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Posts Tagged ‘insolvency’

The Tidal Forces Ripping Europe Apart

Tidal forces are pulling the European Union apart. On one end, European governments have taken on debt and liabilities—both public and private—which they cannot possibly meet, rendering many of the smaller European states insolvent. On the other end, Europe is unwilling to carry out sovereign default and restructuring of debt of any one of its member nations. So as Europe gets closer and closer to the Global Depression, we are seeing as these two opposing forces—insurmountable debt vs. unwillingness to default and restructure—pull the continent apart as surely and relentlessly as tidal forces. — Gonzalo Lira

The Tidal Forces Ripping Europe Apart

Courtesy of Gonzalo Lira

In July of 1994, a comet named Shoemaker-Levy 9 crashed into Jupiter—it was quite a sight. 

According to astronomers, Shoemaker-Levy was a comet that was captured by Jupiter’s gravity twenty or thirty years before it was discovered. As the comet circled Jupiter, at one point it passed the Roche limit—the line around a large mass where its gravity will rip apart a smaller mass by way of tidal forces. 

Comet Shoemaker-Levy,
after Jupiter’s tidal forces
ripped it apart. 

By the time Shoemaker-Levy crashed into Jupiter, tidal forces had had their way with the comet. As the picture shows, it was no longer a single comet—it was a string of small lumps of rock and ice

Tidal forces are pulling the European Union apart. 

On one end, European governments have taken on debt and liabilities—both public and private—which they cannot possibly meet. These debts and liabilities are near-term enough that there is only one way to characterize many of the smaller European states: They are insolvent. 

On the other end, Europe is unwilling to carry out sovereign default of any one of its member nations. Indeed, there is a sense that—constant drumbeat of the Germans aside—Brussels is unwilling to evencontemplate the very notion of sovereign default and debt restructuring. Brussels and the European Central Bank believes in bailouts, not default, because they believe that the entire European project rests on the non-default status of all the EU members. They believe that all EU debt is backed by the entire EU, no matter how irresponsible the EU country that issued the EU debt. 

As we watch Europe get closer and closer to the Global Depression,…
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See, The Gun Is Loaded!

See, The Gun Is Loaded!

Courtesy of Karl Denninger of The Market Ticker 

No, no, not the ECB’s.

The "currency speculators" – cough - BANKS that were shorting the hell out of the Euro.

Let’s see if I can figure out what’s happened here.

  1. Banks shorted the Euro, (correctly) surmising that Greece, Portugal, Spain and others can’t possibly cover their debts.
     
  2. The ECB freaks out as the Euro heads toward PAR and calls "emergency meetings" (forgetting, I might add, that the Euro traded under PAR not that long ago.)
     
  3. The ECB and Eurozone decides to "defend" the Euro with €1t in "defensive measures", including buying bonds of bankrupt sovereigns (gee, that’s nice – monetization by another name.)  Since the ECB and EuroZone cognescenti is of course connected to the large banks in Europe (including France, where Sarkozy is located) these banks know to back off on Friday (notice the nice little uptick?) to lock in their bonuses from these insanely-profitable trades against their own currency.
     
  4. The very same banks, including the ones in Sarkozy’s back yard, see the very nice spike and short the Euro even harder, (correctly) surmising that they have successfully stuck the gun up the nose of the ECB!
An armful of gambling chips

Rinse and repeat until you have all the money.

Naw, it wouldn’t be that simple, would it?  Why of course it would.

See, lending someone money when they’re bankrupt can’t possibly make them not-bankrupt.  It can only make them more-bankrupt.  As a consequence the ECB’s action is self-destructive and doomed to fail, and as a consequence there is no reason for these banks to back off at all!  Indeed, quite to the contrary – they have (correctly) deduced that they can make billion in bonuses by shorting their own currency to destruction, forcing ever-larger "interventions" by the ECB!

If you’ve ever seen a meth addict goose himself with his drug of choice to the point where his teeth literally fall out, you know how this story ends. 

The only winning play is to refuse to play at all, and force the bankrupt to recognize their insolvency and reorganize their debts.  That’s it.  Attempting to paper over insolvency never works, and the market has now deduced this, as I expected – although I didn’t think it would happen quite this quickly.

"All in" by the ECB drew not a "ok, ok your pot!"…
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Chart of the Day: State Budget Gaps 2010

Chart of the Day: State Budget Gaps 2010

Courtesy of Edward Harrison at Credit Writedowns

This is not just about California. Come Summer 2010, the most severe gaps will be closed via budget cuts or tax increases unless the Federal Government can pull a rabbit out of the hat.

statebudgetgaps2010

Source

Policies for Increasing Economic Growth and Employment in 2010 and 2011 – CBO

See also Illinois enters a state of insolvency

 


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How the Servant Became a Predator: Finance’s Five Fatal Flaws

Here’s an excellent, must-read article by William K. Black.  Special thanks to New Deal 2.0. - Ilene

How the Servant Became a Predator: Finance’s Five Fatal Flaws

By Bill Black, Courtesy of New Deal 2.0

money-shark-150 - preditor stateRoosevelt Institute Braintruster William K. Black explains how the finance economy preys on the real economy instead of serving it. He shows how both have become dysfunctional and warns that we must not neglect the real economy — the source of our jobs, our incomes, and the creator of goods and services — as we focus on financial reform.

What exactly is the function of the financial sector in our society? Simply this: Its sole function is supplying capital efficiently to aid the real economy. The financial sector is a tool to help those that make real tools, not an end in itself. But five fatal flaws in the financial sector’s current structure have created a monster that drains the real economy, promotes fraud and corruption, threatens democracy, and causes recurrent, intensifying crises.

1. The financial sector harms the real economy.

Even when not in crisis, the financial sector harms the real economy. First, it is vastly too large. The finance sector is an intermediary — essentially a “middleman”. Like all middlemen, it should be as small as possible, while still being capable of accomplishing its mission. Otherwise it is inherently parasitical. Unfortunately, it is now vastly larger than necessary, dwarfing the real economy it is supposed to serve. Forty years ago, our real economy grew better with a financial sector that received one-twentieth as large a percentage of total profits (2%) than does the current financial sector (40%). The minimum measure of how much damage the bloated, grossly over-compensated finance sector causes to the real economy is this massive increase in the share of total national income wasted through the finance sector’s parasitism.

Second, the finance sector is worse than parasitic. In the title of his recent book, The Predator State, James Galbraith aptly names the problem. The financial sector functions as the sharp canines that the predator state uses to rend the nation. In addition to siphoning off capital for its own benefit, the finance sector misallocates the remaining capital in ways that harm the real economy in order to reward already-rich financial elites harming the nation. The facts are alarming:

• Corporate stock repurchases…
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The Real Reason the Giant, Insolvent Banks Aren’t Being Broken Up

The Real Reason the Giant, Insolvent Banks Aren’t Being Broken Up

good banks, insolvent banksCourtesy of Washington’s Blog

Why isn’t the government breaking up the giant, insolvent banks?

We Need Them To Help the Economy Recover?

Do we need the Too Big to Fails to help the economy recover?

No.

The following top economists and financial experts believe that the economy cannot recover unless the big, insolvent banks are broken up in an orderly fashion:

Others, like Nobel prize-winning economist Paul Krugman, think that the giant insolvent banks may need to be temporarily nationalized.

In addition, many top economists and financial experts, including Bank of Israel Governor Stanley Fischer – who was Ben Bernanke’s thesis adviser at MIT – say that – at the very least – the size of the financial giants should be limited.

break upEven the Bank of International Settlements – the "Central Banks’ Central Bank" – has slammed too big…
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A Stimulating Train Wreck

stimulating train wreckOne of my favorite outfits is Sprott Asset Management, located in Toronto Canada, because their analyses tend to be quite data-rich and "reality-based" as well.

In this excellent, short-and-sweet report, the case is made that a 3.5% boost to GDP from government stimulus spending alone will hit in the third quarter of 2009.

This means that whatever reading is turned in, you should mentally subtract 3.5% from it, because "growth" resulting from government deficit spending is not real growth at all, it is merely consumption borrowed from the future.

Are you stimulated yet? We hope you are, because we’ve just witnessed the largest economic stimulus in the history of the world. Never before have so many government dollars been thrown at the economy to prevent a depression. When added together, the combined financial, monetary and fiscal stimuli in the US are more than the cost of the two World Wars and “The New Deal” combined.

Stimulus spending worldwide has taken the form of a combination of tax cuts, transfer payments (free money) and infrastructure investments on roads, schools, railroads etc. In the US, the financial and stimulus contributions have been especially impressive in scale.

According to CNN’s bailout tracker, the various US government departments have committed to stimuli worth $11 trillion dollars and have issued cheques totaling $2.8 trillion dollars thus far in 2009.

Neil Barofsky, the Special Investigator General for the TARP program, has estimated that the total cost to the US taxpayer could be as high as $23 trillion.

The vast majority of this stimulus has been directed at the financial sector – a complete waste of money in our opinion, supporting a segment of the economy that never deserved to be bailed out.

Nonetheless, the US taxpayer has spent massive sums, committed to promises worth even more and may ultimately owe debt in the double-digit trillions when all is said and done. Nice of them to spend so generously, wouldn’t you say?

Although the stimulus has been fantastic for the stock market, it has generated very little benefit for “Main Street”. To make matters worse, the effects of the stimulus packages have already started to wear off.

To explain why, we must mention the American Recovery and Reinvestment


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Zero Hedge

The Doom Boom: US Families Increasingly Prepared For "Modern Day Apocalypse"

Courtesy of ZeroHedge. View original post here.

Submitted by Tyler Durden.

From the outside America may seem to be a land of endless optimism and confidence. But, as Sky News reports, an increasing number of Americans seem to think it is danger of falling apart, and they're preparing for the end. "We're not talking about folks walking around wearing tin foil on their heads,; we're not talking about conspiracy theorists. I'm talking about professionals: doctors and lawyers and law enforcement and military. Normal, everyday people. They can't necessarily put their finger on it. But there's something about the uncertainty of our times. The...



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Phil's Favorites

Jaguar Inflation - A Layman's Explanation of Government Intervention

Jaguar Inflation - A Layman's Explanation of Government Intervention

By Elliott Wave International

I am tired of hearing people insist that the Fed can expand credit all it wants. Sometimes an analogy clarifies a subject, so let's try one.

It may sound crazy, but suppose the government were to decide that the health of the nation depends upon producing Jaguar automobiles and providing them to as many people as possible. To facilitate that goal, it begins operating Jaguar plants all over the country, subsidizing production with tax money. To...



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All About Trends

Mid-Day Update

Reminder: David is available to chat with Members, comments are found below each post.

Click here for the full report.




To learn more, sign up for David's free newsletter and receive the free report from All About Trends - "How To Outperform 90% Of Wall Street With Just $500 A Week." Tell David PSW sent you. - Ilene...

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OpTrader

Swing trading portfolio - week of December 22nd, 2014

Reminder: OpTrader is available to chat with Members, comments are found below each post.

 

This post is for all our live virtual trade ideas and daily comments. Please click on "comments" below to follow our live discussion. All of our current  trades are listed in the spreadsheet below, with entry price (1/2 in and All in), and exit prices (1/3 out, 2/3 out, and All out).

We also indicate our stop, which is most of the time the "5 day moving average". All trades, unless indicated, are front-month ATM options. 

Please feel free to participate in the discussion and ask any questions you might have about this virtual portfolio, by clicking on the "comments" link right below.

To learn more about the swing trading virtual portfolio (strategy, performance, FAQ, etc.), please click here ...



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Chart School

Have a Great Christmas and New Year! Small Caps - It's Over To You....

Courtesy of Declan.

I will be keeping posts to a minimum until the New Year. Friday finished with a bit of a high volume flourish, which added a nice gloss to Thursday's big gains.

The Russell 2000 managed to go one step further with a breakout. Watch this index over the coming days; if it can hold the move it will bring other indices with it. The Russell 2000 has under-performed (relatively) all year, and if bulls are to maintain a broader market rally into a sixth year then the Russell 2000 will have to do most of the leg work. As an important side note, the Russell 2000 turned net bullish technically. The flip-side is to watch for a 'bull trap', but even here, this might instead widen the recent trading range handle as major resistance lives at 1,210/15 not at 1,190.

...

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Pharmboy

2015 - Biotech Fever

Reminder: Pharmboy is available to chat with Members, comments are found below each post.

PSW Members - well, what a year for biotechs!   The Biotech Index (IBB) is up a whopping 40%, beating the S&P hands down!  The healthcare sector has had a number of high flying IPOs, and beat the Tech Sector in total nubmer of IPOs in the past 12 months.  What could go wrong?

Phil has given his Secret Santa Inflation Hedges for 2015, and since I have been trying to keep my head above water between work, PSW, and baseball with my boys...it is time that something is put together for PSW on biotechs in 2015.

Cancer and fibrosis remain two of the hottest areas for VC backed biotechs to invest their monies.  A number of companies have gone IPO which have drugs/technologies that fight cancer, includin...



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Digital Currencies

Chart o' the Day: Don't "Invest" in Stupid Sh*t

Joshua commented on the QZ article I posted a couple days ago and perfectly summarized the take-home message into an Investing Lesson. 

Chart o’ the Day: Don’t “Invest” in Stupid Sh*t

Courtesy of 

The chart above comes from Matt Phillips at Quartz and is a good reminder of why you shouldn’t invest in s...



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Sabrient

Sector Detector: Energy sector rains on bulls' parade, but skies may clear soon

Reminder: Sabrient is available to chat with Members, comments are found below each post.

Courtesy of Scott Martindale of Sabrient Systems and Gradient Analytics

Stocks have needed a reason to take a breather and pull back in this long-standing ultra-bullish climate, with strong economic data and seasonality providing impressive tailwinds -- and plummeting oil prices certainly have given it to them. But this minor pullback was fully expected and indeed desirable for market health. The future remains bright for the U.S. economy and corporate profits despite the collapse in oil, and now the overbought technical condition has been relieved. While most sectors are gathering fundamental support and our sector rotation model remains bullish, the Energy sector looks fundamentally weak and continues to ran...



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Stock World Weekly

Stock World Weekly

Newsletter writers are available to chat with Members regarding topics presented in SWW, comments are found below each post.

Here's this week's Stock World Weekly.

Click here and sign in with your user name and password. 

 

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Option Review

SPX Call Spread Eyes Fresh Record Highs By Year End

Stocks got off to a rocky start on the first trading day in December, with the S&P 500 Index slipping just below 2050 on Monday. Based on one large bullish SPX options trade executed on Wednesday, however, such price action is not likely to break the trend of strong gains observed in the benchmark index since mid-October. It looks like one options market participant purchased 25,000 of the 31Dec’14 2105/2115 call spreads at a net premium of $2.70 each. The trade cost $6.75mm to put on, and represents the maximum potential loss on the position should the 2105 calls expire worthless at the end of December. The call spread could reap profits of as much as $7.30 per spread, or $18.25mm, in the event that the SPX ends the year above 2115. The index would need to rally 2.0% over the current level...



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Market Shadows

Official Moves in the Market Shadows' Virtual Portfolio

By Ilene 

I officially bought 250 shares of EZCH at $18.76 and sold 300 shares of IGT at $17.09 in Market Shadows' Virtual Portfolio yesterday (Fri. 11-21).

Click here for Thursday's post where I was thinking about buying EZCH. After further reading, I decided to add it to the virtual portfolio and to sell IGT and several other stocks, which we'll be saying goodbye to next week.

Notes

1. th...



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Help One Of Our Own PSW Members

"Hello PSW Members –

This is a non-trading topic, but I wanted to post it during trading hours so as many eyes can see it as possible.  Feel free to contact me directly at jennifersurovy@yahoo.com with any questions.

Last fall there was some discussion on the PSW board regarding setting up a YouCaring donation page for a PSW member, Shadowfax. Since then, we have been looking into ways to help get him additional medical services and to pay down his medical debts.  After following those leads, we are ready to move ahead with the YouCaring site. (Link is posted below.)  Any help you can give will be greatly appreciated; not only to help aid in his medical bill debt, but to also show what a great community this group is.

http://www.youcaring.com/medical-fundraiser/help-get-shadowfax-out-from-the-darkness-of-medical-bills-/126743

Thank you for you time!




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