Think “all is fine” in Europe after today’s largely irrelevant Italian bill auction (the auction was for 6 month debt – even Greece can raise that kind of money)? Think again. Here is the Fermentation Committee Chairman explaining why Europe is so hard pressed to create a fake sense of calm, allowing those who know the real story to take advantage of the situation while they still can, and sharing the behind the scenes truth you won’t get anywhere else. Certainly not SWIFT.
Europe Rumbles Continue Beneath More Upbeat Headlines – Ever since last week’s liquidity operation, most headlines out of Europe have leaned toward the reassuring side. Beneath those headlines, however, there are signs the strains remain and may, in fact, be growing.
European banks are making great use of the ECB’s overnight deposit facility. Last night they parked $590 billion at the ECB breaking the record they had set the night before. They are clearly unwilling to lend to other European banks, highlighting the distrust and fear in the interbank marketplace. While the ECB’s lending initiative calmed the markets somewhat, it apparently has done nothing to free up the logjam blocking interbank lending.
The distrust on the streets is said to be growing also. Barroom gossip says that safe-deposit boxes are in a demand that borders on frenzy. They allow you to take your Euros and covert them into something of value (gold, Swiss Francs, etc.) and sock it away in a safe place.
Others are said to be buying property in London and elsewhere lest you awake one day and discover that your Euros have reverted to drachmas or lira.
Savvy bankers are said to be setting up personal and communal trusts domiciled in places like the Bahamas, the Caymans or the Isle of Jersey. Some banks are offering depository accounts denominated (and repayable) in alternate currencies like the dollar or the yen.
We think a Lehman-like event would most likely be triggered by a run on a bank or a series of banks. The scramble for currency (value) protection among the public could turn into that bank run in the same way that a crowd can instantly turn into a mob. Watch the money flows out of Greece and Italy very carefully. The pot continues to bubble.