FX Dislocation in process

[Malsua]

This was posted on FR last night and I've followed it this morning. There appears to be a big "buy" on the dollar. Go here:

http://www.fxstreet.com/rates-charts/currency-rates/
Select US dollars. Watch what's happening. Since I first checked at 6am, every currency against the dollar is down. Does this mean anything? Maybe. It will mean something if this is due to folks fleeing EU, or Asian markets due to something happening. Big players, like governments, may be trying to shore up local banks. Keep your eyes peeled.


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http://market-ticker.org/archives/80...n-Process.html
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Posted by Karl Denninger at 20:24

RED ALERT: FX Dislocation In Process - Updated (11:47 PM)

8:17 CT
I do not know what is going on here, and I don't think I want to.
Someone, apparently someone in Asia, wants dollars. A LOT of dollars. There is a forced-liquidation event underway that is massive, it is against all asset classes and it is spreading.

It originated at approximately 7:15 CT this evening and originated out of Asia somewhere. All of the primary currency crosses got hit at once - Euro, Pound, Yen - all weakened dramatically against the dollar and it is still going on. The Asian stock markets got walloped at the same time in coordinated waves of forced selling.

At the same time the US futures markets got nailed as well, down some six handles on the /ES in a near-vertical drop. While this sounds "not that big" to move these markets in a coordinated fashion like this is a trillion-dollar enterprise - this is not some small company that went bankrupt, or even a large company.

There is no news coverage at the present time identifying the source of this but it is not small and contrary to some reports it is not "automatic selling"; this is forced liquidation.

Folks, if this translates into Eastern Europe where there are severe instabilities already brewing literally everything in the financial world could come apart "all at once."

The worse news is that if this happens Bernanke will have killed us (in the US) by extending those swap lines all over the planet during the last six months. These will become utterly uncollectable and they are massive, in the many hundreds of billions of dollars.

To those who are reading this, I hope if you're in the markets you are prepared for extreme levels of violence. You must expect that the authorities will try to arrest the destruction if they are able, but you must also be prepared for the possibility that we have reached a "critical mass" point beyond which "duck and cover" is the only winning strategy.

Unfortunately. I hope I'm wrong; this is going to be a long night.

[Malsua]

Just for completeness.

[American Patriot]

So everything is dropping compared to the dollar?

Hmmmm

[Malsua]

Yes, everything is dropping vs the dollar. It sounds great for us, in theory. That is until you realize it can unravel the whole works since Bernake and the rest of the FED goons enabled credit swaps all over. This means that a failure in any market means that part of the failure lands right back on our doorstep on our books. The Dollar is the currency of last resort since other currencies may be harder hit but it could drag down the whole shittery.

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From Jim Sinclair:

Dear Comrades In Golden Arms,


To underscore my statement that "It has hit the fan," please review the following:

Forex failure continues in Poland
Posted by Izabella Kaminska on Feb 16 21:43.

It's getting bleaker by the minute in Eastern Europe. In case you didn't catch the latest from the Telegraph's Ambrose Evans-Pritchard, he warned at the weekend how a growing crisis in Eastern Europe could cause nothing less than a total collapse in the West, or as he put it: "If one spark jumps across the euro zone line, we will have global systemic crisis within days."

To make his point Evans-Pritchard quotes Morgan Stanley's Stephen Jen on the fact that Eastern Europe has borrowed a total of $1,7oobn abroad. Furthermore about $400bn of that debt has to be rolled over this year - a number equivalent to about a third of the region's GDP.

As we outlined a couple of weeks ago, the concern is now greatest not for the retail mortgage sector, which practiced the issuance of foreign-currency based mortgages on a grand scale, but for corporates - which it appears practiced the art of derivative forex exposure on an even grander scale.

And so it comes as no surprise on Monday that yet another corporate forex failure has occurred in Poland, this time at Polski koncern Miesny Duda, a Polish meatpacking business. The stock sank to a record low on the news. As Bloomberg reports:

More...

An unwind is taking form right now, this minute, (9:10PM ET) that may or may not be contained by international Central Bank action.

Even if central Europe does not financially implode the world money system today, it is just around the corner.

There are so many risks threatening us now that survival of any monetary status quo is doubtful.
Protect yourself.

It has hit the fan, right now, and all that is thanks to OTC derivative manufacturers and distributors.

Respectfully yours,
Jim

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Japan? No. Try Russia, and the sick men of Eastern Europe

Tuesday, 17 February 2009
Glenn Dyer writes:

Fears are rapidly growing that the world's next economic weak point won't be found in the US, Europe, East Asia or even in slumping Japan: it will be in the old Eastern Europe, where the flow of figures from countries like Russia, Poland, Hungary, Bulgaria and the Czech Republic tell of plunging currencies, production and rapidly contracting economies.

Every economy in the East is tanking: with Russia and the Ukraine probably the most damaged, closely followed by Hungary. Foreign banks have lent hundreds of billions of dollars for loans on housing, to businesses, large and small, to Governments.

The former Baltic states in Latvia and Lithuania are also hurting. Swedish banks are particularly exposed to Latvia where the economy is shrinking and unemployment rising.

Ukraine is effectively broke: its economy is shrinking, steel exports, a major foreign exchange earner, have slumped as the global recession has slashed demand for the metal and the Government is hopelessly divided. Forecasts are for a 4%-5% contraction in the economy this year. Last November, the country secured a $US16.4 billion stand-by arrangement with the IMF; but so far only $US4.5 billion has been disbursed and a visiting IMF delegation left last week without any more being advanced.

But Russia is the worst of these rapidly emerging basket cases. Years of blustering its way through Europe and across the globe, backed by rising income from oil and other commodities, has been replaced by currency and financial crunches that have chewed up over half the country's $US540 billion in foreign reserves of a year ago.

Overnight figures were released showing Russia's industrial production plunged 20% last month, the largest drop on record, setting up the struggling economy for a rather large contraction in growth in coming months along the lines reported yesterday by Japan. A one-third fall in the value of the rouble since midway through last year has crunched domestic demand and generated a credit crunch. Plunging share prices and failed bailouts have seen billions of dollars lost, some of the country's so-called Oligarchs have lost their fortunes and a recession is closing in.

The Government warns growth could fall from 6.3% in 2008 to somewhere between zero growth and a 10% contraction this year.

Morgan Stanley says: "Eastern Europe has borrowed $US1.7 trillion abroad, much on short-term maturities. It must repay -- or roll over -- $US400bn this year, equal to a third of the region's GDP. Good luck. The credit window has slammed shut. Not even Russia can easily cover the $US500bn dollar debts of its oligarchs while oil remains near $US33 a barrel. The budget is based on Urals crude at $US95. Russia has bled 36pc of its foreign reserves since August defending the rouble."

"In Poland, 60pc of mortgages are in Swiss francs. The zloty has just halved against the franc. Hungary, the Balkans, the Baltics, and Ukraine are all suffering variants of this story. As an act of collective folly -- by lenders and borrowers -- it matches America's sub-prime debacle. There is a crucial difference, however. European banks are on the hook for both. US banks are not," London's Telegraph reported.

In December, Russia's economy lost a claimed half a million jobs, bringing the total unemployment level to 7.7%, which is a best guesstimate according to commentaries. The real figure is almost certainly much higher.

The Czech Republic has just approved an economic stimulus package, Hungary announced plans to reform its tax code to help boost the economy, and Bulgaria said its economic growth nearly halved in the fourth quarter of last year.

Hungary's government expects the economy to contract between 3% and 3.5% this year, industrial production fell 23% in December from the same month of 2007, Polish output is falling. Growth in the Czech Republic slowed to 1% in the last quarter of 2008. But at least it's growth.

Send your tips to boss@crikey.com.au, submit them anonymously here or SMS tips and photos to 0427 TIP OFF.

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GLOBAL MARKETS-Asia stocks tumble, dollar up on safety bid

17/02/2009 2:38:28 PM

* Nikkei hits 3-month low; Asia banks, tech shares suffer
* U.S. dollar rallies, hits 2-month high vs euro
* Disappointment with policy actions drive risk aversion
By Kevin Plumberg

HONG KONG, Feb 17 (Reuters) - Asian stocks fell on Tuesday, with Japan's Nikkei hitting a three-month low, while the U.S. dollar surged as investors scrambled for safety from deteriorating global economic conditions and volatile banks.

U.S. stock futures fell 1.6 percent, indicating a weak open on Wall Street after a holiday on Monday, ahead of results from the world's largest retailer Wal-Mart Stores Inc.

European shares dropped more than 1 percent overnight on fears that losses in the financial sector will worsen and require more government aid, setting the tone for the Asian session.

Fiscal strains across Portugal, Ireland, Greece and Spain and severe financial weakness throughout emerging Europe all gave dealers more incentive to push the euro to a two-month low against the dollar and scoop up safe-haven U.S. Treasury debt.

"The risk aversion trades are likely to keep making money -- albeit amid volatility -- until new measures are unveiled by governments and central banks in key economies," said Dariusz Kowalczyk, chief investment strategist with SJS Markets in Hong Kong, in a note.

"Judging by the insufficient policy response so far, the near term market outlook remains negative."

Countless economic stimulus packages and open promises to take more action by policymakers have so far all been met with disappointment by investors, with not even the $787 billion pledged by Washington making a dent in negative sentiment.

Exports across Asia have collapsed and the latest Reuters Tankan poll of Japanese manufacturers shows confidence remains mired near record lows [ID:nTKC003273].

A more than 3 percent decline on Hong Kong's Hang Seng index (.HSI
.HSI , 13068.67, -387.21, -2.88%) led the region down, with banks such as China Construction Bank <0939.HK> and HSBC <0005.HK> under pressure.

Japan's Nikkei fell 1.45 percent, hitting its lowest since November 2008. Japanese bank stocks dropped, with shares of top lender Mitsubishi UFJ Financial Group <8306.T> down 4.3 percent, in the wake of a big loss at HBOS, a unit of Britain's Lloyds .

Losses in the technology and financial sectors dragged the MSCI index of Asia-Pacific stocks excluding Japan <.MIAPJ0000PUS> down 2.7 percent, falling further below its 50-day moving average. The technical indicator has capped the index for the past month.

SCHIZOPHRENIC

The dollar shot higher as investors cut down risks and held on to liquidity amid global market volatility.

Even the yen, which has often gained during periods of heightened market volatility, slid against the U.S. currency, though not as much as the euro.

Heavy euro selling tripped automatic sell orders planted just below $1.27 and the currency fell more than 1 percent to about $1.2640 , its lowest since early December.

The dollar rose as high as 92.44 yen , its strongest since early January.

Emerging Asian currencies broadly weakened against the dollar.

"We believe there is more to come as the schizophrenic gap between rather resilient Asian currencies recently and ugly economic data closes," said Sebastien Barbe, currency strategist with Calyon in Hong Kong, in a note.

The renewed focus on safety funnelled investors into U.S. government debt, pushing yields lower across maturities. The benchmark 10-year yield tumbled to 2.82 percent from about 2.89 percent late on Friday.

The 2-year yield fell to 0.91 percent from 0.97 percent.

Japanese government bonds also rose on the back of the rally in Treasuries, with the March 10-year future up 0.5 point <2JGBv1>.

U.S. crude futures were down 2.2 percent to $36.69 a barrel, having lost 12 percent so far in February. (Editing by Dhara Ranasinghe)

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UPDATE: Asian Shares Down On Europe Jitters; Financials Fall

11 hours ago

SINGAPORE (Dow Jones)--Asian shares were lower Tuesday with financial stocks falling across the region and the euro sliding as concerns mounted about the health of the European economy and its banks in particular.

"The market is looking for Europe to have a bad night tonight," said Goldman Sachs JBWere senior institutional trader Patrick Crabb. "It's all looking bearish again."

Investors were also waiting to see how Wall Street fared after its Monday holiday. They were still waiting for details of further steps by the U.S. administration to shore up sentiment, with General Motors and Chrysler expected to detail their long-term recovery plans later Tuesday.

Nasdaq futures were down 1.6% in screen trade with S&P 500 futures down 1.5%; Dow Jones Industrial Average futures were quoted 99 points lower.

Australia's S&P/ASX 200 was down 2.0% with Japan's Nikkei 225 off 1.5% - at its lowest intraday level for the year - and Korea's Kospi Composite down 3.0%; Taiwan's main index fell 2.1% with Hong Kong's Hang Seng Index 3.3% lower.

"It looks like a revival of risk aversion is in place," said RBC Capital Markets strategist Sue Trinh.

Stock and currency traders were uneasy after a report from Moody's Investor Service discussed its concerns about the supportiveness of Western European banks for their Eastern European subsidiaries, amid a deteriorating global economic environment.

It named the Baltic countries, Hungary, Croatia, Romania and Bulgaria as being at risk, adding "countries including Ukraine, Kazakhstan and Russia are under pressure even though their public sectors have relatively little external debt." It noted their main counterparties were banks in Austria, Italy, France, Belgium, Germany and Sweden.

That fanned concerns about the European banking sector, with the U.K.'s Lloyds Banking Group still hosing down talk it might be nationalized, and Ireland's credit default swap spreads pushing wider in recent days.

Among Asian financial stocks, National Australia Bank fell 3.1% with Korea's Hana Financial down 6.5% and Taiwan's Cathay Financial Holding down 1.9%. Japan's MUFG was 4.3% lower with Hong Kong's HSBC down 1.9% and Standard Chartered Bank down 2.8%.

Some Australian miners though were on the rise despite a fall in base metals in London, with Rio Tinto up 0.3%; OneSteel gained 0.9% after it said iron ore contract prices looked set to fall in the current round of negotiations, but not as much as some had been expecting.

OZ Minerals surged 20% on a A$2.6 billion takeover bid from China's Minmetals.

PaperlinX doubled, jumping 100% after confirmation it was selling its Australian Paper unit to Japan's Nippon Paper Group for A$600 million in cash.

Korean shares were down as the won fell against the U.S. dollar, deepening concerns about foreign currency liquidity conditions in the local banking sector; Posco fell 2.8% with Korean Air down 5.8%.

Technology stocks were hit in Taiwan before the release Wednesday of the country's fourth quarter gross domestic product data, with ProMOS down 5.3% and heavyweight TSMC off 3.6%.

Chinese steel and airline shares fell on profit-taking with Baoshan Iron & Steel down 3.3%, Wuhan Iron & Steel down 4.5% and China Eastern Airlines down 5.2%. The Shanghai Composite Index was 2.0% lower.

Shipping stocks fell in Tokyo as the Baltic Dry Index - a measure of dry bulk demand - dropped 3.2% Monday, with Nippon Yusen down 1.8%, Mitsui O.S.K. Lines down 4.7% and Kawasaki Kisen slipping 2%.

New Zealand's NZX-50 was down 0.4% with Singapore's Straits Times Index down 0.7%, Malaysia's main index off 0.2%, Philippine shares down 0.4% and Indonesian shares falling 1.3%.

There were large falls in the euro, British pound and Australian dollar amid the risk-averse mood.

The euro was at $1.2661 from $1.2797 in North America Monday, touching its lowest level in more than two months, and at Y116.95 from Y117.40, though off a low of Y116.35. Australia's currency was at US$0.6448, with the British pound down at $1.4209.

Standard Chartered strategist Callum Henderson noted stop-loss selling in the euro and Australian dollar, saying the move had further to run.

Asian currencies were hard-hit against the U.S. dollar, with suspected intervention by authorities in Korea to support the won.

Japanese government bonds gained as domestic institutional investors bought back on weakness in stocks. March futures were up 0.53 at 139.53 points.

Spot gold was 78 cents higher from London, at $942.50 a troy ounce with interest in physical gold as an investment asset in Asia, said ABN Amro head of precious metals Charles Dowsett.

March Nymex crude oil futures were down 80 cents on Globex at $36.71 a barrel.

-Rosalind Mathieson and Wei-Zhe Tan, Dow Jones Newswires; +65-6415-4140; rosalind.mathieson@dowjones.com

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Euro Falls to 10-Week Low on Concern Europe’s Turmoil to Worsen

By Yasuhiko Seki and Ron Harui

Feb. 17 (Bloomberg) -- The euro fell to a 10-week low against the dollar after Moody’s Investors Service said it may downgrade a number of banks with units in Eastern Europe, reigniting concern about financial turmoil in the region.

The euro also weakened against 14 of the 16 major currencies on speculation its recent declines triggered the execution of automatic sell orders. The yen dropped to a five- week low against the dollar after Japan’s Finance Minister Shoichi Nakagawa said today he would resign after budget bills are passed in the nation’s parliament.

“The financial turbulence in central and Eastern Europe is likely to persist,” said Masafumi Yamamoto, head of foreign- exchange strategy for Japan at Royal Bank of Scotland Plc in Tokyo and a former Bank of Japan currency trader. “The markets may perceive this as a factor to sell the euro.”

The euro declined to $1.2648 as of 1:03 p.m. in Tokyo, from $1.2801 late yesterday in New York. It touched $1.2633, the lowest since Dec. 5. The European currency dropped to 117.09 yen from 117.46 yesterday. The dollar rose to 92.58 yen from 91.73 yen, after touching 92.75 yen, the lowest since Jan. 8.

Nakagawa’s decision to step down comes after television footage showed him slurring his speech and nodding off at a briefing following the Group of Seven meeting of finance ministers and central bankers in Rome on Feb. 14.

‘Downward Pressure’

East European banks, which are mainly subsidiaries of financial institutions such as Raiffeisen Zentralbank Oesterreich AG and Swedbank AB, are likely to come under “downward pressure” which may also weaken their parent companies, Moody’s wrote in a report released today in London.

The euro also fell amid concern Ireland may default on its national debt. Credit-default swaps on the nation’s five-year sovereign debt reached a record high this week, according to prices from CMA Datavision.

The euro’s decline against the dollar and the yen accelerated after stop losses on investors’ long positions on the currency were activated, said Lee Wai Tuck, a currency strategist at Forecast Pte in Singapore.

“The stop losses were probably around $1.2720 and $1.2700 in euro-dollar and about 116.80 in euro-yen,” Lee said. A stop loss is an automatic instruction to sell a currency should it reach a particular level. A long position is a bet that an asset will rise.

West European banks might become selective in supporting their subsidiaries and “banks in countries that are associated with higher systemic risks might face reduced support,” Moody’s said in the report. Western governments may also establish rules to ensure banks receiving state support do not aid foreign subsidiaries, the rating company said.

Dollar Gains

The Moody’s story “helped push euro down below 1.27 and accelerated dollar gains across the board,” said Callum Henderson, head of global currency strategy at Standard Chartered in Singapore. The euro needs to find support at $1.2330, the weakest since April 2006, which it touched in October, he said.

The pound dropped on concern a U.K. report today will show inflation slowed due to the economic slump, giving the Bank of England more room to cut interest rates. The Office for National Statistics may say consumer prices rose 2.7 percent in January from a year earlier, compared with 3.1 percent the previous month, according to a Bloomberg News survey.

The report comes after the Confederation of British Industry said yesterday that gross domestic product will shrink 3.3 percent in 2009, the most in almost 30 years, instead of the 1.7 percent predicted in November.

Economic Woes

“Spreading economic woes in greater Europe, which also enhances expectations for more rate cuts there, may send the pound to a year-to-date-low of $1.350,” said Shigeru Nakane, a foreign-exchange dealer at Resona Bank Ltd, a unit of Japan’s fourth-largest banking group.

The dollar rose toward a five-week high against the yen on speculation Japanese investors will seek the relative safety of Treasuries amid increasing signs the word’s second-largest economy is faring worse than the U.S.

A Japanese government report yesterday showed the economy shrank 3.3 percent last quarter from the previous three months, compared with the U.S.’s 1 percent contraction. A separate report last week showed Japan’s current-account surplus narrowed by the most in at least 23 years in December, diminishing the appeal of the yen as a haven currency.

“The severe downturn may induce Japanese investors to put their money into Treasuries as a haven,” said Tsutomu Soma, a bond and currency dealer at Okasan Securities Co. in Tokyo. “The dollar will probably be bought.”

Treasuries rose. The yield on the benchmark 10-year note fell eight basis points to 2.82 percent, according to BGCantor Market Data. A basis point is 0.01 percentage point.

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FEBRUARY 17, 2009
Poland Faces a Dilemma as Its Currency Declines

WARSAW -- The decline of the zloty has left Poland with the difficult choice of letting several large businesses go under or risk the wrath of international investors by voiding options on a rising zloty that exporters took in happier times.

While countries across Central Europe are being hurt by the falling value of their currencies, Poland is feeling the pain particularly intensely. Trading in the zloty is easier than in other currencies from the region, making its rise and subsequent fall more dramatic, and there are more financial tools available to hedge against the zloty's movements

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Look at the percentage increases vs the other "hard" fiats. . .

The "other" currencies. . .

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Failure to save East Europe will lead to worldwide meltdown

The unfolding debt drama in Russia, Ukraine, and the EU states of Eastern Europe has reached acute danger point.

By Ambrose Evans-Pritchard
Last Updated: 2:05AM GMT 15 Feb 2009
Comments 144 | Comment on this article

If mishandled by the world policy establishment, this debacle is big enough to shatter the fragile banking systems of Western Europe and set off round two of our financial Götterdämmerung.

Austria's finance minister Josef Pröll made frantic efforts last week to put together a €150bn rescue for the ex-Soviet bloc. Well he might. His banks have lent €230bn to the region, equal to 70pc of Austria's GDP.

"A failure rate of 10pc would lead to the collapse of the Austrian financial sector," reported Der Standard in Vienna. Unfortunately, that is about to happen.

The European Bank for Reconstruction and Development (EBRD) says bad debts will top 10pc and may reach 20pc. The Vienna press said Bank Austria and its Italian owner Unicredit face a "monetary Stalingrad" in the East.

Mr Pröll tried to drum up support for his rescue package from EU finance ministers in Brussels last week. The idea was scotched by Germany's Peer Steinbrück. Not our problem, he said. We'll see about that.

Stephen Jen, currency chief at Morgan Stanley, said Eastern Europe has borrowed $1.7 trillion abroad, much on short-term maturities. It must repay – or roll over – $400bn this year, equal to a third of the region's GDP. Good luck. The credit window has slammed shut.

Not even Russia can easily cover the $500bn dollar debts of its oligarchs while oil remains near $33 a barrel. The budget is based on Urals crude at $95. Russia has bled 36pc of its foreign reserves since August defending the rouble.

"This is the largest run on a currency in history," said Mr Jen.

In Poland, 60pc of mortgages are in Swiss francs. The zloty has just halved against the franc. Hungary, the Balkans, the Baltics, and Ukraine are all suffering variants of this story. As an act of collective folly – by lenders and borrowers – it matches America's sub-prime debacle. There is a crucial difference, however. European banks are on the hook for both. US banks are not.

Almost all East bloc debts are owed to West Europe, especially Austrian, Swedish, Greek, Italian, and Belgian banks. En plus, Europeans account for an astonishing 74pc of the entire $4.9 trillion portfolio of loans to emerging markets.

They are five times more exposed to this latest bust than American or Japanese banks, and they are 50pc more leveraged (IMF data).
Spain is up to its neck in Latin America, which has belatedly joined the slump (Mexico's car output fell 51pc in January, and Brazil lost 650,000 jobs in one month). Britain and Switzerland are up to their necks in Asia.

Whether it takes months, or just weeks, the world is going to discover that Europe's financial system is sunk, and that there is no EU Federal Reserve yet ready to act as a lender of last resort or to flood the markets with emergency stimulus.

Under a "Taylor Rule" analysis, the European Central Bank already needs to cut rates to zero and then purchase bonds and Pfandbriefe on a huge scale. It is constrained by geopolitics – a German-Dutch veto – and the Maastricht Treaty.

But I digress. It is East Europe that is blowing up right now. Erik Berglof, EBRD's chief economist, told me the region may need €400bn in help to cover loans and prop up the credit system.

Europe's governments are making matters worse. Some are pressuring their banks to pull back, undercutting subsidiaries in East Europe. Athens has ordered Greek banks to pull out of the Balkans.

The sums needed are beyond the limits of the IMF, which has already bailed out Hungary, Ukraine, Latvia, Belarus, Iceland, and Pakistan – and Turkey next – and is fast exhausting its own $200bn (€155bn) reserve. We are nearing the point where the IMF may have to print money for the world, using arcane powers to issue Special Drawing Rights.

Its $16bn rescue of Ukraine has unravelled. The country – facing a 12pc contraction in GDP after the collapse of steel prices – is hurtling towards default, leaving Unicredit, Raffeisen and ING in the lurch. Pakistan wants another $7.6bn. Latvia's central bank governor has declared his economy "clinically dead" after it shrank 10.5pc in the fourth quarter. Protesters have smashed the treasury and stormed parliament.

"This is much worse than the East Asia crisis in the 1990s," said Lars Christensen, at Danske Bank.

"There are accidents waiting to happen across the region, but the EU institutions don't have any framework for dealing with this. The day they decide not to save one of these one countries will be the trigger for a massive crisis with contagion spreading into the EU."

Europe is already in deeper trouble than the ECB or EU leaders ever expected. Germany contracted at an annual rate of 8.4pc in the fourth quarter.

If Deutsche Bank is correct, the economy will have shrunk by nearly 9pc before the end of this year. This is the sort of level that stokes popular revolt.

The implications are obvious. Berlin is not going to rescue Ireland, Spain, Greece and Portugal as the collapse of their credit bubbles leads to rising defaults, or rescue Italy by accepting plans for EU "union bonds" should the debt markets take fright at the rocketing trajectory of Italy's public debt (hitting 112pc of GDP next year, just revised up from 101pc – big change), or rescue Austria from its Habsburg adventurism.

So we watch and wait as the lethal brush fires move closer.

If one spark jumps across the eurozone line, we will have global systemic crisis within days. Are the firemen ready?

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Banks Face Downgrades on Eastern European Losses, Moody’s Says


By Zoe Schneeweiss and Niklas Magnusson

Feb. 17 (Bloomberg) -- Austrian, Swedish and other banks with subsidiaries in eastern European may face rating downgrades as economies in the region deteriorate, according to Moody’s Investors Service.

East European banks, which are mainly subsidiaries of financial institutions such as Raiffeisen Zentralbank Oesterreich AG and Swedbank AB, are likely to come under “downward pressure” which may also weaken their parent companies, Moody’s wrote in a report released today in London.

Banks from Austria, Italy, France, Belgium, Germany and Sweden account for 84 percent of western European bank loans in eastern Europe. The region’s economies are weakening, with the International Monetary Fund already offering aid to Latvia, Hungary, Serbia and Ukraine. Bailouts may be extended to Bulgaria, Romania, Lithuania and Estonia as the global recession derails more banks, according to Capital Economics research.

“The downturn in eastern Europe will be more severe as a consequence of many countries’ dependence” on capital flows from west Europe banks, Moody’s analysts led by Reynold Leegerstee wrote in the report.

West European banks might become selective in supporting their subsidiaries and “banks in countries that are associated with higher systemic risks might face reduced support,” the report said. Western governments may also establish rules to ensure banks receiving state support do not aid foreign subsidiaries, Moody’s said. On the other hand, limiting support for a subsidiary could hurt confidence in the parent.

Austria ‘Most Exposed’
Austria, whose banking system is “most exposed” to central and eastern Europe, has two of the biggest lenders in the region. RZB made 79 percent of its 2007 pretax profits in eastern Europe, including Russia and Ukraine through its Raiffeisen International Bank Holding AG unit, and Erste Group Bank AG earned 65 percent of its pretax profits in countries including Romania, the Czech Republic and Slovakia.

Erste, which said last week that full-year profit probably slumped about 26 percent, is in talks with the Austrian government to get 2.7 billion euros ($3.4 billion) in state aid. RZB, which owns a 69 percent stake in Raiffeisen International, which is active in 18 eastern European countries, is also in talks with the Austrian state and has asked for 1.75 billion euros.

In December, the Austrian banks, together with Italy’s UniCredit SpA and Intesa SanPaolo SpA, Societe Generale SA of France and KBC Groep NV of Belgium, asked the European Union to organize financial aid for countries on its eastern fringes, like Romania and Ukraine.

Swedish banks began their Baltic expansion in 1998. Swedbank, the largest lender in the region, bought a stake in Estonia’s Hansabank in 1998 and took full control in 2005. SEB AB

Special Units
As the Baltic states enter their worst recession since gaining independence from the Soviet Union in 1991, Swedish banks have been forced to raise cash from shareholders to boost capital and establish special units to deal with delinquent loans.

Impairments and provisions for anticipated future loan losses at Swedbank soared more than sixfold to 1.63 billion kronor ($190 million) in the fourth quarter from 238 million kronor a year earlier, mainly because of the Baltic states, it said earlier this month.
took full control of Estonia’s Eesti Uhispank, Latvia’s Latvijas Unibanka and Lithuania’s Vilniaus Bankas in 2000.

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Eastern Europe is about to Blow

Written by Mike Whitney

February 17, 2009 "ICH" -- -Eastern Europe is about to blow. If it does, it could take much of the EU with it. It's an emergency situation but there are no easy solutions. The IMF doesn't have the resources for a bailout of this size and the recession is spreading faster than relief efforts can be organized. Finance ministers and central bankers are running in circles trying to put out one fire after another. Its only a matter of time before they are overtaken by events. If one country is allowed to default, the dominoes could begin to tumble through the whole region. This could trigger dramatic changes in the political landscape. The rise of fascism is no longer out of the question.

The UK Telegraph's economics editor Edmund Conway sums it up like this:

"A 'second wave' of countries will fall victim to the economic crisis and face being bailed out by the International Monetary Fund, its chief warned at the G7 summit in Rome....But with some countries' economies effectively dwarfed by the size of their banking sector and its financial liabilities, there are fears they could fall victim to balance of payments and currency crises, much as Iceland did before receiving emergency assistance from the IMF last year." (UK Telegraph)

Foreign capital is fleeing at an alarming rate; nearly two-thirds gone in matter of months. Deflation is pushing down asset prices, increasing unemployment, and compounding the debt-burden of financial institutions. It's the same everywhere. The economies are being hollowed out and stripped of capital. Ukraine is teetering on the brink of bankruptcy. Poland, Latvia, Lithuania, Hungary have all slipped into a low-grade depression. The countries that followed Washington's economic regimen have suffered the most. They bet that debt-fueled growth and exports would lead to prosperity. That dream has been shattered. They haven't developed their consumer markets, so demand is weak. Capital is scarce and businesses are being forced to deleverage to avoid default. All of Eastern Europe has gotten a margin call. They need extra funds to cover the falling value of their equity. They need a lifeline from the IMF or their economies will continue to crumble.

The UK Telegraph's economics correspondent Ambrose Evans-Pritchard has written a series of articles about Eastern Europe. In "Failure to save East Europe will lead to Worldwide meltdown" he says:

"Austria's finance minister Josef Pröll made frantic efforts last week to put together a €150bn rescue for the ex-Soviet bloc. Well he might. His banks have lent €230bn to the region, equal to 70pc of Austria's GDP.

"A failure rate of 10pc would lead to the collapse of the Austrian financial sector," reported Der Standard in Vienna. Unfortunately, that is about to happen.

The European Bank for Reconstruction and Development (EBRD) says bad debts will top 10pc and may reach 20pc....

Stephen Jen, currency chief at Morgan Stanley, said Eastern Europe has borrowed $1.7 trillion abroad, much on short-term maturities. It must repay – or roll over – $400bn this year, equal to a third of the region's GDP. Good luck. The credit window has slammed shut.

Almost all East bloc debts are owed to West Europe, especially Austrian, Swedish, Greek, Italian, and Belgian banks. En plus, Europeans account for an astonishing 74pc of the entire $4.9 trillion portfolio of loans to emerging markets. They are five times more exposed to this latest bust than American or Japanese banks, and they are 50pc more leveraged (IMF data). (Ambrose Evans-Pritchard UK Telegraph)

An economic crisis is quickly turning into a political crisis. Riots have broken out in capitals across Eastern Europe. Mr. Geithner had better be paying attention. The prospects for political upheaval are growing. Public anxiety can spill out onto the streets at a moments notice. Governments must act quickly and with resolve. These countries need hard currency and guarantees of support. If they don't get help, the simmering public fury will turn into something much more lethal.

UK Telegraph's economics correspondent Ambrose Evans-Pritchard:

"Global banks have so far written down half the $2,200bn losses estimated by the IMF. On top of this, EU banks have $1,600bn of exposure to Eastern Europe -- increasingly viewed as Europe’s subprime debacle, and EU corporate debts are 95pc of GDP compared to 50pc in the US, a mounting concern as default rates surge.

“It is essential that government support through asset relief should not be on a scale that raises concern about over-indebtedness or financing problems. Such considerations are particularly important in the current context of widening budget deficits, rising public debt levels and challenges in sovereign bond issuance." (UK Telegraph)

It's the same wherever banks merged their commercial and investment branches. Debt has skyrocketed to unsustainable levels destabilizing the entire economy. The banks have been operating like hedge funds, concealing their activities on off-balance sheets operations and maximizing their leverage through opaque debt-instruments. Now the global economy is caught in the downdraft of a collapsing speculative bubble. East Europe has been hit hard, but it's just the first of many bowling pins that will fall. All of Europe has been infected by the same virus which originated on Wall Street. Monday's New York Times summarizes developments in the EU:

"Europe sank even deeper into recession than the United States in the closing months of last year, according to figures published Friday...The economy of the 16 countries sharing the euro currency declined by 1.5 percent in the fourth quarter, (an annualized drop of roughly 6 percent) according to the European Union's statistics office. That is even worse than the 1 percent decline in the United States economy during that period, compared with the previous quarter.

“Today’s data wipes out any illusion that the euro zone is getting off lightly in this global downturn,” said Jörg Radeke, an economist at the Center for Economics and Business Research in London. ("Europe Slump Deeper than Expected" New york Times)

The "liquidationists" would like to see governments cut off the flow of funds to ailing financial institutions and let them fail by themselves. It's Darwinian madness, like waiting out a heart attack on the kitchen floor instead of rushing to the hospital for emergency care. The global economy is decelerating at the fastest pace on record. 40 percent of global wealth has been wiped out. The banking system is insolvent, unemployment is soaring, tax revenues are falling, the markets are in shock, housing is crashing, deficits are soaring, and consumer confidence is at its lowest point in history. This is no time to cling to half-baked ideology. The global economy is undergoing a massive system-wide contraction which could spin out of control and plunge us into another world war. Political leaders need to grasp the urgency of the moment and keep the vehicle from careening into the ditch.

[vector7]

Posted: Feb 17 2009 By: Jim Sinclair Post Edited: February 17, 2009 at 6:00 am

Filed under: In The News
Dear CIGAs,

Alf’s target on gold will be reached when the markets are stunned to find out that there is no safe haven in the US dollar.

Prior to that, gold in under the magnet may reach $1224 on the simple panic now building in markets as participants recognize there is NO practical solution to the enormous disruption that OTC derivatives manufacturers, distributors and Hedgies have caused.

The BIS (Bank for International Settlement) publicly altered the manner by which they determine the total nominal value of derivatives outstanding. This has actually backfired badly now that it is assumed every entity is lying. The BIS was all that was left for somewhat legitimate economic statistics.

You probably noticed the amount of outstanding OTC derivative nominal value dropped 80% from the BIS figure of one quadrillion one thousand and one hundred forty four trillion dollars as the BIS moved to the computer modeling of value to maturity, another foolishly glib cartoon.

[vector7]

UPDATE:Eastern Europe Grim Econ Outlook Weighs On CDS Spreads

Tue, Feb 17 2009, 14:30 GMT

http://www.djnewswires.com/eu

UPDATE:Eastern Europe Grim Econ Outlook Weighs On CDS Spreads
(Adds CDS levels, analyst comments, currency moves.)

LONDON -(Dow Jones)- Eastern Europe sovereign credit-default swaps rose again Tuesday, reflecting concerns of a deepening recession across the region.

"The toll from the ongoing credit crunch across Central and Eastern Europe, the Middle East and Africa, or CEEMEA, remains heavy," Timothy Ash, head of emerging-markets research at Royal Bank of Scotland Group PLC said.

The stream of dismal economic data releases out of the region continued Tuesday as the Czech Statistics Office, or CSU, reported that Czech retail sales fell 2.9% on the year in December, compared with an annual decline of 6.3% in November.

That, on top of a report published Tuesday by Moody's Investors Service Inc. warning that euro-zone banks with exposure to the region may be downgraded, contributes to growing evidence that the global recession has taken its hold in emerging Europe.

"Negative sentiment surrounding Central and Eastern Europe abounds...," said strategists at RBC Capital Markets in a note.

The ongoing gloom is sending sovereign credit-default swap spreads notably higher.

Hungary is among the worse performers. The country's five-year credit default swap spreads - a key measure of credit risk - widened 24 basis points to 565 basis points, according to data provider Markit.

Elsewhere, Turkey and Poland have also seen their sovereign debt insurance costs rise over 23 basis points on the day.

Spreads on Russia's five-year CDS have also moved wider, up 20 basis points on the day at 766 basis points.

Meanwhile, Romania's spread has risen to 765 basis points, as the government there considers whether to seek help from the International Monetary Fund.

CDS are tradable, over-the-counter derivatives that function like a default insurance contract for corporate debt. If a borrower defaults, the protection buyer is paid compensation by the protection seller.

Currencies in the region were also under pressure, hitting new multiyear lows Tuesday.

The Hungarian forint slipped 1% to 306.0 against the euro after dropping to a record low of 309.2 in early trading, a level some analysts predict might prompt the central bank to intervene directly in foreign-exchange markets.

The Polish zloty and Czech koruna each fell 0.9% against the euro.

"The crisis in Central and Eastern Europe is getting out of hand and investors are aggressively exiting CEE markets....Pressure on CEE markets will probably continue until either the European Union and/or the IMF intervene decisively," said strategists at Danske Bank in a note to clients.

[vector7]

Counter Point some are saying:

There is little faith in equities thus even less faith in European equities. If the S&P closes at or below 790 today with volume then get concerned.

The crisis is in a European bank (Lloyds) which is causing everyone to position their cash for a nationalization.

If I were a Euro I would be doing the same for our big banks over here. No big deal; yet.

[vector7]

Another strange coincidence is that the markets jitter when BO is about to sign that Socialist Spending bill today in Denver.

[vector7]

Mike's blog:
Mike Morgan Behind Enemy Lines

Here's some notes from one of the members of his last conference call:

Ireland will be next to go (as in the way of Iceland), probably this week. Ireland's banking system will fail completely.

Best Buy will not stay up because they aren't staying competitive. Mike said when businesses such as Macy's, Penny's, and many retailers are offering 70%, 80%, and up slashes in prices, Because Best Buy isn't doing that, they aren't staying competitive.

He said Trump 3 Trump Properties going bankrupt..again.

He said there is NO way for Chrysler to survive. They need to put Chrysler on the table, let GM and Ford slice and dice and take what they want and then let Chrysler fail.

He mentioned that the world is losing and looking to lose between 50 - 150 million jobs.

He said over and over: WE ARE HEADED TOWARD A DEEP VIOLENT DEPRESSION

He said this June the college kids getting out of college will be in the job market as well and this creates even more of a mess and unrest.

Middle class sliding into poverty.

Japan is in a crisis.

Gangs are going to rule the cities.

Coca-Cola may (probably will) get wholloped because people IF they buy soda's will be buying off brand names.

He said if you want to buy stocks, plan on holding them at least 20 years.

Anything could happen with oil...who knows.

He said Roubini and Mark Farber (spellings?) say the markets will go up to 10,500 possibly by March. He then said Roubini and Farber need to stop going to so many parties and start working so they know what's going on.

He mentioned one Food company (sorry didn't catch the name and he didn't repeat it) that is closing six plants. Puritan Pride is going into bankruptcy and Tyson is next. He said PREPARE for 3 to 5 years!!!!!!

He said there's a temporary halt on foreclosures (and Obama will make this sound good) but Mike said...for how long? And he said most of this is because the court systems are so backed up they can't get any more foreclosures on the books.

He said before they do a stress test on a bank, they need to find out if it even has a pulse.

He mentioned 5th 3rd bank to be closed in a few months, Suntrust as well, a few months.

He said there is NO hope for builders, they are going to crumble.

Internet ads (google and others) are going to go the way of the dot com days.

He said we ARE going to have a 15% to 20% drop in the markets like we say in 1987..he said "IT IS GOING TO HAPPEN"

LOL...He said if you follow Cramer...you have to be broke.

He said when it comes to the infrastructure jobs, it's NOT there, we don't have the money.

Pensions: He said the new term is PPD as in Pension Deficit Disorder..of mind boggling magnitude. He said the states (and he named many of them, New Jersey first) are billions and billions and billions of dollars in the red. HE SAID NO HEALTH BENEFITS ARE BEING FUNDED.

He again stated: There will be NO retirements.

He said Europe truly believes Obama is the messiah. He said the only wild card is what Obama may say tomorrow.

He believes we'll see, possibly soon, up to 700,000 jobs lost in a month. He believes we may see a million jobs lost in a month.

He truly believes we will be seeing riots when it warms up soon, spreading across the globe.

He said: You cannot tell a foreign market they can't foreclose (as in Obama's suggestion we will hold off on foreclosures). He again said "you cannot do that". We cannot tell foreign markets what they can do with their mortgages they bought up in those packages.

So that's it in a nut-shell. If you read through this, you'll notice most of what Mike has said, if not all, is what John's been telling us for months. Please, please listen to John. We don't have to have Mike (although he's an added fear pucker upper) to tell us all of this, and again, please listen to John. Then take what John says and do what he says, Please!

And in closing, believe it or not, Mike IS NOT a gloomer and doomer, he's NOT! So, hearing this from him makes a point to me in and of itself.

[Malsua]

Gee, wonderful. Riots.

Lay in supplies. Buy Lots Of Ammo Today!