TOP
STORIES:
American dream died with the Dow 49,200 forecast - (www.marketwatch.com) “New-Millennium Dow: 49,200
by 2013!” That was the headline for my early January 2000 column. “Carnage! Record plunge! Wall Street weighs
market’s future!” The Wall Street Journal’s headlines screamed at me the third
trading day of the new millennium. Hey, tell me what’s happening? Fear set in.
Anxieties. My heart beat faster. Is this it? The big crash? Quite a dramatic
opening. Then suddenly I bust out laughing. Hey, these financial journalists
are just doing their job. And they’re good. These guys sell news by hitting
emotional hot buttons, hyping late-breaking stories. And it worked. Today fear.
Tomorrow hope. News is entertainment in the New Millennium.
Don't blink or you'll miss another bank bailout - (www.nytimes.com) That the New York Fed would
shower favors on a big financial institution may not surprise. It has long
shielded large banks from assertive regulation and increased capital
requirements. Still, last week’s details of the undisclosed settlement between
the New York Fed and Bank of America are remarkable. Not only do the filings
show the New York Fed helping to thwart another institution’s fraud case against
the bank, they also reveal that the New York Fed agreed to give away what may
be billions of dollars in potential legal claims. Here’s the skinny: Late last
Wednesday, the New York Fed said in a court filing that in July it had released
Bank of America from all legal claims arising from losses in some
mortgage-backed securities the Fed received when the government bailed out the American International Group in 2008.
One surprise in the filing, which was part of a case brought by A.I.G., was
that the New York Fed let Bank of America off the hook even as A.I.G. was
seeking to recover $7 billion in losses on those very mortgage securities. It
gets better.
Deflation arrives in the Eurozone - (www.theautomaticearth.com) I've recently been exploring
the statistical data warehouse provided by the ECB, and I was able to assemble
the following chart, comprising MFI Loans (MFI = monetary financial
institution) + Bonds (sovereign & corporate). It was good timing, because
it shows that for the first time during this whole crisis, the eurozone has
dropped into deflation. Now don't get me wrong, if the Spanish banks (among
others) had been marking their loans to market, deflation would have arrived
long ago, but according to the data series provided by the ECB, Official Europe
has now recognized that they are in deflation. However you slice it, deflation
is NOT a good sign for the equity markets. Fewer bank loans means less money to
buy stuff. I'm ... perhaps not calling a top (that was back in 2007) but I am
leaning short here, at least in the eurozone and especially Spain. Fun
exercise: the Spanish credit growth during the bubble years was a good 20% per
year growth for 4 years. That's twice what the US did during that same period.
If you look at Ireland, it's even worse.
Ugliest Danish Banks Find No Buyers in Toxic Asset Trap - (www.bloomberg.com) The man who correctly
predicted the failures that triggered Denmark’s banking crisis two years ago is
now warning that a surge in bad loans will drag down more regional lenders too
far gone to attract buyers. Aggregate impairments will continue to rise this
year, with fatal consequences for the country’s weakest banks, according to Nicholas Rohde,
founder of Copenhagen-based Niro Invest Aps. It was Rohde’s financial model
that identified the noxious cocktail of bad assets lurking on the balance sheet
of Amagerbanken A/S well before its 2011 failure. The event triggered Europe’s
first senior bondholder losses in a state- backed resolution, and Rohde says
more bail-ins can’t be ruled out. Legislation designed to spur mergers and
avoid creditor losses will probably fall short as potential buyers balk at the
prospect of absorbing toxic debt, he said.
Debt Bubble Born of Easy Cash Prompts Swedish Rule Review -
(www.bloomberg.com) Sweden’s financial regulator
says it’s ready to tighten restrictions on mortgage lending to stop banks
feeding household debt loads after a cap imposed during the crisis failed to
stem credit growth. “Swedish households today are among the most indebted in
Europe and we cannot have household lending that spirals out of control,” Martin Andersson,
the director general of the Financial Supervisory Authority, said in an
interview in Stockholm. “If that would happen, we can utilize the two tools we
do have again, or look at other alternatives.” The FSA is ready to enforce a
cap limiting home loans relative to property values to less than the 85 percent
allowed today, Andersson said. Banks may also be told to raise risk weights on
mortgage assets higher than the regulator’s most recent proposal, he said. The
watchdog has other measures up its sleeve should these two prove inadequate, he
said.
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