Risk - 24th Apr 15
What Will Happen to You When the U.S. Dollar Collapses? - 24th Apr 15
Why 2 of U.S. Dollar's Recent Bottoms Have 1 Thing In Common - 24th Apr 15
UK Economy Debt Timebomb Will Explode After Election - 24th Apr 15
Are Gold Stocks the Cheapest Ever? - 24th Apr 15
God, the Stock Market and Pascal's Wager - 24th Apr 15
Greedy Insurers Are in for a Nasty Surprise – Positioning You for Big Profits - 24th Apr 15
Four Things Missing From Obama’s First-Ever Energy Review - 24th Apr 15
How to Grow a Regenerative Medicine Industry - 23rd Apr 15
Stocks and Bonds Seven Year of Negative Returns; Fraudulent Promises - 23rd Apr 15
The Existential Danger To The Euro Is Elections - 23rd Apr 15
Stock Market No Clear Direction As Investors React To Quarterly Earnings Releases - 23rd Apr 15
Is China The Next United States? - 23rd Apr 15
U.S. Oil Glut: How High Can It Go? - 23rd Apr 15
Distorted Financial System Expect Deflation, Inflation And Hyperinflation - 23rd Apr 15
What McDonald’s Corporate Earnings Report Is Really Telling You - 23rd Apr 15
Gold Price Forecast to Become Priceless - 23rd Apr 15
FDIC Plots a Bank Heist Involving YOUR Accounts - 23rd Apr 15
$GOLD Price Year 2007 Again - 23rd Apr 15
Stocks Bubble - The Spread between Stock Prices and GDP is Blowing Out - 23rd Apr 15
Ukraine War - When Did We All Become Murderers? - 23rd Apr 15
Libya Crisis - EU Leaders Are Indicted for Nazi-Style Crimes against Humanity - 22nd Apr 15
Why Alternative Energy Isn’t Taking It on the Chin Despite Low Oil Prices - 22nd Apr 15
Bill Gross - German 10-Year Bunds Short of a Life Time - 22nd Apr 15
How to Profit from the Drop in the Oil Price - 22nd Apr 15
The U.S. Dollar's Move Is More Dangerous than You Think - 22nd Apr 15
Apple Watch Means Apple Will Become Worlds First $1 Trillion Stock - 22nd Apr 15
Half a Stocks Bubble Off Dead Center - 22nd Apr 15
They Said Go to College - Learning to become Debt Slaves - 22nd Apr 15
Best Cash ISA 2015/16, Instant and Fixed Savings Interest Rates, New Flexible Withdrawal / Deposit Rule - 22nd Apr 15
Unsound Banking: Why Most of the World's Banks Are Headed for Collapse - 21st Apr 15
Bitcoin Recent Low Price Volatility Might Be Deceptive - 21st Apr 15
Currency Wars Back As Russia Buys Gold - One Million Ounces in March Alone - 21st Apr 15
The Greece 'Grexit' Issue and the Problem of Free Trade - 21st Apr 15
Why Europe Lets People Drown - 21st Apr 15
Wealth Destruction for the 99.9 Percent - 21st Apr 15
SNP Publish England's Suicide Note as Pollsters Still Forecast Labour-SNP Election Disaster - 21st Apr 15
Characteristics of Extremely Over-Indebted Economies - 21st Apr 15
Trader Education Week -- a Free Event to Help You Learn to Spot Trading Opportunities - 21st Apr 15
Gold & Silver Alert: Silver Stocks’ Signal - 20th Apr 15
Now is the Time to Buy Resource Stocks, Especially Gold Equities - 20th Apr 15
DJ Transportation & Utility Averages Suggest Stocks Bull Market Is Over - 20th Apr 15
Crude Oil Price Bull Market Hope - 20th Apr 15
Stock Market Bears Get Slaughtered Despite Greece Counting Down to Grexit Financial Armageddon - 20th Apr 15
The Rise of the Paper Machines - 20th Apr 15
Gold and Silver Inflection Point - 20th Apr 15
SP500: A Butcher's Stock Market (Chop Chop Chop) - 20th Apr 15
Are Stock Market Bears Slowly Gaining Control? - 20th Apr 15
Sugar Commodity Price Bear Rally - 19th Apr 15
Avoid the Spread of the Stock Market "China Syndrome" - 19th Apr 15
Stock Market Going Nowhere Fast - 19th Apr 15
An Easy Way to Profit From the Two Biggest Trends in the Stock Market - 19th Apr 15
No Scripture Is Divine, Authentic and Beyond the Creation of the Human Brain - 19th Apr 15

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

The War on Cash!

SS €uro is Taking On Serious Water!

Interest-Rates / Eurozone Debt Crisis Jun 05, 2012 - 09:02 AM GMT

By: Gordon_T_Long

Interest-Rates Diamond Rated - Best Financial Markets Analysis ArticleThe SS €uro is taking serious water. At the hastily called EU Summit Captains meeting on the Brussels Bridge, it was agreed that the best course of action, despite the worsening waves of bank runs, was to simply instruct the orchestra to continuing playing the same old familiar tune and order the rearrangement of the deck chairs.

However, all the captains somberly recognized there were neither sufficient lifeboats nor anyone willing to come to their rescue. As usual they were in complete disagreement on what to do, they knew they had insufficient resources for anything dramatic and they were well aware the public passengers had no tolerance for any cold water austere attempts for the sake of survival.


The EU banks runs have been steady and consistent. Deposits have been relentlessly fleeing the peripheral countries and heading for the safety of deposit at German banks, and to a lesser extent French banks. Meanwhile the banks in turn were depositing money at the ECB for their own safety.


Not all money however is ending up at the ECB or anywhere in Europe for that matter. Needed capital to restart growth is presently heading for the safety of the US Dollar and US Treasuries.

The 10 Year US Treasury Note hit a 120 year low when it touched 1.48%. Dramatically down from a recent high of 2.30%, as the European situation worsened based on troubling European election results. Investors are willing to accept real negative returns for the sake of perceived safety. Even Germany last week could float Bunds with a zero coupon.



A strengthening dollar is not good for a US stock market denominated in US dollars. It now takes fewer dollars to buy the same basket of stocks and US markets are down 9%.

How long will this go on? The short answer is: "Until the inevitable printing begins once again."

That moment appears close, but we aren't quite there yet. More pain and more time are required to give the money printers the cover they require, lest they ignite the hyperinflation rocket prematurely.



ALL HOWEVER IS NOT AS IT APPEARS

As simple as the above scenario appears on the surface, like the iceberg that has been struck, there is significantly more below the surface. With the ship taking water at countless points the best that the Captains can determine is to place the inadequate bilge pumps near the most critical holes.

1- SOMETHING SMELLS IN THE US TREASURY MARKET

The JP Morgan trading debacle gives us the best view of the what is going on below the waterline. Still answering questions about the mysterious disappearance of the $600B from MF Global, JP Morgan is now under investigation for what is being represented as minimally a $2B Credit Default Swap trading mistake. CEO Jamie Dimon doesn't react the way he did, if this was all there is to it. The issue appears to be centered in the Interest Rate Swap market. A market that JP Morgan holds a notional positions in of $57.5 TRILLION, of their $72 TRILLION total of Derivative Swaps. MF Global was apparently on the wrong side of the Greek Debt trade. Is JP Morgan more egregiously on the wrong side of the EU Debt trade?

The sudden surge in March of the 10 year US Treasury surging to 2.30% caused serious losses to someone in the Interest Rate Swaps market. Considering JP Morgan IS the Swaps market there is a good likelihood they got hit. With the massive fluctuations in Europe it stands to reason there would be equally if not larger problems there also.

What needs to be pointed out is that during these historic events the Euro has not tanked and the US Dollar has only got stronger. Something doesn't compute somewhere when we consider that sovereign debt supply is through the roof and there is a dearth of buyers. The US Treasury is not moving up (in price) solely because of European flight to safety. There is too much supply and European banks are simply too illiquid. There is a huge Tens-of-$Trillions Swaps game going on, JP Morgan is at the center of it and EU debt crisis is entangled in it.

The Bank of International Settlement (BIS )is reporting the latest quarter ending December 31st, gross market values , which measure the cost of replacing existing contracts, increased to $27.3 Trillion. This was driven mainly by an increase in the market values of Interest Rate Swap contracts. The rise in gross market values was the largest since the second half of 2008.



Counterparty risk is at the highest level since 2008 at $3.9 Trillion.

Something is breaking somewhere? I suspect the SS €uro bilge pumps are not even close to handling these sorts of gushers?

2- EU BANK LOAN-TO-DEPOSIT RATIOS ARE THE ARCHILLES HEEL

To put the bank runs in perspective, we need to be reminded that bank Loan-to-Deposit ratios in Europe are blatantly obscene and are 3 times more than the US banks. Many are over 100% and some over 200%.

I often complain about the Chinese banking system as corrupt. They are paragons of prudence at 65-70%, compared to the bandits in control of the established European banking cartel.

3- INSUFFICIENT "QUALITY" COLLATERAL AVAILABLE

Banks are now out of quality collateral and the deposit runs are consequentially even more devastating. Quality banks are getting dragged into the problem. Clients are reporting that getting their hands on their segregated gold holdings at some Swiss banks is suspiciously difficult and delayed. Why segregated gold?



The SS-€uro is now taking on serious water and she barely has her Bow above water.

Though we have reached our target support levels in the S&P 500 for sort attempt at a rally, market crashes usually start from oversold conditions, as punished buyers have already abandoned ship.

This is deep global waters and there is a long ways down before the SS €uro possibly settles.

Download your FREE copy of the latest TRIGGER$

Checkout our YouTube Channel for the latest Macro Analytics from expert Guests

GordonTLong.com

Gordon T Long   gtlong@comcast.net   Web: Tipping Points Mr. Long is a former executive with IBM & Motorola, a principle in a high tech start-up and founder of a private Venture Capital fund. He is presently involved in Private Equity Placements Internationally in addition to proprietary trading that involves the development & application of Chaos Theory and Mandelbrot Generator algorithms.

Gordon T Long is not a registered advisor and does not give investment advice. His comments are an expression of opinion only and should not be construed in any manner whatsoever as recommendations to buy or sell a stock, option, future, bond, commodity or any other financial instrument at any time. While he believes his statements to be true, they always depend on the reliability of his own credible sources. Of course, he recommends that you consult with a qualified investment advisor, one licensed by appropriate regulatory agencies in your legal jurisdiction, before making any investment decisions, and barring that, we encourage you confirm the facts on your own before making important investment commitments.

© Copyright 2012 Gordon T Long. The information herein was obtained from sources which Mr. Long believes reliable, but he does not guarantee its accuracy. None of the information, advertisements, website links, or any opinions expressed constitutes a solicitation of the purchase or sale of any securities or commodities. Please note that Mr. Long may already have invested or may from time to time invest in securities that are recommended or otherwise covered on this website. Mr. Long does not intend to disclose the extent of any current holdings or future transactions with respect to any particular security. You should consider this possibility before investing in any security based upon statements and information contained in any report, post, comment or recommendation you receive from him.


© 2005-2015 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

Free Report - Financial Markets 2014