Wholesale flight to safety on global markets underway on fears about 'Grexit' and slowing US economy; Gold up AND US Treasury yields down; Spanish banks downgraded as depositors flee
Here's my summary of the key news overnight in 90 seconds at 9 am, including news of a wholesale flight to safety on financial markets overnight as fears grow that a Greek exit from Europe will spark bank runs across Southern Europe and fresh signs emerge of a weak US economy.
US stocks closed down 1.5% and on their lows as investors moved out of riskier equities and into both bonds and gold.
This is unusual for both gold and bonds to rally at the same time. That's because gold is often seen as a hedge against inflation, while bond yields falling (which means bond prices rising) is a sign of lower inflation. When both rally at the same time that is a sign that fear is driving investors into anything they see as 'safe'.
This move to take 'risk off' the table overnight drove the New Zealand dollar back near its lows for the week of around 76.3 USc. It is seen as a 'riskier' currency because it is exposed to commodity prices, which tend to be the most volatile when global growth rates rise and fall.
US stocks also weakened after the Philadelphia Federal Reserve survey of business activity, which is a key survey of the manufacturing sector, showed a slump in activity that was much worse than economists' expectations. See more here at Reuters.
But the major source of fear is Europe. Spanish bank stocks slumped overnight and shares in Bankia, the fourth biggest bank in Spain, have fallen 31% in the last week.. El Mundo reported yesterday that depositers had withdrawn 1 billion euros in the last week from Bankia. See more here at Reuters.
In another sign of stress in Southern European bond markets, Spain held a bond auction overnight where the yield on its 3 year bond rose to 4.37% from 2.89%. Investors are worred about contagion from a Greek exit from the euro spreading across Southern Europe.
Many are selling their Spanish, Italian and Portugese bonds and shifting their euros into German bonds, which drove German bond yields to fresh record lows overnight.
This is essentially a silent run on Southern Europe's banking system by wholesale investors.
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British baratone Robert Bennington singing the New European Anthem
http://www.youtube.com/watch?feature=player_embedded&v=oWGZdYNpaSo#!
I think under the current scenario GOLD (safe heaven) goes back up to US$ 1'800.- p/oz + soon.
Gold is good in an inflatioanry environment, I can accept that almost as a given all else being equal. In deflationary I still need to be convinced...the best I can see is it doesnt lose as much value as other assets compared to cash.....the Q is why are you not in cash then.
regards
Bank of America said it expects a "powerful short squeeze" in risk assets as speculative funds unwind positions, led by a rebound in battered bank stocks and Club Med bonds. The euro would surge 10pc to $1.40 against the US dollar after dipping first to $1.20 in the immediate panic.
The benign outcome assumes that the European Central Bank steps in with massive support, backed by the US Federal Reserve, the Bank of Japan, and key central banks along the lines of concerted action in 2008-2009.
Bank of America said EU authorities will pull out the stops to keep Greece in the system as they weigh the full dangers of contagion. Should that fail, it expects a series of dramatic moves.
The ECB would cut interest rates, launch quantitative easing (QE), and back-stop Spain and Italy with mass bond purchases; the authorities would inject capital into the banks and create a pan-European system of deposit guarantees. The combined moves would be a major step towards EU fiscal union.
"We think the worst is over for the euro," said David Bloom, currency chief at HSBC. "The central banks will have to step in massively and that will be a soothing balm for the markets. The Fed is already leaving the door open for more QE. We could see quite a powerful rally."
http://www.telegraph.co.uk/finance/financialcrisis/9273209/Global-banks…
"US stocks closed down 1.5% and on their lows as investors moved out of riskier equities and into both bonds and gold."
Bernard please explain how investors moved out of riskier equities. Didn't someone buy the equities that were sold or did they just disappear in a puff of smoke?
The interesting thing here is who is the Investor the person panicking and selling or the one buying? Maybe the headlines instead of talking about a flight to safety should say something like- Panicking sellers create buying opportunities for astute investors.
May or may not turn out to be true but is certainly more likely to accurate than the inane flight to safety comment.
Interesting also that US treasuries with a negative yield are deemed to be safety.
Curious: Secret Mens Business. The journos are in bed with the masters, keeping the great unwashed in the dark using terms such as risk-on, risk-off, taking profits off the table, safe-haven moves etc etc .. I could go on. If you want to know, think about arbitraging different markets, and then, there comes a time when arbitrage positions HAVE to be unwound. When the time to do so arrives the squids start their unwinding (if necessary) in the two days prior to deadline time. Ever heard of "buying the physical" and "selling the future"? .. well the reverse is true last night and the night before, and tonight is expiry night. And unwinding has been necessary these past frew days .. ask JP Morgan
.... as you know well , steven ...... the Gummster occassionally looks at the bright side of life ........ and regardless of what the Greeks do , life will go on .....
Meanwhiles , gotta 'phone up the Calamari Boyz down at the Vampire Squid's lair , and place some buy orders ......
...... you guys keep amusing yerselves with tales of property deals , and armageddon ........ I'll get back when the next bunch of asset rich unleveraged stocks is tucked snuggly-buggly into the Gummy portfolio ......
Ciao !
.... don't youse all worry aboot good ole Warren .... just carry on doing watcha do best in New Zooland ...... panicking , and selling houses to each other ..
Warren will be fine , buying up the stuff youse all is ignoring or is dumping out dirt cheap ..
...... the guy still believes in keeping his money in productive income producing assets ....... what a whacko , huh ! ....... a $ 50 billionaire nut-job , who don't know nuttin' aboot money & finance , unlike us all here ......
Peter Thiel, the Pay Pal founder who became Facebook’s first outside investor when he ploughed $500,000 into the fledgling business in 2004, had planned to sell 20pc of his stake in the IPO but upped that figure to 50pc at the eleventh hour.
Russian investor Yuri Milner’s investment vehicle, DST Global, was last night preparing to off-load 40pc of his stake, up from the 23pc it had already committed, whilst Goldman Sachs and Tiger Global Management were both preparing to sell as much as half of their shareholdings, up from 23pc and 7pc respectively.
http://www.telegraph.co.uk/finance/newsbysector/mediatechnologyandtelec…
Ex-Bridgecorp finance director Robert Roest has got six years jail - http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=108…
In an unselfconcious culture the group/community has a higher status than the individual, so when a transgression of these proportions happens it is seem as a threat to the existence of the group. Interesting thing is that they will accept death, as living with the shame and rejection is likely worse for them. In aboriginal it is done as pointing the bone, Maori also had the same concept. The emotional response causes the death.
Ah, waymad, stop scaring everyone. You'll have a run on banks with this sort of comment and bankers running in their pants! ;-) $5-5.50 is more the talk I'm hearing from experienced farmers doing budgets.
Westland have already come out and given a figure for next season and they are starting their advance payments to farmers at $3.80/kg. It was curious of them to come out so early. They had some unhappy campers when they had to take funds off farmers last time, so hopefully they have been more circumspect this time.
What else would they be running in.
When I was in primary school one of our teachers got every kid to stand up and give a brief summary of their experiences that morning coming to school ie what did they see .. and the number who said "On the way to school I saw a bus running down the street"
in this case runs down bankers legs maybe?
http://www.agprodecon.org/node/36#DairyPriceVolatility
So in 2009 looks like the price went way down....and here is a similar if not worse event....
regards
Last globalDairyTrade auction's prices translate into a milk solids value of under $6.00 per Kg at USD:NZD 0.7666. That is $3.00 less per Kg than in March when the figure was about $9.00 at the USD FX rate then.
From both those numbers you need to take off Fonterra's operating, overhead and milk collection costs. So a payout under $4.00 is what you get for the point in time at 15th May 2012.
But one auction and FX point does not a season make. Over at least some - maybe most - parts of the 12 months of the 2013 seaon the NZD is likely to be lower and/or dairy prices higher in USD.
BH - an 'apres-moi, le deluge' article linked by the ever-reliable ZH.
The money shot, for common taters too lazy to scroll to the bottom:
"a list of the ten largest economies in the world, and a reasonable assessment of their current situation follows in descending order by size of GDP:
United States – screwed
China – really screwed
Japan – massively screwed
Germany – pretty screwed, especially in that export economies take a big hit in a crisis
France – le screwed!
Brazil – somewhat screwed
United Kingdom – blimey, screwed too
Italy – properly screwed
Russia – hardly screwed at all (lots of resources and next to no government debt)
Canada – pretty screwed, eh?
As concerning as it is to see how many of the world's largest economies are in trouble, the biggest problem of all is that the central bank reserves of virtually every country in the world are stuffed with US government IOUs masquerading as tangible assets.
So, what happens when the world's reserve currency enters collapse and the dollar turns into a hot potato? Don't know, but I'm pretty sure we'll find out in the not-so-distant future."
Cuba : Not screwed , just sleeping ....
Australia : Not screwed .
Norway : Not screwed .
Switzerland : Not screwed , so long as Federer can play & win .
NZ : Not badly screwed , just looks that way , as ever .
Philippines : Not screwed , but probably drunk ...
Tasmania : Not so much screwed , as " screwy " ....
Fiji : Who cares !
Depends on the court, I think one of the specialist hedge funds that buys distressed debt for cents took Peru to court in New York and won because NY is a clearinghouse for Smaller countries to pay bills/debt...so there was an asset to seize.
The problem with Greece is the scale of the debt and that there are the other PIGGs who are even bigger.
Also Ireland, the have knucked down to pay...if Greece gets away with not, how long will the irish voter stomach it? to the next elcetion at most I'd suggest....3 years?
Then there is spain, italy....if Greece is allowed not to pay then they will expect the same and its now $trillions defaulting....bye bye pension funds......banks (savings) etc....
At that stage no one will be spending and 70% of and economy is consumerism....say that drops 50%, 35% collapse in GDP, Russia saw 25% in one year....look at how bad that was for them.....they only got out because of oil...10mbpd, no one else in the EU zone has any.
regards
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