Monday, 11 June 2012

Ruin Spreads Near Famous Ruins

From Greece we are getting news that the run on the banks continues with great verve. Concurrently bad loans in the banking system are spiking to truly dizzying heights.
“The political polarization and uncertainty regarding Greece’s position in the eurozone generated a fresh spike in bank withdrawals last week.

In the last few days, withdrawals have increased again as bank clients convert their money into foreign bonds (mostly German) or opt for various alternative investments based on the US dollar in mutual funds.
In May, deposit withdrawals were estimated to have amounted to 5 or 6 billion euros. Bank officials say the situation remains under control, pointing at the completion of the first phase of the recapitalization plan with the disbursement of 18 billion euros to the country’s four main commercial banks that has strengthened them considerably.
However, bad loans are piling on the pressure as the number of loans whose repayment is delayed by more than 90 days is continuing to rise after amounting to 18 percent of all loans at the end of March.

(emphasis added)
Bank officials say 'the situation remains under control'? They would of course say that. We would hate to see what an 'out of control' situation looks like. Six billion euros of withdrawals just in May? And 18% of all loans delinquent? How much more bankrupt can they become?
This reminds us that these banks continue to vegetate solely courtesy of the ECB's provisions of 'ELA' (emergency liquidity assistance). Didn't someone at the ECB's governing council recently insist that ELA is not supposed to be used to support insolvent institutions? If Greece's banks are not insolvent, then what are they?
The recent developments in the stock prices of Greece's banks speak for themselves as it were. Evidently the €18 billion capital injection in the form of EFSF bonds (which presumably have already been discounted with the ECB) hasn't made much of a difference. It is quite ironic that SYRIZA leads in the polls, but at the same time people are so scared that it might win that they are getting their money out as fast as they can.

The NYSE listed ADR of National Bank of Greece – note that this stock has already had a 1-for-10 reverse split, so if you compare this chart to the charts of NBG we have posted last year, you should take that into account. Pre-split the stock is actually at 12 cents – click for better resolution.

A Collapse for the History Books

The Greek stock market has meanwhile officially turned into the biggest stock market disaster of all time – it is down over 91% from its 2007 highs at last count. It should be noted though that this means that there are probably numerous stocks that are now objectively very cheap, even in the face of economic disaster in Greece.
The bulk of the decline of the index is once again due to the bank stocks, but anyone with access to the Greek market can probably find quite a few undervalued stocks that could be worth a punt or even a longer term investment (yes, we have said so before and were too early – recall though that we have always maintained that the final phase of a bear market can be very tricky).
The AGT index has now declined by a bigger percentage than the DJIA during the Great Depression. It seem to be discounting utter calamity and then some. Of course there is now probably a latent danger that the system of free enterprise itself could come under threat in the event of the Radical Left winning the election. We doubt that a government led by a coalition of  far left parties will be a great boon for the economy. Then again, the Greek stock market obviously reflects a wide range of bad outcomes by now.

Greece, the land of famous ruins. There's the Acropolis and then there's what's left of the Athens General Index, which is now down by over 91% in less than five years - click for better resolution.

Addendum: China isn't Getting Any Better Either

The weekend was host to a number of economic data releases from China which may explain the central bank's recent easing bias. In particular, industrial production and retail sales numbersboth disappointed:

A flurry of data over the weekend explained China's surprise cut in interest rates on Thursday – its first since the global financial crisis – by showing the extent of the domestic economy's weakness. The rate cut followed a number of measures designed to get money flowing back into the economy.
Beijing could offer more support if needed to combat risks from the euro zone debt crisis, which claimed Spain this weekend as the fourth country to seek financial support, and to promote stability in a year of leadership change, analysts said.
"Monetary policy should continue to lean towards loosening," said Wang Jun, an economist at the government-backed think tank China Center for International Economic Exchange.
Premier Wen Jiabao and other policymakers appeared to be jolted by dire economic figures for April, released a month ago. In recent weeks they have approved languishing investment projects and launched a 

Thursday's quarter point rate cut briefly lifted financial market sentiment, although that gave way to suspicions that the timing of the reduction meant May's data would be worse than expected. The suspicions were right.
number of reforms to allow private investment into sectors previously dominated by the state.
Industrial output rose 9.6 percent in May from a year ago, below expectations and further entrenching concerns the world's second-largest economy faces its worst slowdown in years.
Retail sales were short of expectations, growing at their slowest pace since February 2011, while investment in the likes of real estate, infrastructure and factories increased at its weakest year-to-date pace in close to a decade.
Consumer price inflation eased to 3.0 percent, below expectations and the lowest level since the middle of 2010.
Producer prices fell 1.4 percent from a year ago, marking the third straight month of producer price deflation. "The slide in PPI… points to considerable sluggishness in domestic manufacturing activity," said Xianfang Ren, economist at IHS Global in Beijing.

(emphasis added)
It is of course in a way amusing when a 9.6% expansion in industrial output is considered a disappointment, but one must not forget that these data must be taken with a big mouthful of salt. Everything points to a considerable slowdown in China's economy of late, and we would e.g. remind of the extremely concerning PMI data of the steel sector, which speak of a slowdown on a par with that of 2008/9. It is also highly questionable how sensible the 'fast tracking' of various infrastructure projects is, given the great likelihood that many of them are going to turn out to be white elephants likely to waste scarce resources.
Many China bulls have the idea that central planning somehow works better in China than elsewhere, but that is clearly a misconception – the extent to which China's economy has produced genuine wealth creation in recent decades owes nothing to the central planning features of the economy. It is entirely due to the fact that central planning has been partially abolished.

China's stock market looks sick. In spite – or probably rather because of -  China engaging in the biggest stimulus package relative to the size of the economy in the whole world after the 2008 GFC, its stock market was the first to top put again in 2009. It's been going down ever since - click for better resolution.

Addendum 2:

We invite our readers to take a look at this brief trial survey and if interested vote on it. It has been set up by a friend of ours and asks three simple multiple choice questions about the Keynesian influence on policymaking. It takes perhaps 20 to 30 seconds to do it, and one can of course check how the voting is going. It has been set up so as not to track IPs. 

Charts by:,

No comments:

Post a Comment