The Run On Europe Begins, As Global Investors Head For The Hills...

TBI ^ | 11-20-2011 | Henry Blodget

[blam]

The Run On Europe Begins, As Global Investors Head For The Hills...

Henry Blodget
Nov. 20, 2011, 9:11 AM

Until recently, the concern about Europe was mostly theoretical--a potential train-wreck that would occur if/when the world's lenders decided that the continent's problems extended beyond the basket case known as Greece to Europe's "core" and starting pulling back.

Well, that concern is no longer theoretical.

It's happening.

The world's lenders are increasingly deciding that it's better to be safe than sorry, and they're pulling their money out of Europe

As a result, the borrowing costs of many European countries are rising fast. And so are interbank lending rates, because the second huge problem with the Euro-train-wreck is that Europe's banks have Euro debts coming out of their ears.

(When bond yields rise, the market value of existing bonds drops, so any bank that owns the debt of any European country is suffering huge embedded losses. The banks don't mark these losses to market, so you can't see them on the balance sheet, but they're there.)

Last week, Italian borrowing costs soared over 7%, which has been viewed as a sort of Rubicon level. Spanish yields hit nearly 7%. And French "spreads" over German bonds expanded sharply.

Nelson Schwartz in the New York Times has some other details:

* The Royal Bank of Scotland and pension funds in the Netherlands have been heavy sellers of European sovereign debts in recent days.

* Kokusai Asset Management in Japan unloaded nearly $1 billion in Italian debt this month.

* Vanguard let a $300 million CD with Rabobank expire earlier this month and pulled the money out of Europe European banks like SocGen and BNP Paribas cut exposure to Italy by 26 billion euros in Q3

* American money-market funds have cut

(snip)

[blam]

"The interbank-lending problems, by the way, are exactly what happened in the United States in 2007 and 2008. "

[musicman]

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[ClearCase_guy]

I find it somewhat amusing that the intelligentsia still seems to be thinking: "If we apply some duct tape over here and spray a little WD-40 over there maybe we can fix Europe and the world economy."

But it's gone, baby, gone.

[blam]

NIALL FERGUSON: Here's What Europe Will Be Like In 2021

[central_va]

SO when will I be able to buy a new BMW 3 series for USD $15K?

[Brilliant]

It has been happening for some time already. That is why the US stock market is up. People are liquidating their European assets and investing in the US.

But that won’t last too long.

[ClearCase_guy]

I like Ferguson and his take on Europe in 2021 is interesting. But this part:

(When the entire crew of an American battleship was captured and held hostage by Iran's Revolutionary Guards, President Obama's slim chance of re-election evaporated.)

Should have been adjusted by an editor. We have no battleships.

[AnAmericanAbroad]

Thanks for posting that. Humorous, as Mr. Ferguson often is, but perhaps not too far off the mark.

I saved it, so I could take a look back perhaps this time next year, and see how his prognostication played out.

[blam]

The Coming European Superstate That Germany Plans To Cram Down The Throats Of The Rest Of Europe

[AnAmericanAbroad]

I noticed that, too. Perhaps a missile frigate would’ve been more appropriate to use as an example.

[blam]

"Should have been adjusted by an editor. We have no battleships. "

Yes.

I think he meant 'a ship if war', a warship instead of a battleship as we use the term to define a class of ships.

[diverteach]

Those Missouri class battleships were always my favorites.

Despite not having the modern armaments todays ships have, the lines were beautiful and they reeked power.

[FreedomPoster]

"For some reason, we never felt very welcome in Belgium," recalls German Chancellor Reinhold Siegfried von Gotha-Dämmerung.

OK, that's funny stuff right there, just with the name.

[grumpygresh]

And if zero is re-elected, we will have a guaranteed US and worldwide depression. The evil zero will spit out executive orders that are designed to criminalize business activity, thus allowing him to imprison business owners and confiscate their wealth.
We must defeat zero by any and all means (and yes, I would vote for a scum flip flopper like romney if that’s the choice). Because, if zero wins, it is likely that individuals that love liberty will have to decide between leaving the country or an overthrow of the government.

[Donald Rumsfeld Fan]

When the entire crew of an American battleship carrier was captured and held hostage by Iran's Revolutionary Guards, President Obama's slim chance of re-election evaporated.)

[qam1]

Over the past year or two, when ever there was good news out of Europe the stock market jumped up sharpy

So all that was fake??

Can’t be, the news media would never lie to us now would they

[Terry Mross]

Are ALL the members of congress so corrupt and “perk happy” that not one will stand up and call for impeachment proceedings against obama? Are they all afraid to even mention it? Are they all so afraid they won’t even discuss cutting off all funding for his executive orders?

In any dictatorship there are many people standing behind the dictator. He can’t do it on his own. We now live in a dictatorship with mcconnell, boner, et al standing behind the dictator.

[catnipman]

“But it’s gone, baby, gone.”

Awwww, you’re just such a pessimist, AND you forgot bailing wire to boot!

BTW, here’s what I REALLY want to know: how can I personally profit from the European collapse?

Here’s what I wrote a close friend and collaborator yesterday:

“At this time, one of the things that’s going on is essentially a run on Europe’s weaklings and European banks in the form of a big sell off of existing debt of same, as well as increasing difficulties of the European entities in refinancing existing debt, financing new debt, and trying to maintain capitalization of their banks. Even France is now being affected. Very good article about all of this below:

http://www.nytimes.com/2011/11/19/business/global/lenders-flee-debt-of-european-nations-and-banks.html?_r=3&pagewanted=1

Probably too late to short European banks, plus I don’t know squat about them or even if there are options for any of them on the U.S. market anyway.

So that means we would have to predict some of the ramifications of European sovereign and/or private bank failure as it would apply here in the U.S.

I suppose we could look for publicly traded entities heavily invested in Europe and/or heavily dependent upon European sales and short them, buying long term LEAP PUTS being my favorite shorting strategy since I feel like my long term prediction window is substantially better than my short term prediction window, which I feel basically sucks.

Another possibility is to assume that the U.S. stock market as a whole is going to take massive hits as a consequence of a European financial collapse and buy some long term LEAP PUTS against one of the broader indexes, betting broadly instead of specifically.

Regardless of what we do, you know I only go for simple, first order, direct consequences. No second order impacts and/or complex reasoning.”

[mewzilla]

Meanwhile.....

Troika meets leaders as IMF softens stance

[grumpygresh]

So we live in a dictatorship now with the rinos and obama running the show. Then, if obama is re-elected, it will not be much different? You do know that zero will rule by decree without any check on his power in a second term.
Are you making plans to leave the US or participating in a secession movement? Because unfortunately we may not get a good conservative or even worse IMO, we may get obama again.