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Archive for the ‘Collapse’ Category

Can you hear that?  It almost sounds like a little bit of peace and quiet.  This year, the holiday season has been fairly uneventful, and for that we should be very grateful.  But it isn’t going to last long.  2012 is going to be a much more difficult year for the U.S. economy and the global financial system than 2011 has been.  So if things are going well for you right now, enjoy this little bubble of peace and tranquility while you can.  Because while things may look calm on the surface right now, the truth is that this is a very scary Christmas for financial professionals and world leaders.  Most of them know how fragile the global financial system is at the moment.  Most of them know that we are living in the greatest bubble of debt, leverage and financial risk that the world has ever seen.  As I wrote about the other day, world leaders would not be throwing huge bailouts around like crazy if everything was going to be just fine.  The truth is that we are rapidly approaching another financial crisis that may end up being even worse than the horrific crash of 2008.

Despite unprecedented efforts by the European Central Bank, the yield on 10 year Italian bonds is nearly up to 7 percent again.

Keep an eye on the yield on 10 year Italian bonds.  That is going to be one of the most important financial numbers in the world in the coming months.

But Italy is not the only problem.  The reality is that several European governments are teetering on the verge of default right now.  Meanwhile, confidence in the European financial system has been absolutely shattered and a devastating credit crunch has set in.  Nobody (other than the ECB) wants to loan money to the banks and the banks are massively cutting back on loans to businesses and consumers.  This is causing the money supply to fall.  The ECB is trying to hold things together with chicken wire and duct tape, but it isn’t going to work.

In major financial centers such as the City of London, this is a very scary Christmas and the outlook for the new year looks very frightening.  Because financial activity has dried up so dramatically, a number of firms are already shutting down.  The following comes from a recent Bloomberg article….

London’s stockbrokers are shrinking as Europe’s sovereign debt crisis and competition from international firms squeezes revenue and fees.

“This isn’t just a blip, this is much worse,” said Tim Linacre, who is stepping down as chief executive officer of Panmure (PMR) Gordon & Co., a 135-year-old brokerage. “It’s a desert for activity, which is why you are seeing some firms throw in the towel.”

In the past month, Altium Capital closed its securities unit. Evolution Group Plc (EVG), Merchant Securities Group Plc, Arbuthnot Securities Ltd. and Collins Stewart Hawkpoint Plc have all accepted takeover offers from larger competitors.

“It feels worse than any other time,” said Lorna Tilbian, an executive director at Numis Corp. who began her career in 1984. “All I hear about is people putting up a white flag.”

Many out there are wondering if we are about to face another crisis like the one we saw back in 2008.

Unfortunately, none of the underlying problems that caused that crisis were ever really fixed.

We did not learn from history so now we are in for another round of pain.

In fact, Chris Martenson believes that this next crisis will be even worse than 2008….

There are clear signs of a liquidity crunch in the asset markets right now, and the question I keep hearing is, Is this 2008 all over again?

No, it’s worse. Much worse.

In 2008 there was a lot more faith and optimism upon which to draw. But both have been squandered to significant degrees by feckless regulators and authorities who failed to properly address any of the root causes of the first crisis even as they slathered layer after layer of thin-air money over many of the symptoms.

Anyone who has paid attention knows that those “magic potions” proved to be anything but. Not only are the root causes still with us (too much debt, vast regional financial imbalances, and high energy prices), but they have actually grown worse the entire time.

Frightening stuff.

A couple of months ago, I wrote about the coming derivatives crisis that could potentially wipe out the entire global financial system.

When the next great financial crisis strikes, there is going to be a lot of focus on derivatives once again.

Top global financial authorities such as Ben Bernanke continue to insist that derivatives are perfectly safe.

But there are other voices in the financial world that are warning that we are heading for financial armageddon.  For example,just check out what Mark Faber is saying….

“I am convinced the whole derivatives market will cease to exit. Will become zero. And when it happens I don’t know: you can postpone the problems with monetary measures for a long time but you can’t solve them… Greece should have defaulted – it would have sent a message that not all derivatives are equal because it depends on the counterparty.”

That is very strong language.

Faber also believes that the stock market is going to get hit really, really hard during the coming crisis….

“I am ultra bearish. I think most people will be lucky if they still have 50% of their money in 5 years time. You have to have diversification – some real estate in the countryside, some gold and some equities because if you think it through, say Germany 1900 to today, we had WWI, we had hyperinflation, WWII, cash holders and bondholders they lost everything 3 times, but if you owned equities you’d be ok. In equities in general you will not lose it all, it may not be a good investment, unless you put it all in one company and it goes bankrupt.”

Some of the top financial officials in the entire world have also used some very scary language in recent weeks.

The head of the International Monetary Fund, Christian Lagarde, recently stated that we could soon see conditions “reminiscent of the 1930s depression” and that no country on earth “will be immune to the crisis”….

“There is no economy in the world, whether low-income countries, emerging markets, middle-income countries or super-advanced economies that will be immune to the crisis that we see not only unfolding but escalating”

But most people are so busy opening up the cheap plastic presents under their Christmas trees (that were mostly made overseas) that they aren’t even paying attention to these warnings.

Look, when the money supply falls significantly it is almost impossible to avoid a recession.  Just look at the historical numbers.

Unfortunately, money supply numbers all over Europe are falling dramatically right now as an article in the Telegraph recently noted….

All key measures of the money supply in the eurozone contracted in October with drastic falls across parts of southern Europe, raising the risk of severe recession over coming months.

Confidence in the banking system in Europe has never been this low in the post-World War II era.  Sadly, most people simply do not understand how bad things have gotten for major European banks.  One Australian news source recently put it this way….

“If anyone thinks things are getting better, they simply don’t understand how severe the problems are,” a London executive at a global bank said. “A major bank could fail within weeks.”

Others said many continental banks, including French, Italian and Spanish lenders, were close to running out of the acceptable forms of collateral, such as US Treasury bonds, that could be used to finance short-term loans.

Some have been forced to lend out their gold reserves to maintain access to US dollar funding.

The outlook is very ominous.

Financial professionals all over the globe are telling us what is coming if we are willing to listen.

The following comes from a report recently produced by Credit Suisse’s Fixed Income Research unit….

“We seem to have entered the last days of the euro as we currently know it. That doesn’t make a break-up very likely, but it does mean some extraordinary things will almost certainly need to happen – probably by mid-January – to prevent the progressive closure of all the euro zone sovereign bond markets, potentially accompanied by escalating runs on even the strongest banks.”

The first six months of 2012 are going to be a very key time.  National governments and big European banks are scheduled to roll over huge mountains of debt.  But if they can’t find any takers that could bring the global financial system to a moment of great crisis very quickly.

The following is how former hedge fund manager Bruce Krasting recently described the problem that Italy is facing….

At this point there is zero possibility that Italy can refinance any portion of its $300b of 2012 maturing debt. If there is anyone at the table who still thinks that Italy can pull off a miracle, they are wrong. I’m certain that the finance guys at the ECB and Italian CB understand this. I repeat, there is a zero chance for a market solution for Italy.

But even if we don’t see a formal default by a major European nation such a Italy, that doesn’t mean that major European banks are going to make it through the crippling recession that has now begun in Europe.

Charles Wyplosz, a professor of international economics at Geneva’s Graduate Institute, is absolutely convinced that we are going to see some major European banks collapse….

“Banks will collapse, including possibly a number of French banks that are very exposed to Greece, Portugal, Italy and Spain.”

Authorities in Europe are saying the “right things” publicly, but privately they are preparing for the worst.

As the Telegraph recently reported, the British government is now making plans based on the assumption that a collapse of the euro is only “just a matter of time”….

Yes, we are heading for a huge financial collapse and massive economic trouble.

So enjoy the good times while we still have them.

They are not going to last too much longer.

The Economic Collapse

Welcome my friends to the collapse of 2011.

Remember the mantra that “consumers have delevered” which has been run over the last two years as an incessant bark from the media, attempting to goad you, the consumer, into more spending and more consumption to “lift the economy.”

This claim has been a lie and a fraud upon the public and the new Fed Z1 makes this clear.  The peak household credit liability was $13.92 trillion.  It currently stands at $13.30 trillion, a reduction of a mere 4.6%.

This all came from home mortgages going ka-boom; $10.6 trillion to $9.9 trillion, a reduction of $700 billion.  Total net reduction in liability was $620 billion; ex-mortgages consumer leverage has actually increased.

The DAX is now down nearly 10% in two days and the rest of the global markets are reacting in the same sort of fashion.  This should not surprise; the same mantra of “we’ve de-levered” and “cash is at all time highs on the sidelines” has been claimed for years, and it’s the worst sort of half-truth.

See, cash is indeed at high levels.  But debt has gone higher, and yet nobody mentions the liability side.  As an example non-financial business credit stands at $11.02 trillion, just barely down from the 2008 high of $11.15 trillion – and nearly a clean double from the year 2000 level of $6.21 trillion.

There’s been no material “de-levering” at all.  In fact the World Economic Forum claimed that in order to hit the “expected” GDP growth numbers we would have to double outstanding credit – that is, add $100 trillion in the next ten years.

But all credit comes with interest due, which means it is a forward promise to pay tomorrow for that which you wish to consume in some form or fashion today.  This interest is a drag on growth as it forces transfer payments from the debtor to the creditor.

Now look closely at the following chart.

This is updated with the latest Z1.  You’ve seen this chart dozens of times, and I’ll get to history in a minute.  But the ominous part of the chart is in fact right there… and you’ll probably miss it.

But first, here’s history up until 1980:

Note that while credit rose through the 1950s and 60s, so did GDP.  And while the first seeds of the bubble game were apparent in in the 1970s, up until 1975 or so there was no manifestation of the sort of bubble economics that created this mess, and indeed we actually had a quarter in 1977 when we increased output as much as we increased debt.

Here’s 1980 forward:

Note the incessant bubble economics since 1980.  In fact 1980 was the last time (other than during the depths of the collapse in 08 and 09) that we actually put in a single three month period where there was more economic growth than there was new debt creation.

To those who claim that modern fiat monetary systems demand this sort of dynamic, go back to the chart above it.  We’ve been on fiat money since the 1930s, and yet we ran through the 1950s, 1960s, and part of the 1970s with the monetary and credit system in balance.  It can be done but doing so requires that your growth be real and a function of production – not bubble finance.

Here’s the problem you probably missed in the first chart though - see that red box?  We topped out at the end of last year and turned downward.  This pattern is the same one that we saw in 2007, but from much higher levels.  We’re in big trouble folks, right here and now, and this data is always three months behind.

What’s worse is the corporate balance sheet picture:

Note that corporate equity value compared against assets has gone back into “bubble” mode and leverage is again expanding.

Indeed, we’re above the levels of 2007 and trying to break out from the 09/10 levels.  More-importantly we’re well beyond double the leverage level that for forty years was a reasonable “lid” on corporate leverage levels.

Claims that corporations have “de-levered” are also a lie, and this puts stock prices at extreme risk, as they are at present predicated on nothing more than the lie that “everything is ok” rather than tangible business valuations.

Finally, we have this from El-Erian:

The facts are striking and worrisome. Private institutions around the world, and even some public ones, have sharply reduced short-term lending to French banks. Credit markets now put their risk of default at levels indicative of a BB rating, which is fundamentally inconsistent with sound banking operations. Bank equity now trades at a 50 per cent discount to tangible book value on average. To make things worse, the ratio of market capital to total assets has fallen to 1 – 1.5 per cent (compared with six to eight per cent for healthier banks).

Right.  But that equity value discount is not limited to French banks, as El-Erian is talking about.  It is in fact even worse here in the United States, where we have major banks trading at one third of alleged “book value.”

As I have repeatedly pointed out were these balance sheets accurate anyone with money could make an instant 100% or greater profit by simply buying these companies up.  It’s not happening, which means that either all of those with capital are individually and collectively stupid or the balance sheets are lies.

JP Morgan is trading this morning at prices seen in 2008 after Lehman’s failure.  So is Bank of America, Goldman Sachs, Morgan Stanley, Citibank and others.  And this morning – now FedEx is as well!

A couple of weeks ago I opined that were you caught “long” equities you’d likely get another opportunity to unload them at reasonable prices before all hell broke loose.  It appears that yesterday was that opportunity in the morning, as we’re now trading seventy S&P points, or about 6.6%, below where we were yesterday morning.  You’ve once again had your 401k and IRA whacked by the incessant lies and scams promulgated by your government and the “financial wizards” who seduced you back into the markets with half-truths and siren songs.

The market opened this morning down 300+ DOW points and the VIX slammed through the 40 level.  There will clearly be bounces along the line but as things stand right now the underlying financial conditions have not changed one iota from where they were in 2007.  Instead of allowing those who were overlevered to go bust and have capitalism do what it does best – creative destruction of the foolish – we instead took private effectively-defaulted risk and transferred it to the public balance sheet.

But that’s a scam – it simply moves the deck chairs on the economic Titanic, because governments can only raise funds through two means: They can borrow money (increasing leverage) or they can tax it (decreasing consumption or investment by private parties.)  The obvious “borrow it” choice was made here in the US and elsewhere, but just as with private borrowing government borrowing has limits and we’re now running into them, and deficit spending creates false demand signals in the economy that must eventually end.

Recognition that you’ve been scammed can be a truly ugly thing.  It is usually violent at an emotional and financial level, and more often than one would like it has a habit of being violent in the physical sense as well.

Well, America (and the world), you’ve been scammed by the financial institutions and governments for the last 30 years.  2008 was the first spasm of recognition but was short-circuited by…. you guessed it…. even more scams.  Rather than demand truth and an end to the games the American consumer lapped up the frauds and schemes of the politicians on both sides of the aisle who conspired with the financiers to rip you off once again.

The opportunity to address these issues as I have been tirelessly attempting to do, was ignored by those in policy roles in Washington DC.  Those who have been reading The Ticker are well-aware of my efforts going back into 2007 and through the 2008 Presidential campaign on both sides of the aisle, along with my efforts since.

They’ve been ignored with the political establishment choosing to knob-job the banks and lie to you, the public, rather than address the fact that the entire last 30 years have been one gigantic economic scam and that what they were attempting to do could not, as a matter of mathematics, succeed.

Now recognition of that fact is dawning on people in a convulsive fashion, and markets of all sorts are reacting as one would expect when their entire worldview is exposed as having been a gigantic and intentional pyramid scheme constructed of debt layered upon debt that cannot be paid down.  The wrong thing was done in 2008 and there is zero evidence that our government has changed one iota in their singular focus on misdirection and lies in this regard.

Welcome to awareness; I hope you’ve taken the last couple of years to become prepared.

Will global financial markets reach a breaking point during the month of October?  Right now there are all kinds of signs that the financial world is about to experience a nervous breakdown.  Massive amounts of investor money is being pulled out of the stock market and mammoth bets are being made against the S&P 500 in October.  The European debt crisis continues to grow even worse and weird financial moves are being made all over the globe.  Does all of this unusual activity indicate that something big is about to happen?  Let’s hope not.  But historically, the biggest stock market crashes have tended to happen in the fall.  So are we on the verge of a “Black October”?

The following are 21 signs that something big is about to happen in the financial world and that global financial markets are on the verge of a nervous breakdown….

#1 We are seeing an amazing number of bets against the S&P 500 right now.  According to CNN, the number of bets against the S&P 500 rose to the highest level in a year last month.  But that was nothing compared to what we are seeing for October.  The number of bets against the S&P 500 for the month of October is absolutely astounding.  Somebody is going to make a monstrous amount of money if there is a stock market crash next month.

#2 Investors are pulling a huge amount of money out of stocks right now.  Do they know something that we don’t?  The following is from a report in the Financial Post….

Investors have pulled more money from U.S. equity funds since the end of April than in the five months after the collapse of Lehman Brothers Holdings Inc., adding to the $2.1 trillion rout in American stocks.

About $75 billion was withdrawn from funds that focus on shares during the past four months, according to data compiled by Bloomberg from the Investment Company Institute, a Washington-based trade group, and EPFR Global, a research firm in Cambridge, Massachusetts. Outflows totaled $72.8 billion from October 2008 through February 2009, following Lehman’s bankruptcy, the data show.

#3 Siemens has pulled more than half a billion euros out of two major French banks and has moved that money to the European Central Bank.  Do they know something or are they just getting nervous?

#4 On Monday, Standard & Poor’s cut Italy’s credit rating from A+ to A.

#5 The European Central Bank is purchasing even more Italian and Spanish bonds in an attempt to cool down the burgeoning financial crisis in Europe.

#6 The Federal Reserve, the European Central Bank, the Bank of England, the Bank of Japan and the Swiss National Bank have announced that they are going to make available an “unlimited” amount of money to European commercial banks in October, November and December.

#7 So far this year, the largest bank in Italy has lost over half of its value and the second largest bank in Italy is down 44 percent.

#8 Angela Merkel’s coalition is getting embarrassed in local elections in Germany.  A recent poll found that an astounding 82 percent of all Germans believe that her government is doing a bad job of handling the crisis in Greece.  Right now, public opinion in Germany is very negative toward the bailouts, and that is really bad news for Greece.

#9 Greece is experiencing a full-blown economic collapse at this point.  Just consider the following statistics from a recent editorial in the Guardian….

Consider first the scale of the crisis. After contracting in 2009 and 2010, GDP fell by a further 7.3% in the second quarter of 2011. Unemployment is approaching 900,000 and is projected to exceed 1.2 million, in a population of 11 million. These are figures reminiscent of the Great Depression of the 1930s.

#10 In 2009, Greece had a debt to GDP ratio of about 115%.  Today, Greece has a debt to GDP ratio of about 160%.  All of the austerity that has been imposed upon them has done nothing to solve their long-term problems.

#11 The yield on 1 year Greek bonds is now over 129 percent.  A year ago the yield on those bonds was under 10 percent.

#12 Greek Deputy Finance Minister Filippos Sachinidis says that Greece only has enough cash to continue operating until next month.

#13 Italy now has a debt to GDP ratio of about 120% and their economy is far, far larger than the economy of Greece.

#14 The yield on 2 year Portuguese bonds is now over 17 percent.  A year ago the yield on those bonds was about 4 percent.

#15 China seems to be concerned about the stability of European banks.  The following is from a recent Reuters report….

A big market-making state bank in China’s onshore foreign exchange market has stopped foreign exchange forwards and swaps trading with several European banks due to the unfolding debt crisis in Europe, two sources told Reuters on Tuesday.

#16 European central banks are now buying more gold than they are selling.  This is the first time that has happened in more than 20 years.

#17 The chief economist at the IMF says that the global economy has entered a “dangerous new phase“.

#18 Israel has dumped 46 percent of its U.S. Treasuries and Russia has dumped 95 percent of its U.S. Treasuries.  Do they know something that we don’t?

#19 World financial markets are expecting that the Federal Reserve will announce a new bond-buying plan this week that will be designed to push long-term interest rates lower.

#20 If some wealthy investors believe that the Obama tax plan has a chance of getting through Congress, they may start dumping stocks before the end of this year in order to avoid getting taxed at a much higher rate in 2012.

#21 According to a study that was recently released by Merrill Lynch, the U.S. economy has an 80% chance of going into another recession.

When financial markets get really jumpy like this, all it takes is one really big spark to set the dominoes in motion.

Hopefully nothing really big will happen in October.

Hopefully global financial markets will not experience a nervous breakdown.

But right now things look a little bit more like 2008 every single day.

None of the problems that caused the financial crisis of 2008 have been fixed, and the world financial system is more vulnerable today than it ever has been since the end of World War II.

As I wrote about yesterday, the U.S. economy has never really recovered from the last financial crisis.

If we see another major financial crash in the coming months, the consequences would be absolutely devastating.

We have been softened up and we are ready for the knockout blow.

Let’s just hope that the financial world can keep it together.

We don’t need more economic pain right about now.

The Economic Collapse

Are you prepared yet?

No?

Well I’m sorry, because it’s too late now.

I mean really, honestly too late.

The market figured it out and it didn’t take very long – in fact, it took less than an hour.

This latest distortion by The Fed has just destroyed the last bit of earnings power the banks had.  It’s gone.  All to preserve the ponzi scheme in the Federal Government – the same Federal Government that just sent a bleat to Bernanke about tampering with the economy.

The very same legislators that will now do nothing about what was just done.

You got that?  They will do nothing.

What did Bernanke’s act tell us?

He burned the furniture for warmth today.  He and the rest of the Fed cabal are done; this was the card that was known to do much more damage than it could ever help anyone – or anything.  He burned the furniture to allow the Federal Government Ponzi to continue for one more year while utterly screwing the private lending industry of all sorts from banks on down.

There is no shortage of lendable money.  There hasn’t been since this entire mess began.  The problem was that money was too easy, not too tight, and people ran into the wall on their ability to pay.

You cannot drink yourself sober.

The game is over folks.  Europe is now the lynchpin between here and the SPX at 500, and that’s a short-term stop between here and an entirely-possible outcome of where it began in 1980.

That’s S&P 100, not 500, and Dow 800.

I know what the comments are going to be on this statement already: That can’t happen because of divisors.

Oh really?  It sure can happen as companies go bankrupt and get replaced, then the replacements collapse too.

Those “high fliers” that held up reasonably well today?  My advice is to sell them while they’re still way up, before they wind up way down.  $100 in S&P 500 earnings next year?  You’re on drugs gentlemen.

To those who say it can’t happen I will point out that there were lots of 50% gap-down opens in the 2000-2003 time frame. Fortunately I wasn’t long any of them when they happened but I assure you that just as they’ve happened many times before they will again.

I will also point out that in 2007 and early 2008 the same people who made these very same claims kept you long and in the market as you watched 60% of your portfolio vanish.

We still refuse to fact the fact that we have twice as much debt in the system as a whole as we can sustain and four times as much in political promises on top of that and neither private enterprise (read: Banks) or government, on either side of the aisle, will cut the crap out.

I’ll go ahead and make the prediction now: This time will be worse than 2008 and we’ll measure from SPX 1370, which makes the minimum downside target under 600.  And no, this time it won’t recover with more “hopium” and fraud – that card has already been played which means the pension funds and annuities across this nation are going to get smoked, exactly as I warned about four years ago.

There are some very ominous rumblings coming from the European continent this morning.

First, Greece has the mother and father of all inverted yield curves, with the 1 year now trading at or near an implied 100% interest rate.

That’s not really news though – it’s been there for the last few days.

The new news is that some of the T-Bill auctions they ran were technical fails, with failures to place the entire offering.

This is no longer a liquidity event.  It is now a “no money in the checking account” event.

Greece’s attempt to elicit “voluntary” rollovers is under doubt as well.

The underlying error and problem is that authorities both in Europe and here have refused to take my counsel (and that of few other people, as the economic world seems to be prone before the banksters) on enforcing one dollar of capital with the banking institutions in question.

Coupled with balance sheet lies this means that there is severe and imminent risk of a complete collapse initiating somewhere in the European banking system.  That, in turn, is why the screaming from the IMF and others about the “need” to take various emergency actions to prevent a Greek default.

But there is no preventing a Greek default.

Greece passed that event horizon more than a year ago.

The lesson in here is that the technical point where one passes beyond the event horizon and thus default is inevitable occurs quite a bit earlier than recognition of that fact in the markets, or among the governments in question.

There is something we had better pay attention to here in the United States embedded in this episode, providing that the banking system in Europe survives this excursion and thus it matters to us in the intermediate term.

That lesson is:

• You will not know at the time in question that default is inevitable, which is the exact point I’ve made now for four years – fiscal consolidation always drives the ratios the wrong way for a while.  This makes it impossible for anyone to give you an exact point beyond which you’re screwed.  In turn this means you must not dance close to the edge of the cliff, lest you step over the line and the apparent solid ground under you disappear.
• You must not permit institutions to lie about their exposures and valuation of their alleged “assets.”  You’d think we learned this in 2008, but we did not.  We had damn well better learn it quickly, and act on it – right now.  We still have a window on this in the United States but it is closing rapidly.  If we do not learn this lesson from what is going on over in Europe we are absolutely fooked when this dynamic moves over here, and it inevitably will, perhaps within weeks or months rather than years.
• We must move toward One Dollar of Capital.  Yes, that’s going to piss off the banksters who will no longer be able to lever up on the back of the taxpayer.  Too damn bad.  This is the source of the socialized losses and all of the “tanks in the streets” threats and it must end.  This is not about social justice or any such thing – it is about the fact that the banksters, if allowed to continue this behavior, will bankrupt nations through this process.  If you doubt they will then you doubt Greece’s problems are real, but they clearly are.  You can’t have this one both ways folks.

I am getting extremely pessimistic in the intermediate term with regard to markets – in particular credit markets and then the economy as a whole.  This is not simply due to the ongoing and un-paid for “stimulus” measures, including Obama’s latest demands.

It is due to the fact that financial terrorism has become the means of survival for these large banking institutions and we have not only continued to negotiate with the terrorists, we have given into their demands on a serial basis both here and abroad.

Despite some better-than-expected macro data overnight (admittedly marginal), investors continue to retreat from any European exposure as sovereign stress leads to financial stress and drags non-financials into an austerity-driven slowdown. The snaps wider in credit markets are very reminiscent of crises past when being hedged at any cost was more important than any short-term trade opportunity.

It appears we are entering an endgame of sorts and with the vitriol from Merkel (isn’t considering possibility of Euro Breakup), Draghi (don’t ‘expect’ bond purchases forever), Schaeuble (Tobin Tax is warranted, aid is conditional, and Euro ‘joint liability’ won’t fix crisis) growing louder and more strained and where decisions are being forced on a broad swathe of desperate politicians and bankers by a market-driven maelstrom.

Both equity and credit markets are bearing the brunt but credit seems the most aggressively beaten down (beta adjusted):

Main +12 to 177bps

XOver +44 to 738bps (handily wider than a closed HY now for over a week)

SovX +13 to 322bps

SENFIN +20 to 266bps

SUBFIN +33 to 476bps

Main Ex-FINLs +10 to 155bps

Germany +5 to 83.5bps

France +14 to 184bps

PIIGS (average) +18 to 1002bps

GDP-weighted European sovereign risk is breaking to new wides at 260bps (as Greek 10Y spreads among others make new Euro-era wides):

As we have noted in the past, short-sale bans don’t work – French and Spanish banks on the list are now notably negative:

European equity indices are a sea of red:

And ES is hurting overnight (retracing more than 50% of the recent swing low-to-high):

Chart gallery courtesy of Bloomberg

ZeroHedge