Friday, February 1, 2013

One week is a long time!

Is this normal ship noise or are we sinking?

I wake up this morning and realize that things are going south (in a modest way).  In Europe, the Spanish banks admitted further substantial losses on their real estate portfolios (write down is up to 40%) -- with the central bank stating that the banks will need more tier one capital (that's the expensive stuff), a Dutch bank was taken over by the government -- shareholders will be wiped out, depositors guaranteed to Euro 100k.

In 'merica unemployment numbers are not good, and consumer sentiments are negative (while the market sentiment is positive -- go figure).  The SEC is getting tough on banks, turns out a small American bank didn't follow Fannie Mae's guidelines, and that criminal prosecution will be certain to be filed, this is the best bit, the bank with $250 MM in assets (no typo here) arranged some asset back loans -- investors are not exactly complaining, the portfolio has a default rate of 0.5% (the usual default rate is near 5%).  Its like the joke about the IRS, we go after the poor and the weak because they cannot fight back!  It seems that the SEC is following the same principle; go after the minuscule banks because they don't have armies of lawyers and friends in the administration -- what a croc!

In China things are slowing (again) despite the massive pump priming.  Few saw the massive $460 billion rollover of local government loans as anything nefarious  but the reason for rolling these things over is that the local governments just don't have any spare cash to repay these loans -- no one knows how much of the 6% interest due was rollover too.  It is well know that local government finance in China are troubled -- their only source of revenues is land sales -- and with the slow down in real estate there is no revenues (and real expenses).

Up here in Canada economic things are quiet GDP growth is still there (November was up 0.3%) giving an annualized rate of 3.6% (simple -- and wrong extrapolation).  but price (of services) are down in Canada (which is good and bad), bad because at 60% of the economy services are important and the government has a 2% inflation target, and good because things are cheaper....


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