• 287 days Will The ECB Continue To Hike Rates?
  • 287 days Forbes: Aramco Remains Largest Company In The Middle East
  • 289 days Caltech Scientists Succesfully Beam Back Solar Power From Space
  • 689 days Could Crypto Overtake Traditional Investment?
  • 694 days Americans Still Quitting Jobs At Record Pace
  • 696 days FinTech Startups Tapping VC Money for ‘Immigrant Banking’
  • 699 days Is The Dollar Too Strong?
  • 699 days Big Tech Disappoints Investors on Earnings Calls
  • 700 days Fear And Celebration On Twitter as Musk Takes The Reins
  • 702 days China Is Quietly Trying To Distance Itself From Russia
  • 702 days Tech and Internet Giants’ Earnings In Focus After Netflix’s Stinker
  • 706 days Crypto Investors Won Big In 2021
  • 706 days The ‘Metaverse’ Economy Could be Worth $13 Trillion By 2030
  • 707 days Food Prices Are Skyrocketing As Putin’s War Persists
  • 709 days Pentagon Resignations Illustrate Our ‘Commercial’ Defense Dilemma
  • 710 days US Banks Shrug off Nearly $15 Billion In Russian Write-Offs
  • 713 days Cannabis Stocks in Holding Pattern Despite Positive Momentum
  • 714 days Is Musk A Bastion Of Free Speech Or Will His Absolutist Stance Backfire?
  • 714 days Two ETFs That Could Hedge Against Extreme Market Volatility
  • 716 days Are NFTs About To Take Over Gaming?
Zombie Foreclosures On The Rise In The U.S.

Zombie Foreclosures On The Rise In The U.S.

During the quarter there were…

How The Ultra-Wealthy Are Using Art To Dodge Taxes

How The Ultra-Wealthy Are Using Art To Dodge Taxes

More freeports open around the…

  1. Home
  2. Markets
  3. Other

Italy Woes Lead To French Lows. Believe It!

As a quick reminder, we're still looking out for the Great French Unwind, for it will start as The Pandemic Bank Flu Spread From Italy To France To ... You see, as I see it, the duopoly of those controlling the EU purse strings is far from invulnerable. As a matter of fact, from many perspectives, they have the farthest to fall. All you need to do is sit back and wait... Wait for the time when The Duopolistic Owners Of The EU Printing Presses Disagree On The Color Of The Ink! That's when the stinky brown stuff spatters from the fan blades. France will likely be the first to crack, with Italy as impetus, then recessionary Germany will stand alone, no? Not! For those hopium smoking Eurocrats who feel that Germany still will pull out of this unscathed, I reference the riddle: The Biggest Threat To The 2012 Economy Is??? Not What Wall Street Is Telling You...

I know all of this can get confusing, but it was easily foreseen back in 2010, and we've built a contagion model that helps track possible paths of mayhem. Of course, it's difficult to predict when things will go down or the precise route, but the how is really rather obvious. On with the concept of obvious, as stated many times in BoomBustBlog, French banks, hence the bank bailing socialist French government, is highly levered into Italy and Italian debt, among other porcine based fixed income instruments...

Subscribers can reference French Bank Observations & Focus on...(519.21 kB 2012-06-28 08:36:37). Part and parcel to this common sense update is recognition of the fact that Italy will bust French banks, causing France to do the socialist bailout thingy. See this chart from the report...

French bank Italian exposure

This exposure leaves France quite sensitive to Italian woes, considerably more so than your typical rating agency may lead you to believe even when downgrading France from AAA status - albeit it a year or so too late (Moody's Actions Add Pressure To The Inevitable In France?). Today, we see the MSM outlet CNBC espousing the obvious regarding Italy: Will Italy Need a Bailout in 2013? As you read this, remember they are essentially talking about France as 2nd derivative:

"We still see as our baseline scenario that Italy will likely be forced to ask for an international bailout at some point in 2013," said Citi Analyst Giada Giani in a report on the country.

"Italian economic fundamentals have not really improved, despite some improvement in market conditions. The negative feedbacks from fiscal austerity on growth have been severe, as the ability of the private sector to absorb fiscal tightening by lowering its saving rate is limited."

Economists at other banks and research institutions agreed that Italy's recession will be deeper than financial markets are currently pricing in.

"The composition of austerity so far -- skewed towards increases in taxation rather than cuts in expenditure -- and the tight credit conditions, will weigh very negatively on the economy and the market will have to take stock of it," said Nomura Economist Silvio Peruzzo.

"Weaker growth will have implications for fiscal plans and debt sustainability and could trigger a return of tensions."

Mark Willis, an economist at Roubini Global Economics, said market focus on Greece's and Spain's economic woes had distracted investors from the structural weaknesses inherent in both Italy's economy, and its political system.

He added that Italy suffered from three "core vulnerabilities" of weak growth, very high levels of public debt and regular bouts of political instability, the latter of which is likely to reappear in the build-up to the spring 2013 general election.

Italian woes lead to French Lows. Believe it! Subscribers are recommendedto review the document ItalyExposure Producing Bank Risk (788.3 kB 2012-11-28 06:00:45)

As stated in the seminal pieces, The Anatomy Of A European Bank Run: Look At The Banking Situation BEFORE The Run Occurs! and The Fuel Behind Institutional "Runs on the Bank" Burns Through Europe, Lehman-Style!, Bank runs are inevitable!

Excerpted from our professional series Bank Run Liquidity Candidate Forensic Opinion:

BNP Paribus First Thoughts - page 4

This is how that document started off. Even if we were to disregard BNP's most serious liquidity and ALM mismatch issues, we still need to address the topic above. Now, if you were to employ the free BNP bank run models that I made available in the post "The BoomBustBlog BNP Paribas "Run On The Bank" Model Available for Download"" (click the link to download your own copy of the bank run model, whether you're a simple BoomBustBlog follower or a paid subscriber) you would know that the odds are that BNP's bond portfolio would probably take a much bigger hit than that conservatively quoted above. Here I demonstrated what more realistic numbers would look like in said model...

BNP Paribus

Yes, European bank runs are inevitable, but the causes of the bank runs arenot. That's the problem. Instead of addressing the root causes of the bank runs,EU decision makers opt to throw more paper money into a gaping furnace to beburned as fast as it can be shoveled.

Since the problems have not been cured, they're literally guaranteed to come back and bite ass. Guaranteed! So, as suggested earlier on, download your appropriate BoomBustBlog BNP Paribas "Run On The Bank" Models (they range from free up to institutional), read the balance of this article for perspective, then populate the assumptions and inputs with what you feel is realistic. I'm sure you will come up with conclusions similar to ours. Below is sample output from the professional level model (BNP Exposures - Professional Subscriber Download Version) that simulates the bank run that the news clippings below appear to be describing in detail...(Click to enlarge to printer quality)


Larger Image

 

Back to homepage

Leave a comment

Leave a comment