Farmer Diaries

Well a few days ago I wrote how some of Europe's core bank could eventually face problems because of Southern Europe's bank massive bad loan holdings.  Turns out Deutsche Bank's problem are not only related to Southern bank's possible failure, but to its core activities. DB stands in a very strange place, it ressembles Mellon bank rather than Citibank, both institutions were considered "money center banks" in the early 1980s.  However, Citi had a massive retail network, Mellon bank, had Pittsburgh -- by then the dying centre of what would eventually become known as the rust belt!  For most foreigners the surprise when visiting Germany is the incredible number of retail banks -- there are hundreds across the country.  The result of this large number of independent banks is that no financial institution controls much of  the domestic deposit base.  DB's accounts for 3.5% of Germany's total deposit base (they get another 4% from Postbank -- but they ...

This is my third commentary about self driving cars, see here and here for my previous write-ups. Since then there has been several autopilot accidents, and at least one death (the driver).  Now the issues are interesting, insofar as the driver who died (and had been a well known early adopter of Tesla autopilot feature) was killed because the software could not recognize what it saw (the side of a truck).  The single most important need for generation 4 or level 4 autonomous driving (where there is no need for an operator) is that the computer needs to recognize what it sees.   Five years ago, the hardware needed to understand the real world was almost a super computer, today its a chip!  NVIDIA created a $200 chip that is actually better at recognizing the real world than humans are able to do, a major shift in the ability of machines to recognize the real world -- and adapt. An article by Chris Dixon here says about the same thing I wrote a few months a...

When Cameron (ex-UK prime minister) announced the date for a referendum on the exit of Britain from the European Union, most assumed that the likelihood of success (including the prime minister) was less than 30% -- not insignificant but also not terribly likely.  What won the Brixit was a mixture of economic lies (there will be not cost -- probably savings) and xenophobia.  The movement away from world integration has over the past 10 years gained a lot of strength.   Most "anti foreigners" don't actually know foreigners.  I come from Canada, and there was a small village near the city of Montreal that actually passed an anti-sharia law ordinance.  This made the national press (I think it was actually picked up by a number of foreign newspapers as well).  What was amazing, and was discovered several weeks later -- there was not a single muslim living in that village -- not ONE.  The people had a fear about something they had never faced.  Eq...

The markets are set to open, and we can expect a flat day!  That was true 20 years ago, when the market was traded by people -- and people go on holidays.  Today, the vast majority of trading is done by machines, and machines don't take holidays (well they do take a break when they update the algos). Big news this weekend, Trump got a bump!  He is now ahead of Clinton in the national polls -- how such a man achieves this is beyond understanding.  Did America hear his toxic message full of falsehood?  I suspect not, I suspect they don't really care because unlike the market politics goes to sleep during the summer months.  Starting today is the Democrats' turn to do their dog and pony show.  The press is agog as to whether it will be a clusterfuck as the GOP's sad affaire was last week, or if it will be borring as hell.  My guess is borring.  The Bernie supporters will vent their spleen for a day (maybe less) and will unit behind Clinton. ...

Now, I am no fan of party conventions, they are, as a whole, borring as hell.  In the case of the GOP not borring but sure close to hell.  Never mind the "faux-pas" of the the Trump family, who cares they are not running for office, but the overall tone was just short of a crazed informercial with Trump branded goods (didn't know he made wine or steaks!), but still the list of speakers was less then inspiring.  I don't know where Trump found these "winners" but my best guess is in an elevator just before the convention.  The most incredible was the vet who wanted Clinton to be shot for "Killing people in Benghazi"  or Carson on said that Clinton associated with the Devil (you know Satan, the fallen angel etc etc).  What to say about Cruz, he at least is consistent -- I still don't understand what the hell he was doing on stage on day 3 of that "clusterfuck".   Until that point it was simple incompetence, and that's OK, you exp...

This is what the China Daily wrote about the debt problem: A  People’s Daily  article published yesterday showed that China’s leadership is trying to make a grand shift in the nation’s economic policies in a bid to say goodbye to debt ­fuelled growth. In a sign of distaste for the credit-pumped growth in the past couple of months, the Communist Party mouthpiece cited an unidentified “authoritative” figure as saying that boosting growth by increasing leverage was like “growing a tree in the air” and that a high leverage ratio could lead to a financial crisis The Economist of May 7 wrote (in a massive reversal of past position): China will not be an exception to that rule. Problem loans have doubled in two years and, officially, are already 5.5% of banks’ total lending. The reality is grimmer. Roughly two-fifths of new debt is swallowed by interest on existing loans; in 2014, 16% of the 1,000 biggest Chinese firms owed more in interest than they earned before tax. Chin...

Soooo Mike Pence is the guy -- Trump has selected his VP, and he's a real conservative, anti gay anti minority anti democrat and anti women (or at least as far as their body is concerned).  Turns out that Mike Pence was for the war on Iraq -- of course it is well known that Clinton was for the war in Iraq, which according to the Donald is a reason she is unfit to be president. Turns out for Mike Pence (who took the same position) its not a problem, he is allowed to make a mistake -- Clinton not so much.  BTW if you think these were things said at separate events or separate days, you would be wrong, it was not only the same interview -- it was the same sentence; "Pence is allowed to make a mistake, Clinton is not".  Why its OK for Pence and not for Clinton -- no one thought to ask, because the Donald says about anything and its taken as gospel. Still, according to some GOP members (state senators) Clinton she be hung for her crime (of putting her email on her ser...

Its one or the other:  You broke it, now you fix it! or we made a deal where you would withdraw as contender for the Prime Minister's job in exchange for a "substantial position" in the new government! There is also that its absolutely the best place to put BJ, I mean the entire planet (I hear there are a few on Mars too that are not too keen on the man).  His job is certain to be a massive headache for him and his new team. In other news; Trump's polling is improving, and he is even ahead of Clinton in Florida -- Trumps' chance of winning in November just rose from 23% to nearly 30%... Aside from that the world is quiet, S&P500 just hit a new record -- don't know why, republicans are still screaming recession recession (but then they've been saying that since 2008, so it carries less weight now).

The problem with Hollywood's view of Wall Street and of finance in general is that everyone seem to expect the massive cliff hanger with a visual and satisfying denouement.  Reality is rarely that way. Over the past three years I have made three big prognostications: Greece would soon be out of the Euro (so far I am wrong) That European banks are in real trouble (see more below) That UK would vote to exit -- and why there are some justification (I was right, but the reason why people voted to leave had more to do with xenophobia and parochialism) Lets get back to item 2 on my list.  I said that European banks were in trouble, that they were grossly undercapitalized and that they needed to change things.  Since then, the big ones (DB, SocGen etc etc) have reduced lending (why do you think there is a stagnation in Europe) and increased capital to meet their risk capital obligations.  So what happened? Over the past 30 months DB has seen its share price go f...

First, the Italian banks are in a real pickle; Monte de Pachi (notionally the world's oldest bank) is in such dire staits that even the market is now reacting.  European bank stock prices are limit down almost every day for the following reasons: 34% of all Greek loans are bad or non-performing  Ireland 19%  17% of all Italian loans are non-performing or bad Portugal 12%.  And we haven’t seen the next serious financial crisis yet. The story of Italian, Greek, Portuguese and Spanish banks is frightening, but not entirely unexpected considering the economic pressure that these economies are facing. In Italy, 17% of banks’ loans are sour. Putting that figure in perspective that is nearly 10 times the level in the U.S. bad loans in the 2008-09 financial crisis, where the system wide bad loans was around 5%. The Italian government created a bad bank with Euro 4.5 billion in capital, but its trying to purchase nearly Euro 360 billion in bad loans from Italian...

Even a week is not enough to understand the impact that Beixit will have on the economy of that country.  As for the word at large: S&P +3.3% - best week since Oct 2014 Bullard Bounce "Most Shorted" stocks =10.1% in last 4 days - biggest squeeze since May 2009 Financials +3% - best week in 3 months 30Y Treasury yield to record low - best week in 3 months Silver +11.25% - best week since Aug 2013 Gold up 5 weeks in a row Oil +3.2% - best week in six weeks Copper +5.5% - best week in 3 months So not so bad really.  The market overreacted to a news that has still not defined what will happen next.  One thing for sure the power play in the UK is interesting -- both the Tories and Labour are looking for new leaders.  The French and German have made Europe's position very clear.  You got your referendum -- now invoke section 50 of the EU treaty, and let the games begin. What is certain is that it will not be a lot of fun to be in the UK...