Follow up on Golem’s piece from yesterday on that “forgotten” 1 Trillion Euro hidden German problem. From Golem XIV.
More questions about the stability and probity of German banking this morning following on from the rumour of the €1 Trillion hole in German banks.
This from the 21st March Wall Street Journal,
Deutsche Bank AG changed the legal structure of its huge U.S. subsidiary to shield it from new regulations that would have required the German bank to pump new capital into the U.S. arm.
The subsidiary is called Taunus Corp. It is the 8th largest Bank holding company in the US. Being listed not just as a bank but a Bank Holding Corp. has a very special perk, it allows the Holding Company to borrow from the Fed in times of crisis. Which Deutsche did.
Remember, that the only reason Goldman Sachs still exists, is that as the collapse of Lehmans engulfed Wall Street, Goldman was allowed to become a Bank Holding Company. It had never been one till that moment. Till then Goldman had been a Broker Dealer. And it was not alone in suddenly desiring to become a Bank Holding Company. As this article by Edward Harrison points out so did GE Capital hitherto a hedge fund, American Express (a credit card company), GMAC (GM’s car financing arm) and Genworth Financial (an insurance company) all suddenly thought they should be come Bank Holding Companies. Sinners, all of them, they all changed their faith to gain salvation. Full article here.
Don’t forget, these assets were the risk on leaders earlier this year, now they are leading us lower.
Chart update below.
Spain has been a bearish topic on The Trader over the past year. With Greece now “fixed”, attention is slowly turning towards Spain and the problems the country faces. Greece was helped partly by Goldman Sachs in creative accounting, while Spain is taking creative solutions to a new level. Spanish town of Rasquera is planning to grow cannabis in order to pay off the debt. If it was only that easy. Once again, Espana everything under the sun. From Reuters;
A small town in northeastern Spain, believes it has found a novel way to pay of its debt: cultivating cannabis.
Tucked in the hills of one of Spain’s most picturesque regions, the Catalonian village of Rasquera has agreed to rent out land to grow marijuana, an enterprise the local authorities say will allow them to pay off their 1.3 million euro debt in two years.
Local authorities are keeping the location of the site top secret while Spain’s attorney general investigates the legality of the project. The Catalan regional government has also asked the village for further information about the plan.
Spanish towns are swamped in debt after a decade-long construction boom that imploded in 2008. Almost one in four Spanish workers is jobless and many cities are months behind in salaries for street cleaners and other municipal employees.
We have seen many parabolic charts over the years, and usually they all end in a similar fashion. Here is some more on those parabolic moves. By Tim Wood via Financial Sense;
In the first chart below I have included a weekly chart of the Nasdaq 100. Beginning at the 4-year cycle low that occurred in October 1998, we can see that price rose sharply into February 1999. In fact, in that 4 month period this index moved from a low of 1,063.74 up to 2,150.83. This was a 102% advance in only 4 months. As we moved into October of 1999 this advance was much more modest, but still managed to advance another 400 points during this time period and in doing so the Nasdaq 100 had advanced 143% in a mere 12 months. As this move received more and more attention more and more people jumped on the bandwagon with the hottest tech stock. As a result, a bubble began to form. From the October low at 2,299.95 the Nasdaq then advanced another 2,516. 39 points over the next 5 months. It was at this point that the advance went parabolic and in some 17 months the Nasdaq 100 had altogether advanced from the 1998 4-year cycle low at 1,063.74 into the March 2000 high at 4,816.34 for a total advance of 352.77%. From that high the Nasdaq 100 fell back to 795.25, which totally erased the entire move up from the 1998 4-year cycle low in which the dot-com bubble began and I still remember people talking about the tech stocks and why tech was back at the 2002 bottom. To date the Nasdaq 100 is still off of its high by some 40%. (Full article here).
Yields have risen rather noticeably in the past six trading sessions. The 10-year note had been hovering around the two percent level for the past few months after hitting its historic low of 1.72 immediately following the September 21st announcement of Operation Twist. Despite the Fed’s stated purpose of lowering long-term interest rates, the 10-year steadily rose to an interim high of 2.42 on October 27th, but it soon settled into a pattern of hovering around 2.00 with the one quick dip to 1.82 and an upper range of 2.11.
The pattern now appears to be changing. The 10-year closed at 2.14 on March 13, a one-day increase of ten basis points, and since then it has pushed upward to closing lows of 2.39 and 2.38 — just below the interim high of last October.
Tomorrow we’ll get the latest Freddie Mac weekly rate on the 30-year, which is also beginning to rise. Meanwhile bankrate.com’s latest update on the 30-year fixed is north of four percent at 4.07%.
Here is a snapshot of selected yields and the 30-year fixed mortgage since the inception of Operation Twist.
The European Central Bank is falling behind on a €40bn asset purchase programme launched at the height of eurozone crisis, in a sign it could be dropped as a first step towards unwinding huge emergency support for the region’s financial system. Purchases of “covered bonds” – debt backed by pools of assets favoured by some institutional investors – have so far totalled less than €9bn. The scheme started last November and was originally intended to run until October at the latest. http://www.ft.com/intl/cms/s/0/bdb2c1ec-7367-11e1-9014-00144feab49a.html#axzz1pj9puJ70
WestLB held out little hope of finding buyers for most of its businesses as a deadline approaches for the bank to be wound down, raising the potential cost for German taxpayers of dealing with unwanted assets. The imminent break-up of the German public-sector bank will end a troubled chapter in the country’s banking history after WestLB needed frequent bailouts and sparked arguments with European competition authorities. http://www.ft.com/intl/cms/s/0/f822c96e-734c-11e1-9014-00144feab49a.html#axzz1pj9puJ70
Asian stock markets were mixed Thursday as key manufacturing data out of China confirmed a slowdown in the world’s second-largest economy, triggering a selloff in risk-sensitive currencies such as the Australian and Singapore dollars. Japan’s Nikkei Stock Average slipped 0.1%, Australia’s S&P/ASX 200 added 0.5%, South Korea’s Kospi Composite dropped 0.3%, Hong Kong’s Hang Seng Index was flat, China’s Shanghai Composite Index fell 0.4%, and India’s Sensex dropped 0.1%. ow Jones Industrial Average futures were down 19 points in screen trade. Copper and oil prices also dropped after data showed the preliminary HSBC China Manufacturing Purchasing Managers Index, a gauge of nation-wide manufacturing activity, fell to 48.1 in March compared with a final reading of 49.6 in February. The March reading marks the fifth-straight month the index has been in contractionary territory, signaling extended difficulties for the nation’s manufacturers. http://online.wsj.com/article/SB10001424052702304724404577296290472282610.html?mod=WSJEUROPE_hpp_LEFTTopWhatNews
All news below.