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United Kingdom
United Kingdom
by
Alasdair Macleod
Executive Summary
- Spain: after tens of €billions in bailouts, its banks still need more
- Germany: its largest banks are ridiculously levered
- France: its banks are deteriorating fast with the sinking French economy
- UK: bail-ins are now on the table
If you have not yet read Part I: Europe's Precarious Banks Will Determine the Future available free to all readers, please click here to read it first.
Spain and Bankia
The true state of the Spanish economy (i.e., it is in depression) should be uppermost in our minds when we consider recent developments at Bankia, the Spanish mortgage bank formed only thirty months ago out of the wreckage of Spain’s regional mortgage banks. Bankia underwent a subsequent bail-out only a year ago and has been a continuing disaster, as shown by the share price in the chart below.
Having fallen from an adjusted €106 to only 68 cents as recently as last November, the share price tells us that Bankia is simply bust. The new G20 bail-in rules cannot have helped Bankia hold on to its deposits; the only deposits left should be those of the small depositors prepared to rely on government insurance.
The Cyprus bail-in precedent has undoubtedly made Bankia’s position worse than it would otherwise be. At March 31st Bankia…
Where Will the Minsky Moment Occur?
PREVIEW by Alasdair MacleodExecutive Summary
- Spain: after tens of €billions in bailouts, its banks still need more
- Germany: its largest banks are ridiculously levered
- France: its banks are deteriorating fast with the sinking French economy
- UK: bail-ins are now on the table
If you have not yet read Part I: Europe's Precarious Banks Will Determine the Future available free to all readers, please click here to read it first.
Spain and Bankia
The true state of the Spanish economy (i.e., it is in depression) should be uppermost in our minds when we consider recent developments at Bankia, the Spanish mortgage bank formed only thirty months ago out of the wreckage of Spain’s regional mortgage banks. Bankia underwent a subsequent bail-out only a year ago and has been a continuing disaster, as shown by the share price in the chart below.
Having fallen from an adjusted €106 to only 68 cents as recently as last November, the share price tells us that Bankia is simply bust. The new G20 bail-in rules cannot have helped Bankia hold on to its deposits; the only deposits left should be those of the small depositors prepared to rely on government insurance.
The Cyprus bail-in precedent has undoubtedly made Bankia’s position worse than it would otherwise be. At March 31st Bankia…
by
Alasdair Macleod
Executive Summary
- France: Bet on a bankruptcy of the French government
- Italy: Will not be able to fund its debt obligations without external help
- Spain: The best outcome at this point is years of grinding financial repression
- UK: At growing risk of a big upward spike in price inflation, leading to a currency crisis
If you have not yet read Part I, available free to all readers, please click here to read it first.
Individual States
France
Perhaps the cameo event that best describes French attitudes was the recent correspondence between Maurice Taylor Jnr, head of Titan International, the tire manufacturer, and Arnaud Montebourg, France’s Minister for Industrial Renewal. While it was good theatre, the serious points were that on average a French worker at an industrial plant works for three hours a day, and that the Minister resorted to threats that any Titan products imported into France would be “inspected by the relevant authorities with extra zeal.” That is the way things are done in France: Upset the Minister or a government functionary and none of your product gets to market, as Mr Taylor will shortly find out.
France has an official unemployment rate of about 10.5%, which would be somewhat higher if it were not for three-hour days in many of the factories. Taxes on employers are among the highest in Europe, and employment legislation is so onerous that employing an extra hand is the last option for all private sector employers.
Large companies, such as Peugeot-Citroen, generally tolerate poor labour productivity and sub-standard quality products – partly because the unions are strong, and partly because senior managers look to government to “help” by providing subsidies and by other means. Consequently, private-sector manufacturing is not competitive, and sales in the troubled Eurozone are collapsing. Peugeot’s share price says it all.
Decades of government protection have left France’s industrial sector in the weakest position of the larger Eurozone economies. Smaller businesses, outside the major cities, are heavily reliant on agricultural produce and hospitality, much of which is undeclared, untaxed, and untaxable. Furthermore, France’s farmers have long been beneficiaries of the EU’s agricultural subsidies, and have never had to be efficient.
Europe: Welcome to the Domino Effect
PREVIEW by Alasdair MacleodExecutive Summary
- France: Bet on a bankruptcy of the French government
- Italy: Will not be able to fund its debt obligations without external help
- Spain: The best outcome at this point is years of grinding financial repression
- UK: At growing risk of a big upward spike in price inflation, leading to a currency crisis
If you have not yet read Part I, available free to all readers, please click here to read it first.
Individual States
France
Perhaps the cameo event that best describes French attitudes was the recent correspondence between Maurice Taylor Jnr, head of Titan International, the tire manufacturer, and Arnaud Montebourg, France’s Minister for Industrial Renewal. While it was good theatre, the serious points were that on average a French worker at an industrial plant works for three hours a day, and that the Minister resorted to threats that any Titan products imported into France would be “inspected by the relevant authorities with extra zeal.” That is the way things are done in France: Upset the Minister or a government functionary and none of your product gets to market, as Mr Taylor will shortly find out.
France has an official unemployment rate of about 10.5%, which would be somewhat higher if it were not for three-hour days in many of the factories. Taxes on employers are among the highest in Europe, and employment legislation is so onerous that employing an extra hand is the last option for all private sector employers.
Large companies, such as Peugeot-Citroen, generally tolerate poor labour productivity and sub-standard quality products – partly because the unions are strong, and partly because senior managers look to government to “help” by providing subsidies and by other means. Consequently, private-sector manufacturing is not competitive, and sales in the troubled Eurozone are collapsing. Peugeot’s share price says it all.
Decades of government protection have left France’s industrial sector in the weakest position of the larger Eurozone economies. Smaller businesses, outside the major cities, are heavily reliant on agricultural produce and hospitality, much of which is undeclared, untaxed, and untaxable. Furthermore, France’s farmers have long been beneficiaries of the EU’s agricultural subsidies, and have never had to be efficient.
by
Chris Martenson
Executive Summary
- The central-planning Status Quo will fight to the bitter end in order to keep stock and housing prices elevated
- HFT algorithms dramatically increase the odds of immediate "air pockets" in stock prices
- Persistently high gasoline prices are choking economic growth
- A parade of economic headwinds (weakening GDP growth, higher taxes, the impact of Obamacare, sequester cuts, chronic unemployment) are blowing increasingly stronger
- Powerful TBTF ("too-big-to-fail') interests are likely supporting the Fed's current efforts to boost asset prices
- Both near-term and long-term history tell us that the more asset prices are artificially increased, the farther they eventually fall, as intervention hits its point of diminishing returns
- Why you don't want to be long in this market when that happens
If you have not yet read Part I: Warning: Stocks Likely to Crater from Here, available free to all readers, please click here to read it first.
Hey, Where's My Cheap Gasoline?
Expensive energy is a serious drag on economic growth. It always has been and always will be, for obvious reasons.
The average person can be forgiven for being confused by the recent spike in gasoline prices. Since early 2012, there has been a concerted effort to tell the tale that the U.S. is producing more oil than it has in a long time and is on track to rival Saudi Arabia.
Literally hundreds of articles have breathlessly repeated the same information over and over again, like all good marketing programs should. But here in 2013, gasoline is on track to set price records and possibly make this year the most expensive one in history for gas prices:
How can this be? What is going on? How do we reconcile all the reports of record-breaking advances in U.S. oil production with these concurrent record-high gasoline prices?
The answer starts with the fact that the U.S. still imports 40% of its daily oil supply and is nowhere near energy independence when it comes to petroleum. This means that the U.S. remains wedded to the world price of oil, which remains quite elevated in price – with Brent crude remaining stubbornly elevated between $110 and $120 a barrel over the majority of the past year…
How the Market Failure Will Happen
PREVIEW by Chris MartensonExecutive Summary
- The central-planning Status Quo will fight to the bitter end in order to keep stock and housing prices elevated
- HFT algorithms dramatically increase the odds of immediate "air pockets" in stock prices
- Persistently high gasoline prices are choking economic growth
- A parade of economic headwinds (weakening GDP growth, higher taxes, the impact of Obamacare, sequester cuts, chronic unemployment) are blowing increasingly stronger
- Powerful TBTF ("too-big-to-fail') interests are likely supporting the Fed's current efforts to boost asset prices
- Both near-term and long-term history tell us that the more asset prices are artificially increased, the farther they eventually fall, as intervention hits its point of diminishing returns
- Why you don't want to be long in this market when that happens
If you have not yet read Part I: Warning: Stocks Likely to Crater from Here, available free to all readers, please click here to read it first.
Hey, Where's My Cheap Gasoline?
Expensive energy is a serious drag on economic growth. It always has been and always will be, for obvious reasons.
The average person can be forgiven for being confused by the recent spike in gasoline prices. Since early 2012, there has been a concerted effort to tell the tale that the U.S. is producing more oil than it has in a long time and is on track to rival Saudi Arabia.
Literally hundreds of articles have breathlessly repeated the same information over and over again, like all good marketing programs should. But here in 2013, gasoline is on track to set price records and possibly make this year the most expensive one in history for gas prices:
How can this be? What is going on? How do we reconcile all the reports of record-breaking advances in U.S. oil production with these concurrent record-high gasoline prices?
The answer starts with the fact that the U.S. still imports 40% of its daily oil supply and is nowhere near energy independence when it comes to petroleum. This means that the U.S. remains wedded to the world price of oil, which remains quite elevated in price – with Brent crude remaining stubbornly elevated between $110 and $120 a barrel over the majority of the past year…
by
Alasdair Macleod
Executive Summary
- Germany is unlikely to break solidarity with the rest of the Eurozone while Merkel remains in charge. But she may not last as long as she'd like.
- France's economy is deteriorating at an alarming rate.
- Most of France's "stability" to date is due to inflows of money fleeing Spain and Italy. That will stop soon – and then what?
- The UK is suffering from many of the same ills as the U.S. However, its banks are too dependent on Eurozone debt for it to take drastic counter-measures, and so it is handcuffed to the future of the Continent.
- All is well as long as no one defaults or no one leaves the Eurozone. With each player's position deteriorating, how long can the status quo last?
If you have not yet read Europe Is Now Sinking Fast, available free to all readers, please click here to read it first.
In previous articles, I have given Peak Prosperity's enrolled members the lowdown on the weak Eurozone governments and looked at the crisis from Germany’s point of view. With respect to Germany, all that can be added is that her political elite is still frozen in inaction and show no signs of snapping out of it. Mrs Merkel, particularly, is still pursuing the out-of-date Euroland ideal. It is as if she has decided that she has no alternative. Come what may, it will have to succeed in the end, and she is not going to be the one who calls “uncle.”
I don’t know how these things work in Germany, but in the UK there comes a point where “the men in grey suits” metaphorically tap the leader on the shoulder and politely instruct him or her to resign. It happened to Mrs Thatcher, and unless she has a change of heart, it could happen to Mrs Merkel before next November’s German elections. And when that happens, the withdrawal of Germany from the euro can be expected to begin.
In this article we will update the deteriorating situation in two other key players on Europe's chessboard: France and the United Kingdom. And we'll reveal why the current system is like a Mexican standoff: Everything is stable until someone makes a move. Then all hell breaks loose…
Europe’s Mexican Standoff
PREVIEW by Alasdair MacleodExecutive Summary
- Germany is unlikely to break solidarity with the rest of the Eurozone while Merkel remains in charge. But she may not last as long as she'd like.
- France's economy is deteriorating at an alarming rate.
- Most of France's "stability" to date is due to inflows of money fleeing Spain and Italy. That will stop soon – and then what?
- The UK is suffering from many of the same ills as the U.S. However, its banks are too dependent on Eurozone debt for it to take drastic counter-measures, and so it is handcuffed to the future of the Continent.
- All is well as long as no one defaults or no one leaves the Eurozone. With each player's position deteriorating, how long can the status quo last?
If you have not yet read Europe Is Now Sinking Fast, available free to all readers, please click here to read it first.
In previous articles, I have given Peak Prosperity's enrolled members the lowdown on the weak Eurozone governments and looked at the crisis from Germany’s point of view. With respect to Germany, all that can be added is that her political elite is still frozen in inaction and show no signs of snapping out of it. Mrs Merkel, particularly, is still pursuing the out-of-date Euroland ideal. It is as if she has decided that she has no alternative. Come what may, it will have to succeed in the end, and she is not going to be the one who calls “uncle.”
I don’t know how these things work in Germany, but in the UK there comes a point where “the men in grey suits” metaphorically tap the leader on the shoulder and politely instruct him or her to resign. It happened to Mrs Thatcher, and unless she has a change of heart, it could happen to Mrs Merkel before next November’s German elections. And when that happens, the withdrawal of Germany from the euro can be expected to begin.
In this article we will update the deteriorating situation in two other key players on Europe's chessboard: France and the United Kingdom. And we'll reveal why the current system is like a Mexican standoff: Everything is stable until someone makes a move. Then all hell breaks loose…
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