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Old 11-24-2018, 05:06 AM
Danny B Danny B is online now
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Join Date: Oct 2012
Location: L.A. Ca.
Posts: 4,840
Italy is PAST the point of no return,,, margin debt,,, fallen angles

China is going for all "stick" and, NO carrot.
11/23 China ‘social credit’ system blacklists millions from flights – Independent

"European banks have accumulated about $1.2 trillion in bad and non-performing loans (NPLs) that have continued weighing down heavily on their balance sheets. Italian banks are sitting on the biggest pile of bad debt: €224.2B ($255.9B), with NPLs and advances making up nearly a quarter of all loans."
"The sharks can already smell the blood in the water, and investors have been shorting Italian banking stocks to death. Italian banks hold nearly a fifth of the country’s government bonds."
Every time that the Italians harden their stance, more people will short Italian debt and banks. Salvini HAD to have known about the shorting sharks. He invited them to the table. I suspect that he wanted to bring Italy to the point of no return without being too overt about it. If 1/4 of all loans are technically non-performing, I believe that momentum will carry Italy off the cliff regardless of what the ECB does.

"Meanwhile, total debt sits at a staggering 130 percent of GDP, the fourth highest in the world. The EC rules are clear: national debt should be maintained below 60 percent of GDP "
The Italians see that they are WAY too far in debt to get out by legitimate means. As shorting and interest rates rise, it will become painfully obvious that nothing will save Italy.

"The Italian coalition partners still command nearly 60% of all Italians’ support"
" And roughly that same number now see the EU as mistreating Italy. These numbers will only get worse if the EU goes through with levying fines against Italy for submitting a budget Brussels doesn’t like.

Moreover, now we’re seeing support for Italeave rise as well. A recent poll by Politico Magazine posted over at Zerohedge shows a slight majority of Italians under age 45 are ready to do just that, leave the European Union."
"how Deputy Prime Minister Matteo Salvini is attacking Brussels’ hypocrisy over fiscal restraints.

Salvini is doing exactly what he needs to do to shore up support and push the Italian electorate away from Brussels. It was a stroke of political genius to submit a budget which placated both halves of the coalition – tax and regulation cuts along with universal basic income – while ever so gently flaunting EU budget rules.

Salvini and his partner in insurrection Luigi Di Maio crafted a perfect piece of political poison for the EU to swallow. There’s nothing really objectionable in the budget proposal. It won’t solve any of Italy’s problems nor make them materially worse.

It was put forth to rankle EU leadership that has grown fat and lazy on having everything rigged in their favor. And they have over-reacted in the most predictable manner."
"Think about what the EU is doing over this budget. They are threatening billions in fines to an Italian government that is in debt up to its eyeballs."
" And don’t forget folks that the only reason the Italian sovereign debt issue isn’t front page news is because the European Central Bank is the only marginal buyer of Italian debt. And ECB President Mario Draghi isn’t doing this out of the goodness of his Goldman-Sachs-trained heart.

He’s doing it because if he doesn’t then the entire European banking system collapses.
So this whole thing is nothing more than Kabuki theatre. And Salvini knows it.
He understands that the euro is a death trap for Italy. He also knows he has all the leverage because of the size of the debt pile."
" It should, then, come as no shock to anyone that the EU is handling Salvini and his government with the same disdain and derision. And that’s exactly what Salvini wants. He has to maneuver Brussels into making them be the bad guys.
Because if he’s going to get Italy free from Brussels it can’t be his idea. It has to be a popular groundswell.
Thankfully for him and Italians in general, the dopes in high places in Brussels are only too happy to oblige. I think they like being odious jerks, frankly."

" Why do you think French President Emmanuel Macron and Lame Duck German Chancellor Angela Merkel want a Grand Army of the EU so badly? It’s to invade and occupy wayward member states not protect themselves from Russia.
The more the EU tries to bully and force Italy to do what it wants the more Italians, even older ones, will support Salvini’s crusade against them."
The investors know ALL of this. They can short Italian debt with almost NO risk. If the ECB starts OMT, that will kill the bond market. If they don't start OMT, Italian debt will blow up like Vesuvius. Since Salvini has reached the point of no return, there is only one possible outcome. The article has quite a bit about getting screwed by May on Brexit. The British will remember who screwed them. When Italian debt blows up the entire EU, Brexit will happen anyway. Hopefully, there is still someone in Britain who remembers who to draw & quarter traitors.

"during the stock market boom since the Financial Crisis, this measure of margin debt has surged from high to high, reaching a peak in May 2018 of $669 billion, up 60% from the pre-Financial Crisis peak in July 2007, and up 117% since January 2012. Since the peak in May, margin debt has dropped by $62 billion (-9.2%). Note the $40.5-billion plunge in October:"
Great graph,

"Surging margin debt creates stock-market liquidity out of nothing, and this new liquidity is used to buy more stocks. In this manner, rising margin debt is the great accelerator on the way up."
"even as the S&P 500 index might decline at a moderate pace – investors, including hedge funds, with margin debt and concentrated holdings in these stocks may find that their portfolio has taken enough of a hit to where they get margin calls.

Now they have to dump stocks to pay down margin debt. This begets further selling pressure, which begets more margin calls, which begets more forced selling…. In this manner, a high level of margin debt turns into the great accelerator on the way down."
"But this money from those stock sales doesn’t go into other stocks or another asset class, and it doesn’t sit at the “sidelines” waiting to jump in again at the next dip. Nope, it is used to pay down margin debt. And thus, this liquidity just evaporates without a trace.
October’s plunge in margin debt was just the beginning"
Count this as deflation.

Shorting the fallen angels.
"the Next Bond Crisis will be the result of "Over $1 Trillion In Bonds Risk Cut To Junk Once Cycle Turns."

with low-IG rated companies generously issuing debt to fund trillions in stock buybacks, or to acquire other companies, and now BBB debt accounts for nearly 60% of the entire $6.4 trillion US investment grade space, "
""expects to see a flood of troubled credits topping $1 trillion as rising interest rates overwhelm low-quality loans and bonds", the one question left is how much of this BBB paper is likely to be downgraded?

Or, as one might say, that is the 6.4 trillion dollar question (the size of the US investment grade corporate bond sector)."
"So around 10% of EUR BBB- bonds are already reasonably strong fallen angel candidates."
"Judging by the recent blow out in IG spreads, the market has a far shorter, and less optimistic, timeframe.":
"The biggest of the BBB issuers happened to be the large telecommunication companies. The sector has over USD300bn of BBB rated debt compared to a high-yield market of USD 1tn."

11/23 History says FANG feast is finished – Dana Lyons
11/23 Yet another plunge in crude: down 7 straight weeks and negative from year ago – Mish
11/23 US stocks fall again as tech shares resume slide – CNBC

The exit door is soon to narrow.

Pensions in Los Angeles are starting to eat up the budget.
"This would require an additional contribution of at least $500 million, if not more, chewing up close to 30% of General Fund revenues. "
So, they will squeeze the taxpayer for $1/2 billion more.
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