Best of the Week
Most Popular
1.Ukraine Preface, the Emerging Dynamics Of Petro-Yuan Standard - Jim_Willie_CB
2. Speculations Reversed - Gold Price Stealth Rally 2014 - Peter_Schiff
3.Bubbleberg News Drivel Masquerading as Financial Reporting - David A. Stockman
4.Nationwide UK House Prices 9.5% Inflation, Housing Market on Steroids, Help to Buy Anniversary - Nadeem_Walayat
5.How to Profit from Palladium Huge Price Surge… - Peter Krauth
6.UK Home Solar Panel Installations Good or Bad for House Buying and Selling? - Nadeem_Walayat
7.Global Gold Manipulation Update - MAP Wave Analysis - Marc_Horn
8.Ukraine Capital Controls and 200% Inflation But Still In Better Shape Than US! - Jeff_Berwick
9.The Rise of a Euro-Chino-Russian Superpower - Stephan Bogner
10.Across Europe Secession Movements Intensify - BATR
Last 72 Hrs
Every Central Bank for Itself - 16th Apr 14
Social Security, U.S. Treasury Stealing Every Last Penny From Americans - 16th Apr 14
Ukraine Falling to Economic Warfare and Its Own Missteps - 16th Apr 14
Silver and Gold Miners Still Disappoint - 16th Apr 14
Silver, Gold, and What Could Go Wrong - 15th Apr 14
How I Intend to Survive the Meltdown of America - 15th Apr 14
France Wakes Up To The Multicultural Multi-Threat - 15th Apr 14
The Real Purpose Of QE - It’s Not Employment - 15th Apr 14
Peak Coal - 15th Apr 14
Flash Crash, Rigged Markets - What’s the Frequency Zenith? - 15th Apr 14
Forecasting U.S. GDP Growth: A Look at WSJ Economists’ Collective Crystal Ball - 15th Apr 14
Stock Market - Is Something Nasty About to Happen? - 15th Apr 14
How to Trade Your Way To Freedom - 15th Apr 14
Understanding (and Ignoring) the Media Bandwagon Against Gold - 15th Apr 14
When Stock Market Bubble Crashes, Take Refuge in Gold Stocks - 15th Apr 14
Bitcoin Price Strong Appreciation to Be Followed by Declines? - 14th Apr 14
Greece, Turkey, We're Shuffling The Cards on Our Europe Investing Play - 14th Apr 14
Silver Price Ultimate Rally: When Paper Assets Collapse - 14th Apr 14
Get Your Share of an Extra Trillion Euros Money Printing - 14th Apr 14
Fourth Reversals in The Gold and Silver Charts - 14th Apr 14
Stock Market Nearing Rally in a Downtrend - 14th Apr 14
London House Prices Bubble, Debt Slavery, Crimea 2.0 - Russia Ukraine Annexation - 14th Apr 14
Four Horsemen - Top Economists Explain the Source of Our Economic Crisis - Video - 13th Apr 14
Peak Oil And Global Warming – A Question Of Culture - 13th Apr 14
The Global Banking Game Is Rigged, and the FDIC Is Suing - 13th Apr 14
College Degree Earnings Propaganda - 13th Apr 14 - Andrew Syrios
Stock Market Potential Diagonal Triangle Pattern Forming - 12th Apr 14
Ukraine Crisis – Military Flash Drive Thinking - 12th Apr 14
Gold And Silver – 2014 Coud Be A Yawner; Be Prepared For A Surprise - 12th Apr 14
Gold Preparing to Launch as U.S. Dollar Drops to Key Support - 12th Apr 14
Manipulated Stocks Markets And The Empty Bag - 12th Apr 14
Stock Market - It’s Not Time to Panic… It’s Time to Buy - 12th Apr 14
Doctor Doom on the Fiat Money Empire Coming Financial Crisis - 12th Apr 14
Sheffield, Rotherham Roma Benefits Plague, Ch5 Documentary Gypsies on Benefits & Proud - 11th Apr 14
This Bitcoin Price Rally Might Be a Fake One - 11th Apr 14
GDX Gold Stocks Benchmark - 11th Apr 14
Silver Price Finally Outperforms – How Bullish Is That? - 11th Apr 14
Limits to Employment Participation, and Societal Change - 11th Apr 14
US Moves To Restrict Travelers Taking International Flights - 11th Apr 14
Bill Gross to El-Erian: 'Come on, Mohamed, Tell Us Why' You Resigned PIMCO - 11th Apr 14
British Pound GBP/USD - Double Top or Further Rally? - 11th Apr 14
Don't Miss the Boat on Big Biotech Catalysts: Keith Markey - 11th Apr 14
Russia Invaded Crimea and These US Energy Companies Made a Killing - 11th Apr 14

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

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.


© 2005-2014 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