Europe heading into recession

[NRS]

stongle said:

Agammemnon said:

What will be the consequence to the ordinary person?

Assuming state / EC intervention, not much in the UK. European citizens especially in Italy, whom hold bank debt / bonds likely to get "bailed in" and loose their investments. Overall, we should an increase in borrowing costs as banks have to put proper buffers in place - but thats counter to Easing policy.

Equities lokely to be very choppy, but fairly resiliant. After Lehmans the MSCI600 only dropped 15% this time hit may be bigger - but they will bounce back (prop of intervention).

So effects fairly mininL to man in street - just more debt build up Bd can kicking. Itll be man in the street grandkids paying the price.

Will "we" not be somewhat screwed due to the short term cashflow in the banking system issue that I presume would appear when all this is happening? (I'm actually in Norway, so perhaps would be one of the few places with a bit of a difference in terms of debt to savings ratio).

[stongle]

Not if the central banks keep printing money. It has to go through the banks to get to man in street.

As for short term cashflow problem? The banks cant give it away. The whole system is awash with cash. You have to pay people to take it in Europe.

Fed is going to cut and we also know the ECB will do more QE and probably cut. They just print more money and ramp up the central bank balance sheet. Post 07/08 central banks balance sheets have more than trippled.

Norway is the only Central Bank of the top 23 expected to raise rates this year.

Edited by stongle on Monday 22 July 18:18

Edited by stongle on Tuesday 23 July 08:19

[Art0ir]

Given the US have declared their currency is overvalued and the IMF agrees and the money tap is to be opened some more, has anyone questioned the wisdom of trying to devalue while every other CB is doing the same?

Surely a race to the bottom is largely pointless?

[anonymous-user]

Art0ir said:

Given the US have declared their currency is overvalued and the IMF agrees and the money tap is to be opened some more, has anyone questioned the wisdom of trying to devalue while every other CB is doing the same?

Surely a race to the bottom is largely pointless?

Not when you're 20 trillion in debt it isn't.

[Digga]

LiveSquawk said:

German IFO: The German Economy Is Navigating Troubled Waters.
-In Manufacturing, The Business Climate Indicator Is In Freefall.

https://tradingeconomics.com/germany/business-conf...

[stongle]

It's going to be messy. Draghi's just coming on now.

Market pricing has ECB deposit rate @ -0.67% within a year AND a package of additional stimulus measures. Given the weak PMI / manufacturing data, it looks pretty poor. Interesting comment from Rabobank - "to go from one extraordinary easing cycle, into the next extraordinary easing cycle but no tightening cycle means there is no cycle. This takes us one step closer to de-facto nationalisation of Financial Markets".....

With Lagarde due in soon, and expected to tell Govts to do more stimulus (spending) - the EUROZONE is caught between a rock and a hardplace. To spend more, they need to tax a lot more - or look for debt foregiveness (which Germany has been reluctant to do in the past - and probably less likely in the future).

The ECB should be doing this:



But they are doing "hmmmm, inflation epxectations are somewhat lower than expected"... no sh*t Sherlock.

Oh, he's just come up with a good one: "the pass through of inflation is taking ah, longer than expected".... hahaha. Their thorwing the kitchen sink @ it in Sept.

Edited by stongle on Thursday 25th July 13:42

Edited by stongle on Thursday 25th July 13:43

Edited by stongle on Thursday 25th July 13:46

[Digga]

stongle said:

Interesting comment from Rabobank - "to go from one extraordinary easing cycle, into the next extraordinary easing cycle but no tightening cycle means there is no cycle. This takes us one step closer to de-facto nationalisation of Financial Markets".....

This is and always has been the crux IMHO.

The ECB and Eurozone never really felt the pain and correction of the GFC at all levels. The PIIGS got utterly clobbered, but France in particular just plodded alone and pretended everything was okay, ignoring budgetary rules and contributing greatly to the overall can kicking that we have seen. Germany just expected it to be everyone else's job to clear up their own mess when, in fact, they are all in the the same currency.

[stongle]

Draghi, has literally just tee'd up Lagarde - "Monetary policy has done a lot, but if things get worse Fiscasl Policy will be of the essence".

Which since he earlier said the situation is getting worse and worse - is a massive issue. Its going to further pitch the ECB, individual governments (Italy, France and Spain) and EC into a political bun fight.

However, the forward guidance being given on the package coming, he thinks he pi$$ing in the wind here (underlining the issue that Germany won't step up).

[loafer123]

Digga said:

stongle said:

Interesting comment from Rabobank - "to go from one extraordinary easing cycle, into the next extraordinary easing cycle but no tightening cycle means there is no cycle. This takes us one step closer to de-facto nationalisation of Financial Markets".....

This is and always has been the crux IMHO.

The ECB and Eurozone never really felt the pain and correction of the GFC at all levels. The PIIGS got utterly clobbered, but France in particular just plodded alone and pretended everything was okay, ignoring budgetary rules and contributing greatly to the overall can kicking that we have seen. Germany just expected it to be everyone else's job to clear up their own mess when, in fact, they are all in the the same currency.

Worse than that, Germany's regulator let their banks ignore their problems and extend and pretend, just as the Japanese did all those years ago.

There is a good reason why the US recovered first and then the UK, because those two recognised their issues and took the pain, with the US being fastest because of their broad use of the capital markets resulting in immediate mark to market pricing, whilst the UK used the regulator to enforce the same repricing at a slower pace.

[anonymous-user]

stongle said:

...Their thorwing the kitchen sink @ it in Sept..

Buy US stocks and aircooled Porsches again?

[stongle]

Well, from a markets perspective this is a F88king Car Crash for the Eurozone. They need the EUR lower, but Draghi's wandering all over the place - the EUR's up agaisnt nearly everything. The fact he's said:

"situations getting worse and worse" and then "no reason to be gloomy"; but then dipped into fiscal policy is f**king nuts. Markets can only react on the near certaintity that the Fed will cut next week.

This probably means that Sept could see the mother of all stimulus measures. Thats an admission they're econcomy is in the toilet and all they've managed to do is fund zombie companies with cheap debt (which is sticking a gun to the head of growth).

[Digga]

loafer123 said:

There is a good reason why the US recovered first and then the UK, because those two recognised their issues and took the pain, with the US being fastest because of their broad use of the capital markets resulting in immediate mark to market pricing, whilst the UK used the regulator to enforce the same repricing at a slower pace.

Totally.

Remind me which French political idiot it was who mocked UK austerity and economy in the years immediately following the GFC?

[Greg_D]

Digga said:

loafer123 said:

There is a good reason why the US recovered first and then the UK, because those two recognised their issues and took the pain, with the US being fastest because of their broad use of the capital markets resulting in immediate mark to market pricing, whilst the UK used the regulator to enforce the same repricing at a slower pace.

Totally.

Remind me which French political idiot it was who mocked UK austerity and economy in the years immediately following the GFC?

that same austerity that comrade corbyn would so gleefully reverse, were he to persuade enough gullible idiots to vote for him!!!

[Newc]

Agree with everything m'learned colleague Mr Stongle has said above, but I think he is actually underplaying the political impact. If you remember last time round the Greeks took a general beating, and the Cypriots had their savings stolen by the state.

You can just about get away with that in a small, controllable enclave like Cyprus. But if (when) the Italian banks go down, that's just not feasible. And it's not as if the Italian government is 100% behind the EU project in the first place. So when the Oompa Loompa hops down to Rome and demands budget surpluses, retail saver haircuts, etc etc, she is likely to be handed a couple of dead fish and be put back on her plane.

I think Italy is out of the Euro, either through the parallel bonds idea, or more likely by a big bang revolt as above. New lira, devalue, and off we go. I suspect that might just have an impact in Athens too.

[Digga]

Newc said:

Agree with everything m'learned colleague Mr Stongle has said above, but I think he is actually underplaying the political impact. If you remember last time round the Greeks took a general beating, and the Cypriots had their savings stolen by the state.

You can just about get away with that in a small, controllable enclave like Cyprus. But if (when) the Italian banks go down, that's just not feasible. And it's not as if the Italian government is 100% behind the EU project in the first place. So when the Oompa Loompa hops down to Rome and demands budget surpluses, retail saver haircuts, etc etc, she is likely to be handed a couple of dead fish and be put back on her plane.

I think Italy is out of the Euro, either through the parallel bonds idea, or more likely by a big bang revolt as above. New lira, devalue, and off we go. I suspect that might just have an impact in Athens too.

All true, but then look who'll be left holding timebomb parcels of Italian debt when the music stops; French and German banks.

BTW In relation to my last post, I just checked and it was (as I thought) that cretin Sarkozy who in 2010 mocked the UK and accused Gordon Brown of wrecking the economy (with austerity).

[loafer123]

Digga said:

ll true, but then look who'll be left holding timebomb parcels of Italian debt when the music stops; French and German banks.

BTW In relation to my last post, I just checked and it was (as I thought) that cretin Sarkozy who in 2010 mocked the UK and accused Gordon Brown of wrecking the economy (with austerity).

Italy would owe Germany €481bn under Target 2.

In addition, German banks own nearly €60bn of Italian government bonds.

[amusingduck]

loafer123 said:

Italy would owe Germany €481bn under Target 2.

In addition, German banks own nearly €60bn of Italian government bonds.

There is absolutely no mechanism to force repayment of TARGET2 liabilities - is there?

[loafer123]

amusingduck said:

loafer123 said:

Italy would owe Germany €481bn under Target 2.

In addition, German banks own nearly €60bn of Italian government bonds.

There is absolutely no mechanism to force repayment of TARGET2 liabilities - is there?

No, there isn't.

In fact there was a university professor recently (I quoted it on here somewhere) who said, in his view, it all converts from Euro to Lira, which can then be devalued.

[stongle]

loafer123 said:

Digga said:

ll true, but then look who'll be left holding timebomb parcels of Italian debt when the music stops; French and German banks.

BTW In relation to my last post, I just checked and it was (as I thought) that cretin Sarkozy who in 2010 mocked the UK and accused Gordon Brown of wrecking the economy (with austerity).

Italy would owe Germany €481bn under Target 2.

In addition, German banks own nearly €60bn of Italian government bonds.

Which kinda brings us full circle from 2007/8 where it was banks using leverage max / bent ratings to build balance sheets; to central banks doing leverage max and traeting all EUROZONE debt as pari-passu to Bunds. Govts simply put the banks tricks to play; and have got themselves into a supersized $22trillion plus hole.

In layman's terms the response to the financial crisis was like borrowing 100 quid from your girlfriend when your debit card gets declined in Weatherspoons, but given her your unlimited AMEX for a shopping spree in Jimmy Choo. Everyone's going to get f**ked.

[loafer123]

stongle said:

loafer123 said:

Digga said:

ll true, but then look who'll be left holding timebomb parcels of Italian debt when the music stops; French and German banks.

BTW In relation to my last post, I just checked and it was (as I thought) that cretin Sarkozy who in 2010 mocked the UK and accused Gordon Brown of wrecking the economy (with austerity).

Italy would owe Germany €481bn under Target 2.

In addition, German banks own nearly €60bn of Italian government bonds.

Which kinda brings us full circle from 2007/8 where it was banks using leverage max / bent ratings to build balance sheets; to central banks doing leverage max and traeting all EUROZONE debt as pari-passu to Bunds. Govts simply put the banks tricks to play; and have got themselves into a supersized $22trillion plus hole.

In layman's terms the response to the financial crisis was like borrowing 100 quid from your girlfriend, but given her your unlimited AMEX for a shopping spree in Jimmy Choo. Everyone's going to get f**ked.

Slightly different, insofar as the GFC was triggered by overleverage and mismatch of short term liabilities (liquidity) with long term assets (loans).

The one thing you can say for Target 2 is that at least it is perpetual.