This past week had a two-part story. The first was the moonshot caused by last weekend's agreement by European countries to bail-out Greece and others in Euroland to the extent of $1 trillion. On Monday morning, the shares in Europe's banks trading in Europe were up over +20% from the get-go, almost 4 times the average for shares of non banking corporations, clearly showing that the Europeans had taken a page out of the Bernanke playbook when he bailed out America's biggest banks.
The public who have to pay for this increase in debt was not impressed, and by the end of the week it seems that even the bankers themselves doubt that Greece will ever repay its large sovereign debt.
http://finance.yahoo.com/news/2nd-German-banker-doubts-apf-3405375447.ht…
By Thursday that rocket ship was floating back to earth. Then came Friday, which is the rest of the story. Stocks in Paris were hammered on Friday, led by big French banks BNP Paribas (BNP.PA: 49.665 +1.875 +3.92%) and Credit Agricole (ACA.PA: 9.879 +0.379 +3.99%). In fact the CAC-40 Index plunged -4.59% on the day.
Early in the day Friday, in the New York pre-open, things were looking so bad in Euroland that the major market indexes in the US started well underwater and proceeded to sink through the day until a small bounce at the close left these indexes down an average of -1.9% on the day.
Let's re-examine BNP, whose shares have been on quite a ride for the past month after hitting $58.15 on April 15 (not its recent high, which was $59.34 on March 30) to its close this Friday at $47.97. Look at the massive volume changes and price changes as news of the Greece matter swept over Europe, first with the anxiety, followed by the massive relief of the $1 trillion bail-out, and then the fear that Greece is probably Europe's Bear Stearns and that maybe Spain will be Lehman II.
It's not as if BNP didn't report an "excellent" quarter - excellent if only you can overlook that banks are not valuing their holdings at close to real prices. A week ago Thursday BNP reported a +46.5% rise in earnings for 1Q2010 vs 1Q2009. The CEO of BNP called it a "remarkable" performance, and that all the bank's departments were running on all cylinders. Well, he lied. Obviously their holdings of Greek sovereign debt, like the same for SocGen and Credit Agricole, have been improperly priced and the reality swept under the carpet.
http://finance.yahoo.com/news/French-bank-BNP-Paribas-posts-apf-26751847…
Isn't it time that bankers are charged criminally when making such misleading statements? How else does this nonsense end?
This time, if and when investigations are made into the goings on in seedy boardrooms at Humungous Bank & Broker (HB&B), these bankers will not be able to feign loss of memory. Reuters reported on May 5: "French banks have the highest exposure to Greece overall, according to Bank for International Settlements data as at end-2009… French Finance Minister Christine Lagarde will meet with French banks on Wednesday (May 5) to discuss their potential role in the Greek rescue package."
The following day, the BNP CEO called his bank's performance "remarkable". That's why I call him a liar and a bankster.
Even his own shareholders think he is a liar. The following day (May 7), the shares of BNP hit a low of $42.51, down from the post-"remarkable" remark high of $50.07 on May 6.
Now BNP Paribas is not a small bank. It is in fact one of the largest global banking groups in the world, ranked by Forbes as the world's 11th largest company and the largest bank in the Eurozone by total assets and second largest by market capitalization. So when, in the space of 24 hours of the CEO patting himself on the back, there is a drop of some 15% of market cap, that's a $10 billion haircut. That ought to wake up Mr. Market.
Recently, I made an accurate statement: "So the equity market is still concerned about the financial strength of the big banks. And that is what we need to focus on… An offshoot of this mess is the money flowing out of the Euro, some of it into gold and silver."
On Friday the Euro Trust ETF (FXE: 123.48 0.00 0.00%) dropped -1.2% to 123.47. The near future was at 123.57, down -1.37% that day, and -3.12% W/W. So much for the European leaders' bold statement after the bail-out agreement that they would smash the short-sellers and stabilize the Euro at any cost. The trouble is they don't have much ammunition to work with. They used debt, which as we know is not ammo, just a ball and chain.
I hold these bankers responsible for the ongoing mess of the global financial system. The more they lose in their credit department, the more they turn to their active derivatives trading to make it back. Traditional banking has turned to be a giant speculation, and the CEOs are turned into liars, afraid to admit the truth.
Legislators, regulators and ratings agencies all know this; but this has been permitted in our society because one government is the same as the next - consumed by power and the intent to get re-elected, whatever the cost. So, in the absence of fiscal conservatism and simple common sense; nothing, it seems, is powerful enough to stop a fast-talking bankster.
Borrowing a phrase from a former partner of mine; the BNP CEO couldn't see a derivative if it was sitting on the end of his nose. Neither could any of his colleagues in other banks. Their only defense - apart from the amnesia one - is to circle the wagons, which is nothing more than Group Fraud.
We have reached an interesting point this week, I think, in that the world's monetary authorities are being forced to look themselves in the mirror and ask seriously if they are working for the banksters or the people. Mr. Market is fed up. You can see it in the price of gold and silver.
$GOLD and $SILVER futures were up on the week +1.99% and +5.12% respectively.
As recently as Nov. 25, just six months ago, the Euro contract traded at a high of 151.27, and now it is down -18.3%. Think of the massive disruption this has caused business people who deal in goods and services, services like international tourism for instance. So Americans can now afford - if they are well-to-do - to travel there, and the manufactured products being shipped abroad from Europe are much cheaper, so the German manufacturers are happy even if their world traveling countrymen are not. Many speculators and active traders don't mind, of course; but so much change in such a short period of time cannot be managed by the majority of people, and that's the problem. Anxiety builds to the point of riots.
What the world needs today is a national leader like a Rudy Giuliani or Eliot Spitzer - someone who will go for the jugular, but also means well. The people need a hero, and I'm not referring to a former body-builder turned into marshmallow by his fellow legislators.
Perhaps that person will be the new British Prime Minister, David Cameron, just 43, whose wife is a 38 year old successful businesswoman. Son of successful stockbroker Ian Cameron. Apparently young David is a person who understands the issues. Hopefully, he knows how to implement solutions.
http://thecitizen.co.tz/sunday-citizen/38-sunday-magazine/1949-new-briti…
Let's look at the details of what transpired over the course of this most "interesting" week.
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Weekly International Economic Report from Econoday.
Summary: "On Monday, market euphoria over the EU pact was palpable - equities soared and the euro, which had been under attack, managed to climb to about $1.30, but not for long. The euro began to slide again as investors fretted over the U-turn by the ECB. At the post governing council meeting press conference on Thursday, May 6th, Bank President Jean Claude Trichet said that there was no discussion on the purchase of bonds. Yet just a few days later on Sunday the ECB said it would purchase bonds even though they categorically denied that this would result in the printing of money or any form of quantitative easing… The results of the May 6th UK national election left no party with a clear majority to rule. But after five days the conservatives and liberal democrats managed to form a government. However, the pound sterling dropped anyhow. While the new government has pledged to take measures to cut the country's fiscal deficit which had been a concern, market players fretted that paring government expenditures could cut growth. Investors were already concerned that the stiff austerity measures in Europe - the UK's major export market - would reduce demand for British products and curtail growth… Equities rode a roller coaster with a euphoric beginning to the week and a swoon at the end as the implications of the various financial plans were assessed. Investors were distracted and paid little attention to economic data including UK industrial output data and unemployment data which were better than anticipated. Both Spain and Portugal presented their austerity packages. It should be noted that Spain inched out of recession in the first quarter while Portugal grew at the fastest rate of any member state within the EMU. On the week, all Asian/Pacific equity indexes followed here were up as were those in Europe and North America."
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Here are the key US economic reports from last week's calendar.
US International Trade data for March. Following release of the data on 5/12/2010 8:30:00 AM ET, Econoday reported, "The March trade gap widened to $40.4 billion. Imports and exports jumped 3.1 percent and 3.2 percent respectively. The trade gap, which was smaller than the expected $41.0 billion was due in part to sharp increases in both the price and quantity of energy imports… The petroleum goods gap widened to $24.8 billion from $23.0 billion in February. However, the nonpetroleum gap narrowed thanks to the large export increase… Other imports categories posted solid gains, particularly auto imports. At the same time, exports of industrial supplies, which include some energy products, and consumer goods posted solid gains… Trade deficits with most major trading partners widened including those with China, Japan and the European Union."
US Treasury Budget for April. Following release of the data on 5/12/2010 2:00:00 PM, Econoday reported, "The U.S. deficit had been showing improvement but not anymore. April's deficit, at $82.7 billion, came in far above estimates and, importantly, reflects weak individual tax receipts which are the government's leading source of revenue, currently at 43% of total receipts. Seven months into the government's fiscal year, individual tax receipts are down 11.6 percent and show erosion from an 8.4% decline in the March data. In contrast, corporate tax receipts, a far smaller source that makes up only 5 percent of total revenue, are showing strength, up a fiscal-year-to-date 8.9% and reflect the strong profits that companies are reporting… On the spending side there's little change from this time last year with total fiscal-year-to-date outlays at $2.06 trillion. The total fiscal-year-to-date imbalance, at $799.7 billion, is only fractionally lower than the $802.3 billion imbalance this time last year. Today's report is a disappointment and will quiet talk out of Washington that the nation's deficit is moving in the right direction."
US Jobless Claims for Week ending May 8. Following the announcement on 5/13/2010 8:30:00 AM ET, Econoday reported, "Initial jobless claims improved for a third straight week for the May 1 week, falling 7,000 to 444,000 and pulling the four-week average down 4,750 to 458,500. Continuing claims for the April 24 week fell 59,000 to 4.594 million."
US Retail Sales for April. After the data was released on 5/14/2010 8:30:00 AM ET. Econoday reported, "Retail sales in March jumped 1.6 percent after gaining 0.5 percent in February. Sales posted healthy increases three months in a row and in five of the last six months. Motor vehicles provided a huge contribution in March, spiking 6.7 percent after dipping 1.9 percent in February. But even excluding autos, sales in March posted another healthy boost, rising 0.6 percent which came after a 1.0 percent surge in February. The increase was not related to changes in gasoline prices as sales excluding autos and gasoline improved by 0.7 percent, following a 1.1 percent increase in February. Looking ahead, a moderate easing in motor vehicle sales from the March surge will weigh on overall retail sales for April. Higher gasoline prices should support ex-autos sales."
US Industrial Production for April. Following release of the data on 5/14/2010 9:15:00 AM ET, Econoday reported, "Industrial production in March edged up only 0.1 percent after gaining 0.3 percent the month before. But the manufacturing component was notably strong with a 0.9 percent jump, after advancing 0.2 percent in February. For the other major components, utilities output plunged 6.4 percent after no change the prior month while mining production increased 2.3 percent after rising 1.7 percent in February. Capacity utilization expanded to 73.2 percent in March from 73.0 percent the month before. Looking ahead, we should get a robust gain in April for at least the manufacturing component as aggregate production worker hours were up 0.8 percent for the month."
US Consumer Sentiment for April. Following release of the data on 5/14/2010 9:55:00 AM ET, Econoday reported, "The Reuter's/University of Michigan's Consumer sentiment index for the final April reading bounced back by more than 2-1/2 points from the preliminary mid-April estimate to 72.2. The improvement was centered in the leading component which is expectations. Expectations rose more than 4 points from mid-month to 66.5. Current conditions, the second component, edged slightly higher from mid-month to 81.0. April's full-month reading was weighed down by the first half of the month portion of the survey. Final April is still softer than final March which came in at 73.6. We may see further improvement in the initial May reading as the implied figure for just the second half of April is 75 (assuming that 50 percent of the full sample occurs for the initial estimate)."
US Business Inventories for March. Following release of the data on 5/14/2010 10:00:00 AM ET, Econoday reported, "Business inventories rose 0.5 percent in February with all three components pitching in: retailers up 0.3 percent, manufacturers up 0.5 percent, wholesalers up 0.6 percent. Overall inventories have now risen in four of the last five months. Business should want to rebuild given recent strength in retail sales. But based on the latest factory inventories number, we will likely see another gain in overall March inventories. Manufacturers' inventories rose a moderate 0.3 percent in March."
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Here are the key US economic reports from next week's calendar.
US Empire State Manufacturing Survey. Prior to release of the data on 5/17/2010 8:30:00 AM ET, Econoday reported, "The Empire State manufacturing index jumped 9 points in April to 31.86 signaling strong month-to-month growth. April increases were broad-based. We are likely to see a healthy number for May as the new orders index in April increased to 29.49 from 25.43 in March. New York manufacturers appear to be more confident about the economy since they are building stocks. The inventory index rose to 11.4 in April, a record high. This restocking trend likely will support May numbers."
US Housing Starts for April. Prior to the release of the data on 5/18/2010 8:30:00 AM ET, Econoday reported, "Housing starts in March strengthened from snow-bound February-with permits pointing toward even better improvement than starts. Housing starts in March rebounded 1.6 percent after a snow storm damped 1.1 percent rise in February. Permits were even more positive, jumping 7.5 percent, following a 2.4 percent advance in February and boosting the March pace to 0.685 million units annualized. It is a tough call on April starts. Sales are up and months' supply has finally come down somewhat. But homebuilders may be wary of a potentially sharp drop in sales with the expiration at the end of April for special tax credits for homebuyers."
US Producer Price Index report for April. Prior to the announcement on 5/18/2010 8:30:00 AM ET, Econoday reported, "The producer price index for March unexpectedly surged as atypical winter freezes jacked up food prices and gasoline made a partial comeback. The overall PPI rebounded 0.7 percent after declining 0.6 percent in February. But at the core level, the PPI inflation rate was steady with a 0.1 percent gain. We probably will see a reversal of the headline PPI surge when April numbers come out. Food prices likely will return closer to normal as new crops come in. Also, oil prices steadied on a seasonally adjusted basis as the month's unadjusted $3 boost was close to typical for April."
US Consumer Price Index report for April. The data will be released on 5/19/2010 8:30:00 AM ET. Econoday says, "The consumer price index for March nudged up to 0.1 percent from no change the prior month. Core CPI inflation, however, eased to no change from up 0.1 percent in March. At the headline level, food prices rose moderately while energy costs were flat. The core was held down in part by declines in apparel and recreation and flat housing costs. Food prices are likely to soften a bit as fruits and vegetables have started to come from regions outside of Florida which was impacted by a heavy freeze. Also, seasonally adjusted oil prices leveled off in April and shelter costs are likely to remain sluggish."
US Jobless Claims report for the prior week. Prior to release of the data on 5/20/2010 8:30:00 AM ET, Econoday reported, "Initial jobless claims for the May 8 week slipped 4,000 to 444,000 but were offset by a 4,000 upward revision to the prior week. But the four-week average improved, dipping 9,000 to 450,500 for the lowest level since late March and the second healthiest level of the recovery."
US Leading Econ Indicators for April. Prior to release of the data on 5/20/2010 10:00:00 AM ET, Econoday reported, "The Conference Board's index of leading indicators surged 1.4 percent in March, following a 0.6 percent increase the month before. Although some components of the index are still to be reported, April looks softer. On the plus side thus far are stock market gains, the factory workweek, and the interest rate spread. On the negative side thus far are vendor performance, consumer expectations, and money supply."
US Philadelphia Fed Survey for May. Prior to release of the data on 5/20/2010 10:00:00 AM ET, Econoday reported, "The general business conditions index of the Philadelphia Fed's Business Outlook Survey for April rose 1.3 points to 20.2-well above the breakeven point of zero and signaling an increased rate of month-to-month growth. Based on new orders, the general business conditions index for May should remain well in positive territory. The new orders index in April rose more than 4-1/2 points to 13.9."
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International Equity Markets Review
This week was pumped up on Monday and then traders sold into strength. Then came Friday when they just sold. Still, the moonshot on Monday ensured a positive week.
You read my notes in this space a week ago. I was appalled that the Financial Entertainment TV was focusing you on "fat finger" mistakes as being the cause of the sell-off the previous week. I told you all of this started in late April, a time when Greece hit the fan.
WIR#19: Anyway, the problem was not PG; it's all about the stability of banks. Judging from the share price plunge in France, the big banks in France (BNP and Credit Agricole are ones I noted) must be holding a lot of dubious assets, including a lot from Greece.
For some reason, I hammer those two French banks; but let's not forget Société Générale (GLE.PA -8.63% on Friday). This is the arrogant bank that claimed a single young rogue futures trader Jér?me Kerviel caused a -$7.2 billion trading loss in 2008, which is just laughable… No, I haven't forgotten SocGen. I just can't stomach to think about them. Neither should US taxpayers because TARP money was sent to that French bank thanks to Henry Paulson and Tim Geithner, probably as a pass-through back to Goldman Sachs (GS: 142.64 0.00 0.00%) and/or JP Morgan (JPM: 39.84 0.00 0.00%).
This week, SocGen admitted a $4 billion exposure to Greek sovereign debt. That's what happens when these banksters are permitted to borrow from the central bank at near zero cost and then go looking for maximum spreads from fiscally weak countries like Greece that have to pay a huge spread over what say Germany would have to pay. The only catch is the little anxiety at debt roll-over time. But knowing there will always be a Fed or ECB or BoE or IMF to bail them out, they don't care. That BNP CEO can then tell the media and his shareholders that his bank's performance was "remarkable".
