Thursday 29 December 2011

Happy end to 2011?

 

Not really, record amounts of money are being left overnight by European Banks with the ECB. Effectively no banks in Europe will lend to one another, such is the fear that they are all insolvent. This is exactly like 2008 after the Lehmans crisis.

The ECB has extended half a trillion euro's of loans in an effort to overcome this liquidity crisis; but of course the banks know that it is not a liquidity crisis, but a solvency crisis. Many of the European banks are not going to survive a fall out of the Euro of Greece (which is nailed on for 2012), let alone Ireland or Portugal. As such, and with the opacity of the shadow banking system not helping make real positions clearer (together with the derivatives markets too), Banks don't know who is going to make it - there are strong rumours that even Deutshce Bank, Societe General and Credit Agricole are too exposed to Greek debt to avoid nationalisation or bankruptcy!

So 2011 is ending with the crisis at full force - perhaps 2012 will see a resolution to this ongoing mess?

10 comments:

Anonymous said...

So buy assets in Germany now since a Euro free of PIIGS would see the core Euro appreciate in value in the medium term.

In the short term, be long on gold as the immediate panic will mean fiat currencies are all trashed.

Anonymous said...

Maybe it is now a good time to get a common form of balance sheet and set a standard form of layout, banks in this country have for years not given true profits and liabilities with the excuse that it would make them more vunerable to runs (the things that have come to pass in the last 4/5 years seem to make that excuse void). Banks have gone after banks in other countries and after they have bought it find they have a pup, if true assets and liabilities were more apparent, companies would not pay over the odds for a black hole.

Elby the Beserk said...

Happy New Year to all of you ... and where have the rest of the December articles gone?

Nick Drew said...

and to you & yours, Elby

for the rest of December, click 'older posts'

but the thing is playing silly bloggers at the moment and our feed to other blogs is stuck on a 23rd December post - any ideas ? this particular capitalist is not tech-literate ...

Steven_L said...

Effectively no banks in Europe will lend to one another

Aren't you missing something here CU, something really effing obvious?

If ALL the banks are flush with cash they need to lend, who else are they going to effing lend it to?

What plonker would turn down a 3 year 1% loan?

Anonymous said...

No doubt 'dear leader' Barrosso and 'great helmsman' Von Rumpy-Pumpy are watching events in N.Korea and thinking now *that's* how we should go about things!

andrew said...

the obvious possibly might be
banks are a business
they may borrow at 1% over 3 years
but if the entity they lend to will repay the interest but not the capital after year 3 the interest rate needs to be at least 34%
as mentioned you cannot tell who will repay or default or when - so if the bet is 50/50 - 50% default in 18 months then the interest rate should be higher.
who will borrow at that rate?
who will lend at any lower rate?

shakespeare was wrong. first kill all the accountants.

Dick the Prick said...

Happy new year folks. Hope it's a gud un.

CityUnslicker said...

SL - we only get there when the system already was broken. The meregency cash is winning to stop a 2008 credit crunch - but the medicine is extreme and morally dubious.

Steven_L said...

Dubious? It's bonkers. I somehow always knew it would end like this - with central banks stepping in to replace depositors and bondholders.

But all this fuss about the banks depositing it is bonkers too. What else would they do? The money is there so that bondholders can be paid back and sovereigns can keep borrowing.

The question is - how does one play it? Well, for a start it most likely means companies like Aviva that get sold down when people talk about sovereign bond defaults will get bid back up back up.

When bondholders get their money back what will they do with it? Bid up dividend paying blue chips? I reckon so. BP at 600p again by the end of the year?

What of Barlcays? Back to 300p or so?

With a sluggish economy, will blue chips that tend not to pay divis and have been hoarding cash start returning it to shareholders? Which companies are these then?

Since I get my train tomorrow (and will be awake before the market closes) I think I might go on a buying spree. I'll try and do the rest of my 'stocks to watch in 2012' posts tonight too.

It kicks the can further down the road, the next kick might just allow governments to stop paying the coupons on central bank held debt.

The governments will soon be able to default on themselves! This is the endgame.