Caution: This Had Better Not Be True


From twitter….

 by genesis

My understanding is that Larry later (on the air) said these were “rumors”, although there is no later tweet I can find on the subject (there’s only one in his timeline after this, and it has nothing to do with banks.)

Let’s make sure we understand what’s at stake here: If this is true then the ECB and Italy had better put a stop to it right now.  Like before Europe opens.  This means that if the “rumor” is false the banking authorities need to get on the air right now and refute it with hard facts, not platitudes and denials.

If there is a deposit run on Italian banks that is not immediately stemmed it will result in a severe and probably intractable liquidity crisis that will (1) shut down lending in Italy and (2) result in one or more of the involved banks blowing up as it goes under regulatory capital minimums – or worse, simply runs out of liquid funds period.

The Euro zone has no meaningful way to deal with this.  Forbidding transfers out will simply make the panic worse in that it will confirm that the bank(s) involved can’t cover withdrawals.  Doing nothing is unacceptable as well.  And if these institutions blow up, we’re going to get a replay of Creditanstalt and all of its knock-on effects, right here, right now.

I do not normally reprint rumors at all, as they tend to be very destructive, but this is a special case because the risks, if the rumor is correct, are exceedingly high.  I’m sure you thought the 500 point loss on the DOW today was horrifying, never mind the 60 handles on the S&P 500 that came off and the 105 (!) on the Nadaq 100.

Here’s a hint: Those are small numbers if a major bank in Italy blows up in an uncontained fashion.

I have no idea if this is real or not.  But we’ve seen, according to Bloomberg, $2 trillion come off stock market valuations in the last ten days.

Ham-handed “interventions” have made the situation worse instead of better.  We’re now sitting in an extreme oversold condition that unfortunately leave us with a binary outcome: Either a rip-your-face-off rally is imminent, or we’re looking at an all-on collapse.  One policy mistake at this juncture, or even failure to provide a (reasonable and believable) answer to these sorts of rumors could trigger the collapse option.

If you have open positions tonight please be extremely careful.  As this goes out Asia in the toilet with several indices down more than 4% and the rest anywhere from around 2-3% negative.  CNBC tried to call this all “reactionary” to the selloff in Europe and the US today, but I’m not sold on that explanation and you shouldn’t be either.

My personal confidence level in the leadership of all the nations involved, including the United States, is zero.  None of them have told the truth to their people since this crisis began in 2007.  Our Congress and President lied repeatedly over the debt issues, not just in the latest debate but going back to 2007 and before, all the way through Dick Cheney’s “deficits don’t matter” line.  Yes they do matter, although it is frequently true that the harm is not instantly apparent.

This much I do know – Europe’s problems are no longer confined to the periphery and the “PIIGS”; the CAC was down nearly 4% today and the DAX 3.5%, with the FTSE off 3.4%.  This is now a pan-European problem and whatever is going to be done, if anything, it had better be put in place now or the market will continue to sell down price until exhaustion is reached which could easily be 10, 20 or even 30% lower from here, and that decline could literally come “all at once.”

Note: This may have been responsible for the huge dump in the US market into the close.  The timing is approximately correct to have caused it.  That just makes the situation worse; if it was a malicious rumor passed around with the hope of it getting wide dissemination, well, it did.  On the other hand if it’s true…..

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