AGXIIK: Coming Banking System Fire Sale & Blood Baths Will Be EPIC!

Austria’s Hypo Alpo has taken down 3 small banks in Austria and Germany that were leveraged to 98.5% of their capital.  200 million Euro losses killed these extremely leveraged banks. Small losses kill small banks.  Large losses kill large banks. There are plenty of large losses in the wings; trillions in fact.
The first horse out of the barn gets scorched least. The fire sale and blood baths will be epic.
The largest ships are leaking from many holes in their hull  It’s not a matter of them sinking; it’s how the passengers expire.   The few will climb on top of the many before all drown.
Life boats are lacking; most already filled with those prudent enough to get off before the ship sinks.
Silver life boats are in order. Got yours?

 

Submitted by AGXIIK:

fire

The Doc’s recent podcast with Fund Manager Dave Kranzler on the derivatives melt-down that has begun behind the scenes brought a significant amount of intelligence and details into the forefront of critical viewing and made it understandable for the layman.  Dave’s observations of the Reverse repos, housing market and equity indicators wraps a good bow around the shaken and weakening nature of all markets, which are nothing more that interventions staving off failure in many sectors.  This podcast got me to thinking about the primary  weak points of the derivatives, particularly the CDS as well as a few other items of note.
Three hat tips to Doc, Eric and Dave for tying the bow in these extremely important themes.

Austria’s Hypo Alpo has taken down 3 small banks in Austria and Germany that were leveraged to 98.5% of their capital.  200 million Euro losses killed these extremely leveraged banks. Small losses kill small banks.  Large losses kill large banks. There are plenty of large losses in the wings; trillions in fact.

Bankers are transnational traders today, eschewing traditional banking, rooting and grubbing in various locations around the world, seeking profits wherever they might be found. The Panic of 1907 and Sovereign Debt Default of 1931 appear to have similar qualities to what we see today. Very hard down signals hiding for the time being behind trillion Euro, Yen and Dollar stop gaps that do little but plug a few cracks in the dam.

The Austrian state of Carpathia guaranteed the bad debt of Hypo Alpo Bank, tipping the scales at roughly 9 billion Euros as analysts found this value had vaporized virtually overnight.
Calling Jon Corzine.
Dont bother, he’s starting a hedge fund. Line up the fools and see their money part company.
This state’s entire budget is only 2.7 billion Euros so Carpathia’s asking for a bail out. Bail-in is more likely.  This is symptomatic of central banks and entire countries being one middling-sized margin call from complete bankrutpcy.  There’s not enough collateral to bail out any of these situations so the only resolutions are outright bankruptcy or bail ins. There will be a combination of both. Some will be consigned to the trash bin and others saved at the depositor’s expense. Every man and banker for himself.

If the Greeks got to their alternate currency, a Drachma-based IOU, they can tell Draghi Drac-IOU. Or maybe Drac-You. That will be a phyrric victory however.
The largest ships are leaking from many holes in their hull  It’s not a matter of them sinking; it’s how the passengers expire.   The few will climb on top of the many before all drown.  Life boats are lacking; most already filled with those prudent enough to get off before the ship sinks. Silver life boats are in order. Got yours?

On a side note, the IMF just used a 3 billion tranche of Euro SDRs to fund the Western Ukraine a couple of months back. The SDR was then used for energy payments to Gazprom It’s telling that an SDR was used AND accepted.

The note that reverse repos are escalating in size and frequency indicates that the banks consider cash is a liability, to the extent they want treasuries and other good paper collateral, those being the best things available to meet margin calls. I didn’t even have good handle what a reverse repo was, much less how it signalled danger, until this podcast. This was a large dot connection.
Reverse repos? This could be seen as similar to the stacker divesting himself of cash to buy precious metals, knowing they have no counterparty risk, whereas bank accounts could be bailed in, frozen or otherwise unavailable. Bank accounts are counterparty Risk Magnets.
I recall the 2008-2009 credit lockdown after the Lehman failure. It almost destroyed my company. You tend to remember those things when lending shuts down for nearly 9 months. Banks that survived did so by consuming trillions in cash infusions from the Fed and treasury under TARP I and II.
TARP. Toxic Asset Repurchase Program.
The bankers then did what bankers always do. They hoarded this capital in their vaults instead of making it available to businesses and consumers. We’ve seen at least a $57 trillion in new debt since 2009 yet these funds are not being worked into the world economies to help build these countries and businesses back to prosperity. These funds are Death Stars being funnelled into any number of malinvestments, rotated back into the purchase of government and bank bonds, rinsing and repeating a cycle that does nothing to help the economy.
Assuming I was a top banker in this situation, I’d be frantically seeking good collateral.

If it meant depleting my capital; reducing cash, so be it. No wonder bankers are so dead set against cash nowadays. It’s just a dead asset to me, the banker, costing my bank millions just to store the FIAT. I’d want to hoard as much in good quality collateral as I could find.  Hoarding is prudent in times of scarcity.
One large Swiss bank prefers to not accept cash, but if it does, it rids itself of the cash but will not return the cash to its largest depositors, the same people and pension funds who want to store cash instead of being forced to accept NIRP rates of as much as 1% on their sight accounts. Cash stored is not subject to NIRP depletion. Large digits deposits are vaporized by NIRP. The pension funds cannot get a return in their investments but see hard cash as safe from NIRP.
All these meetings in the last few months, with central and TBTF banks huddling in secret rooms, discussing matters in secret, are probably done to review the dire situation they face. They all know they’re in the same boat, facing the same margin calls and loan failures. Flush with capital and no place to go, they are NIRPing their clients to a slow death. They’re all sitting around like wolves, looking for fresh blood. NIRP is just the transfusion they need. If you can’t lie to and cheat your customers at least you can steal from them.
Like all nations, where the only real interests are the national interests, these bankers are no doubt going back to their offices, eagerly and frantically discussing how they’re going to save THEIR bank and only their bank. Screw the rest of the bankers. The shut down of liquidity and capital flows just about killed these banks in 2008-2009. They’re not going to repeat this error; they know they’re on their own, living on borrowed time so to speak. They also know that their cohorts will be doing the same thing. Just like the movie, Too Big Too Fail, they are selling their junk and going to good assets, with every button pushing monkey at the trading desk promised 7 figure bonuses if they dump the junk in time.

Eagle
How do they save their bank?
Reduce lending and loan exposure. (GE just sold its financing division)
Sell questionable assets like leveraged real estate (GE is selling their commercial real estate division as 6,000 large retailers close their doors).
Gather as much good collateral for the inevitable rainy day coming their way (central and TBTF banks are buying hundreds of tons of gold and hundreds of millions of ounces of silver). According to some, it’s reported that the JPM silver hoard is well over 50,000,000 ounces. Bankers using the reverse repo market will hoard good collateral while the getting is good, knowing margin calls will come.
I’m speculating at some of this, but as a former banker I know human nature extends to the top echelons of banking. GE is a banker by any other name. Their action is telling.

Those two sales should net $115 billion once completed, including $90 billion for GE Capital itself. That’s some serious cash. GE is buying back it’s own stock by the millions of shares; paying as much as $50 billion in dividends to shareholders. GE is buying GOOD assets, like their own stock. How good and for how long is unknown but GE is tremendously effective survivor corporation, politically connected at the highest level and with deep pockets.
Know this; they got the Go Signal from on high that the crap will hit the fan soon. No one sells the family crown jewel like the GE capital division unless things are going down soon. Warren Buffet is lightening up on his financial assets, hoarding tens of billions of dry powder aside for a series of well timed buys. Immelt and Buffet will be given the Go Signal from on high when the time is right to back up the truck.
Who knows, maybe Warren will buy some silver. NOT!
Watch for more divestitures of key assets, sold to private equity funds and other buyers who are seeking returns, not realizing that the division sold is likely as toxic as Fukushima. Smart money sells first. Dumb Money buys last.
Who knows the level of derivative exposure embedded in the GE loan portfolio. Wait until the huge real estate malls and other complexes go into default due to the incoming recession/depression. Big box retailers are closing shop. Big chunks of vacant square footage are showing up in even the best locales. GE sees that coming too. If your bank’s both lending to the commercial real estate sector AND holding billions of real estate assets in the same sector, the weakness of these deals shows up in the lending sector first. GE capital is shown the door first, then the real estate division. Smart move IMO. When the lending community cannot find viable deals it’s time to close up shop.

This won’t stop the crash. It might even help precipitate the crash, but like any prudent prepper or stacker, they know that  good assets will get them through times of no cash and derivatives better than cash and derivatives will get them through times of no good assets.
We know that the bankers read alternative news sites like Silver Doctors, The News Doctors, Kransler. Many others are daily reads for these people. They probably even read Zero Hedge. They’re not omniscient, but they’re not the only intelligent critters on the planet.

They cull data and sift through the thinking of other possibly wiser heads to see what alternative means of survival present themselves. The alternative news channels are nothing if not preparation-oriented. It’s way past time to figure the ‘IF’ of coming troubles. That ship sailed years ago. It’s the “WHEN” and how bad it’ll be that should concern all of us. Good assets are like stout life boats. You never know when you’ll need one.
While they read our own musings in the form of tea leaf prognostications and best guesses, they pay serious money to trolls and shills to spread disinfo about precious metals, all the while making their stategic purchases, going into bunker mode and circling the wagons. If what we are saying had no value, why would they pay people to help devalue these sites? Better to spread caltrops in front of the masses than have them catch the fleeing banker hordes.

What do they have to lose?
Everything, if they don’t act quickly.

As for the trolls? They’ll be discarded as flotsam in the flood, just a bit more collateral damage, like the two innocents killed in the POTUS drone strike of last week. We’re also being set up. We’re hostages to the system. The best way to not become a hostage is to avoid the danger zone and harm’s way. The best way to escape the state of hostageship is being well prepared and well armed.
But y’all knew that already. Right?

I wondered about China becoming part of the IMF basket.  A basket case invited to be part of the basket?   China is a trainwreck looking for a weak bridge. China’s problems are so profound they’d be good grist for a standup comedy act at the next FOMC meeting. The script writes itself.
“Take my wife, please, I don’t get no respect’
‘One from column A, one from column B and with 3, you get a dimsum bonds’
‘Draghi, Yellen and LeGard walked into the SDR Bar and Grill’.
The barkeep shouts out. “Hey you bums, we only takes gold in dis here establishment’
Chinese electical use shows zero growth, maybe even negative trends. Their railroad traffic is near zero growth as well. The real and positive lending indicators are bingo on gas. Bad loans are just an RCH* from total failure.  Key economic indicators are moving to negative and red signals abound. Their banking system is almost as weak as Greece. They have no place to go except a multi trillion yuan QE to keep the wheels on as the economy grinds to a halt. QE will come. You can be sure of that. Within 2 weeks; not more that a month.
As China goes, so goes the world and vice versa.
As the little engine that could, relied upon to make a good part of the world’s GDP feasible, if the world or China goes into a recession due to a major financial collapse or the Chinese economy goes TU due to their own financial failures, whither goes good collateral in this event? Whither is right; like on the vine.
Oil is down 50%, precipitating huge losses in the oil backed loans. The CDS losses on those tranches has to be in the hundreds of billions to trillions. Many bond values are in a position of total collapse. Over 1/3 of all G20 nations bonds are negative interest rates out to ten years.
WTF. Are they crazy?
No, they’re trying to stave off the inevitable. It’s a sane and rational expedient in an world of insane bankers, filled with sociopaths and propeller heads who know the jig is up. They don’t know they’re dead men walking yet. That time will come soon enought. This is the only reason these bonds are still valued at 100%. “I agree to honor your bonds if you agree to honor mine.” Wink Wink.
It’s kind of like old saying “The check is in the mail’ Only this time the bankers are writing checks they probably can’t cash unless their friends across the sea agree to honor this Bouncing Betty paper. When the major banks start refusing their fellow bankers paper, the system dies.
These people think ZIRP and NIRP to the horizon is the solution. In reality this is the Dead Banker Liars Club. Everyone says they have a full house when all they got is a lousy pair of threes. The reality of the situation is these bankers are full of crap. Jim Willie pointed this out 2 years ago and all those predictions are coming to pass. One thing that massive swaths of ZIRP cash does is extend the lifespans of insolvent failing businesses and banks. Infusions of free money, like FIAT heroin, keep the junkie higher than a kite for a lot longer than one could imagine. That inevitable uptick in rates will force a gigantic global debt cold turkey. This reminds me of the scene in the movie Scarface, when Tony Montana sticks his face in a 2 foot high pile of blow then shoots his RPG through the door.
Riddle me this.
How do you price a NIRP bund? I’d sooner try to day trade a dose of the clap than figure the market value of NIRP to Infinity bonds in these markets
If rates go up even 1.5-2%, the values of these bonds will crash. The 200 year running average for 10 yr USTs was 5%. Today 5% is junk bond level. Do NIRP bonds signal a AAA rating? Hell no! It signals a sucker bet; a sure loser in anyone’s poker hand. The weaker country bonds are down 30-75%, ala Greece, Argentina, Venezuela, Ukraine and other credit deficient countries. Most are rated junk or worse.

They’re of no value as collateral and present nothing but a 80% plus potential for 100% write off as a failed bond charged off in bankruptcy despite rates of 30% or higher. I see multi country bankruptcies as a result of these countries perilous conditions. Almost every bond out there is sub prime to junk. When your sovereign bonds are secured by a farm yard full of 60 year old Citroen Deax Cheveuxs, collateral calls are going to be veeery interesting

The equity markets are insane, lousy with funny munny, reminding me of the Y2K Greenspan Put that flooded the markets with cash to protect us when 2000 rolled around. Nothing happened in Y2K, but trillions in liquidity flooding the stock markets, jerking JoJo the Dog Faced Sock Puppet-valued NASDAQ to 5,000, which then crashed to 1700 a year or so later. SNB’s balance sheet shows 100 billion Euros of equities. This is 15% of the Swiss GDP.
The crash in equities will absolutely happen again when the stock market gets its cold water shower, dropping by 50% or more. NASDAQ just hit the silly level of 5000 again: Warning, Will Robinson!. Half the world equity market, around $30 trillion, is owned central banks. Toughski shitski. That will end really badly. No central bank will survive that crash. That multi trillion dollar margin call will tank the market like a MOAB dropped smack in the middle of the BIS bi-monthly meeting. I’d pay a dollar to see that. What will happen to the CB balance sheets when the equities drop by 50% or more?
The gold and silver prices crashed in 2008, a result of collateral calls, liquidations of all asset classes, an ‘all in’ desperate attempt to crush the prices so that We, The people would not realize that ALL Markets were going into the crapper. That action was symptomatic of a powerful group of bankers and traders who knew the game was up, trying desperately to save the system or, at minimum, staving off the day of reckoning.

That all failed in 2008. Lehman was the cherry on top of the worldwide roadapple bustup of Bear Sterns, Merril Lynch, Freddie, Fanny, Wachovia, Wamu, Ally and few other SIFIs that went tits up before Sept 11, 2008. $20-30 trillion in subprime paper went to zero, crushing foreign investors and pension funds, forcing the Fed print of $25 trillion indirect currency swaps used to bail out the entire world.

How do you say your sorry to the world when $30 trillion in life savings goes up in smoke. Nothing says love like Helicopter Ben showering you with FIAT. Well, I’ll tell you what, Slick, that ain’t happening again. G 5 Janet’s got the engines warming and the wheels ready to raise. It’s not gonna to be another cargo cult cash drops to save the world. If you think the Fed will ride to the rescue, ask Custer how that worked out.
We’ve yet to see a major bank fail. But when one SIFI goes under, that’s the global red warning light that the dominoes are starting to fall. Pay heed to this signal event. Eurozone first, then Japan and maybe China, then US. It could take 2 weeks, 2 days or two hours but DAMN, it’ll be a pucker factor so off the scale it’ll make the pederast in Pelican Bay Super Max look like a sissy boy.
It’s clear that there are a a couple of dozen SIFIs in the Euro zone, ALL ALL Japanese banks, many Chinese, a few US banks plus a score of smaller central banks that are ready to fail, needing only one implosion in a smaller, seemingly insignicant country, (Austria comes to mind) and the whole roof comes down.

If banks consider using equities as collateral because their good collateral is in short supply then I pity the fool that takes something that’ll go down 50% at a minimum and calls it a quality asset.
If there is a race for liquidity, all asset classes are going to be dumped. That’ll include land, homes, precious metals and securities of all sorts. Now you know why GE is selling. Now is good. Later is bad. The first horse out of the barn gets scorched least. The fire sale and blood baths will be epic.
As old What’s-His-Name, Baron Rothschild said, ‘Buy when there’s blood in the streets’ ‘Buy for pennies on the dollar’ Maybe he’ll burned in this next big cock-up but I’d bet he’s the one pushing the wheel, looking for a cliff.
As for the Fed and Yellen, I kind of feel sorry for that silly old twit. Bernanke cut and ran before the crunch and she’s holding the bag. He got his $100,000,000 a year paycheck at Citadel. Good name for his redoubt. He’ll need it. PIMPCO gave him a nice sinecure just the other day.
There’ll be NO indication of rate increases at next week’s FOMC. No way Jose. No chance there. Not even a hint. Janet will be mute as the sphinquex, quiet as a mouse peeing on a cotton ball. Any rate increase will crush the market. Any rate increase will crush bond values by an ungodly amount, if for no other reason that the first rate increase will not be the last. There are usually 3 increases; 3 jumps and a stumble is an old stock market saying.
BTW My article under AGXIIK, posted on Silver Doctors on November 26 2013, predicted that China has a 20,000 metric ton gold hoard.
I think it was a pretty good call. The guess was predicated on some correct assumptions and some that are proving incorrect. But I’ll still stick with 20,000 tons. Alasdair agrees

The ALGO distress flares in the air are a huge tell, one of many that says the system is under enormous stress and cannot hold together much longer. Gold and silver could easily be hammered down 15-25% for 3 reasons.
1. The Powers That Be want it crushed so it will be crushed.
2. It’ll be another tell but concealed for all but the precious metals educated class, disguised in the welter of bad news, set up so that we don’t see the upcoming devastation in time to avoid the worst that could befall us. A PM crash with GTSR ratio shooting to 90 to 1 or higher will be a clear indicator that the crap is about to hit the fan.
3. TPTB want to buy it on the cheap. There’ll be many sellers, weak hands, seeking liquidity for margin calls, particularly those calls made against the smaller players, individuals and companies that need cash fast. The prices will drop like a rock: Many will sell just to meet expenses. And those who know this coming will scoop up PMs in a BOGO-festival.
A commodity that floods the market is not a Giffin Good in times of great stress. It’s just a means to get liquid and survive, no matter what the cost to the seller. The Giffin Good aspect of precious metal prices will reassert itself on the other side of the crash, much like the $49 silver price Rhino Horned in early 2011, up from $8 in 2008.

Buyers take note— dry powder may be in order soon enough.

*RCH Red Chinese Haircut. And you thought it was something else.