Two years in and they are only starting
now? What took them
so long. Also, absolutely nothing new here, but merely the latest attempt to
shift public opinion and EUR viability perceptions ever so slightly by one of
Germany's most respect magazines. Those whose agenda it is to spook Germany with
images of fire, brimstone, and 3-page mutual assured destruction termsheets if
the Euro implodes, are now free to take the podium. One wonders: if it wasn't
for the inevitable collapse of the EUR.... the inevitable collapse of the
EUR.... the inevitable collapse of the EUR.... the inevitable collapse of the
EUR, and of course Paul Ryan, would there be absolutely no news today?
From Spiegel:
Investors Prepare for Euro Collapse
Banks, investors and companies are bracing themselves for the possibility
that the euro will break up -- and are thus increasing the likelihood that
precisely this will happen.
There is increasing anxiety, particularly because politicians have not
managed to solve the problems. Despite all their efforts, the situation in
Greece appears hopeless. Spain is in trouble and, to make matters worse,
Germany's Constitutional Court will decide in September whether the European
Stability Mechanism (ESM) is even compatible with the German constitution.
There's a growing sense of resentment in both lending and borrowing countries
-- and in the nations that could soon join their ranks. German politicians such
as Bavarian Finance Minister Markus Söder of the conservative Christian Social
Union (CSU) are openly calling for Greece to be thrown out of the euro zone.
Meanwhile the the leader of Germany's opposition center-left Social Democrats
(SPD), Sigmar Gabriel, is urging the euro countries to share liability for the
debts.
On the financial markets, the political wrangling over the right way to
resolve the crisis has accomplished primarily one thing: it has fueled fears of
a collapse of the euro.
. . .
Banks are particularly worried. "Banks and companies are starting to finance
their operations locally," says Thomas Mayer who until recently was the chief
economist at Deutsche Bank, which, along with other financial institutions, has
been reducing its risks in crisis-ridden countries for months now. The flow of
money across borders has dried up because the banks are afraid of suffering
losses.
According to the ECB, cross-border lending among euro-zone banks is steadily
declining, especially since the summer of 2011. In June, these interbank
transactions reached their lowest level since the outbreak of the financial
crisis in 2007.
In addition to scaling back their loans to companies and financial
institutions in other European countries, banks are even severing connections to
their own subsidiaries abroad. Germany's Commerzbank and Deutsche Bank
apparently prefer to see their branches in Spain and Italy tap into ECB funds,
rather than finance them themselves. At the same time, these banks are parking
excess capital reserves at the central bank. They are preparing themselves for
the eventuality that southern European countries will reintroduce their national
currencies and drastically devalue them.
"Even the watchdogs don't like to see banks take cross-border risks, although
in an absurd way this runs contrary to the concept of the monetary union," says
Mayer.
* * *
Unicredit is an ideal example of how banks are turning back the clocks in
Europe: The bank, which always prided itself as a truly pan-European
institution, now grants many liberties to its regional subsidiaries, while
benefiting less from the actual advantages of a European bank. High-ranking bank
managers admit that, if push came to shove, this would make it possible to
quickly sell off individual parts of the financial group.
In effect, the bankers are sketching predetermined breaking points on the
European map. "Since private capital is no longer flowing, the central bankers
are stepping into the breach," explains Mayer. The economist goes on to explain
that the risk of a breakup has been transferred to taxpayers. "Over the long
term, the monetary union can't be maintained without private investors," he
argues, "because it would only be artificially kept alive."
The fear of a collapse is not limited to banks. Early last week, Shell
startled the markets. "There's been a shift in our willingness to take credit
risk in Europe," said CFO Simon Henry.
* * *
One person who has long expected the euro to break up is Philipp Vorndran,
50, chief strategist at Flossbach von Storch, a company that deals in asset
management. Vorndran's signature mustache may be somewhat out of step with the
times, but his views aren't. "On the financial markets, the euro experiment is
increasingly viewed as a failure," says the investment strategist, who once
studied under euro architect Issing and now shares his skepticism. For the past
three years, Vorndran has been preparing his clients for major changes in the
composition of the monetary union.
They are now primarily investing their money in tangible assets such as real
estate. The stock market rally of the past weeks can also be explained by this
flight of capital into real assets. After a long decline in the number of
private investors, the German Equities Institute (DAI) has registered a
significant rise in the number of shareholders in Germany.
Particularly large amounts of money have recently flowed into German
sovereign bonds, although with short maturity periods they now generate no
interest whatsoever. "The low interest rates for German government bonds reflect
the fear that the euro will break apart," says interest-rate expert Burkert.
Investors are searching for a safe haven. "At the same time, they are
speculating that these bonds would gain value if the euro were actually to break
apart."
The most radical option to protect oneself against a collapse of the euro is
to completely withdraw from the monetary zone. The current trend doesn't yet
amount to a large-scale capital flight from the euro zone. In May, (the ECB does
not publish more current figures) more direct investments and securities
investments actually flowed into Europe than out again. Nonetheless, this fell
far short of balancing out the capital outflows during the troubled winter
quarters, which amounted to over €140 billion.
"We notice that it's becoming increasingly difficult to sell Asians and
Americans on investments in Europe," says asset manager Vorndran, although the
US, Japan and the UK have massive debt problems and "are all lying in the same
hospital ward," as he puts it. "But it's still better to invest in a weak
currency than in one whose structure is jeopardized."
* * *
investors are increasingly speculating directly against the euro. The amount
of open financial betting against the common currency -- known as short
positioning -- has rapidly risen over the past 12 months. When ECB President
Mario Draghi said three weeks ago that there was no point in wagering against
the euro, anti-euro warriors grew a bit more anxious.
One of these warriors is John Paulson. The hedge fund manager once made
billions by betting on a collapse of the American real estate market. Not
surprisingly, the financial world sat up and took notice when Paulson, who is
now widely despised in America as a crisis profiteer, announced in the spring
that he would bet on a collapse of the euro.
Paulson is not the only one. Investor legend George Soros, who no longer
personally manages his Quantum Funds, said in an interview in April that -- if
he were still active -- he would bet against the euro if Europe's politicians
failed to adopt a new course. The investor war against the common currency is
particularly delicate because it's additionally fueled by major investors from
the euro zone. German insurers and managers of large family fortunes have
reportedly invested with Paulson and other hedge funds. "They're sawing at the
limb that they're sitting on," says an insider.
So far, the wager by the
hedge funds has not paid off, and Paulson recently suffered major losses.
* * *
And so on - more
here
What is ironic is that the worse Europe gets, and the greater the threat of
redenomination risk which has yet to be address properly by the ECB, the higher
the S&P will go regardless of any macro, micro data, or even broad liquidity
injection expectations, simply because as equity capital flows out of Europe,
since it seeks equity-like returns, it will merely end up in US equities, not
bonds or gold, where it will merely marinate until another Europe emigrating
"greater fool" is found
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