Greece Bank Deposits Flight

Greek bank deposit flights are continuing and we can see that here in the column of "other euro area residents". It's a very easy way to check if there is a deposit flight going on in your European country. (I checked Belgium and we are pretty stable)

http://sdw.ecb.europa.eu/reports.do?node=1000003177

Greek deposits went from 155 billion euro to 147 billion euro month over month. They probably all went to Germany.

But overall there is an increase in total deposits when MFIs are counted in. The Bank of Greece probably started confiscating deposits. So basically, people are running away with their money (drop in other euro area resident deposits), but the central bank is preventing that by confiscating it (rise in MFI deposits).

The total amount of deposits look like this, red chart is Greece: The chart rises due to an increase in central bank deposits.

 

So how to use this? I would just keep in mind how to check on the deposit flight via the tables and at some point, when interest rates get too low, people will automatically flee from their banks. Who wants to have money in a bank with negative interest rates? Don't be the last to wake up...

Greece Government Bond Yields Inverting

The inversion has begun again in Greece government bonds. Normally, higher maturity bonds have higher interest rates, because they are riskier to hold due to inflation. But sometimes the yield curve inverts (see chart below created by Correlation Economics).

As you know, 2012 was the year where Greece defaulted on debt as low maturity bonds crashed (yellow chart peaks out).

We might be seeing take two of that crash in 2015 as low maturity bonds are now re-inverting against high yield bonds. For more info, go here.

European Bank Deposits Update: Greece sees outflows

This week we had an update of the deposits at the European banks. Deposit outflows continue. What strikes me most is that we see inflows to safer countries (Netherlands, Germany, France) and outflows of the periphery (Italy, Greece, Ireland).

Most curiously, the largest deposit outflow can be seen in Greece (red chart). We peaked out in Greece deposits after a series of bailouts starting in 2010. Ever since the debt restructuring in 2012, the deposits kept going down, which collapsed the trade credit.

Bank Deposits Eurozone Periphery

As a result, (especially) imports and even exports are collapsing. This is the way of restructuring. Bailouts in 2010 strengthened exports. Restructuring of debt starts in 2012, bailouts are gone, exports collapse.

And the best thing is, the debt hasn't gone away, it's all there.

PIIGS Bank Deposits Outflow Accelerating

As I noted a month earlier, Spain's bank deposits posted an outflow and this outflow is accelerating for the month of May 2013. This time, Italy is posting outflows too.

Greece, Cyprus are of course still in a decline. I expect bail-ins to come if this trend continues. Europeans should be worried about their deposits.

Bank Deposits Update

Remember the Cyprus debacle in March? We were worried about deposits declining.

In February, deposits declined in Cyprus, Ireland, Greece, Portugal. But they increased in Italy and Spain.

In March, we see the same happening again. So I don't see any significant changes. Maybe the Cyprus crisis was just a little drop in the sea.

Chart 1: Bank Deposits

Belgium the next country to fall

As I said before here and here, Belgium is the next domino to fall after Greece.

If you don't believe me, believe Zerohedge. As you can see on chart 1, the countries on the left have the least equity/capital reserves as a percent of deposits.

So to avert insolvency of Belgian banks, depositors need to be thrown into the fire eventually. But luckily, Greece will be first...

Prepare yourself.

Chart 1: % bad debt that can be impaired before deposit haircuts

Is Greece Bankrupt Yet?

On 31 July 2012 Greece finance minister Christos Staikouras told on television that Greece is on the edge of bankruptcy. If no aid comes from the ECB, Greece won't be able to pay its ECB debt obligation on 20 August 2012. Greece has a repayment due of 3.8 billion euro.

Consecutive debt repayments and spending cuts in 2012 have reduced Greece's debt to GDP from 160% to  132% (Chart 1). This means Greece is going into the right direction concerning its debt.

Chart 1: Greece government debt to GDP

However, Greece depends entirely on the troika: European Commission (EC), the International Monetary Fund (IMF), and the European Central Bank (ECB). On Monday 24 July 2012, they announced the 31.5 billion euro bailout money wouldn't be available yet to Greece until September 2012. One of the reasons is because of the IMF refusing to give more aid as Greece will not be able to fulfill its promise to cut debt to 120 percent of annual economic growth in euro terms by 2020.

This means that insolvency is coming near and could have arrived as early as September 2012.

Spain is following Greece in its path to bankruptcy

The situation in Spain is looking worse every day. I believe Spain is following the path of Greece into bankruptcy.

Let's take a look at the Spanish bond yields. At the end of 2011 we got the massive ECB bailout package named Long Term Refinancing Operation (LTRO). This relieved the bonds of certain peripheral governments like Italy, Greece and Spain. Lately though, with many Spanish regions on the verge of bankruptcy, Spanish bond yields are rising again. Let's take a quick look at these.

The best way to look at stress in the bond yields is to look at the bond spread between long term maturities (Chart 1) versus short term maturities (Chart 2). If the spread narrows, it means there is stress, because the shorter maturity is about to rise above the longer maturity bond yield. Normally in a healthy economy, longer maturities always have higher yields than shorter maturities. If this is not the case, this means that defaults are looming (see Greece bond yields: shorter maturities have higher yields than longer maturities).

To read the analysis go HERE.

Chart 1: Spanish 10 year bonds

Chart 2: Spanish 2 year bonds

Jim Rogers might sell the euro

It's amazing how the euro has outperformed gold since Hollande became president of France (Chart 1-4). It signals that there is a higher risk that Greece will not get their aid package. Euro global polls say that there is 50% chance that Greece will exit the Eurozone. If this were to happen it will be a deflationary collapse first, after which hyperinflation will occur.

Chart 1-4: Gold Price in Euros

During the second half of 2011 we even see that the euro is losing its secondary currency reserve status. The U.S. dollar is increasing its status as reserve currency (Table 1).

Table 1: Reserve Currency

Jim Rogers knows this and might sell the euro in the future.

As Europe is going to contract in 2012, Mario Draghi has signaled that further stimulus is on its way. 

Banks And Their Exposure to the PIIGS

In the news of today, Spain has been in the center spot of attention. Spanish bond yields have been rising quickly and financials have seen weakness in their share price. In this article I want to see which banks have the most exposure to Spain and to the PIIGS in general.

During the stress tests of July 2011 the exposure of 90 banks to the PIIGS countries' government debt was released by the European Banking Authority (EBA).

To find out which banks are exposed to the PIIGS and which banks to avoid, please go to my article here:
Analyzing bank exposure to the PIIGS

Employment Deteriorating for the PIIGS

Since the crisis of 2008, the unemployment rate for the PIIGS has been increasing rapidly. As a consequence, lately investors are putting their hard earned money in more healthy countries like Switzerland and Germany.

Go HERE to read a more in depth analysis on this matter.

Greece rating finally cut to junk

Today Moody's finally cut Greece to the C rating. And C is the lowest rating there is.

This is their definition of ratings:

• Aaa Obligations rated Aaa are judged to be of the highest quality, with minimal credit risk.
• Aa Obligations rated Aa are judged to be of high quality and are subject to very low credit risk.
• A Obligations rated A are considered upper-medium grade and are subject to low credit risk.
• Baa Obligations rated Baa are subject to moderate credit risk. They are considered medium grade and as such may possess certain speculative characteristics.
• Ba Obligations rated Ba are judged to have speculative elements and are subject to substantial credit risk.
• B Obligations rated B are considered speculative and are subject to high credit risk.
• Caa Obligations rated Caa are judged to be of poor standing and are subject to very high credit risk.
• Ca Obligations rated Ca are highly speculative and are likely in, or very near, default, with some prospect of recovery of principal and interest.
• C Obligations rated C are the lowest rated class and are typically in default, with little prospect for recovery of principal or interest.

So finally we are at the point that we are saved from all the BS from at least 1 rating agency Moody's, as C is the lowest rating. We are all fed up with these meaningless rating cuts from these redundant rating firms. Greece is bankrupt, case closed...

We still have Fitch (credit rating C, still to be downgraded to D), Standard and Poor's (sovereign rating: SD selective default, still to be downgraded to D (full default on due date)). If these two eventually downgrade Greece again, life will finally go on without this redundant, meaningless news.

Meanwhile, Greece's 10 year government bond yields continue to move up. If we do know they are going to default at least by 90%. Then yields are still much too low at this stage.:

Greece 10 Yr Government Bond Yields (%)

Working without salary

Look how people of Greece are now working without salary:
http://www.zerohedge.com/news/its-official-greece-unveils-negative-salary

Greece: The "Debt"-line is near

There has been much talk about Greece defaulting on 20 March 2012. I can't agree more on that statement. By 20 March, Greece needs to pay $US 18 billion in bond payments. In 2014 their $US 100 billion debt matures Here's why I think they won't be able to pay off their debt: Greece: The "Debt"-line is near

Government Bond Yield Extremes

Today I found an interesting article on Bloomberg about 1 Year German government bond yields going under zero (see Figure 1).

It is amazing that people want to lend money to the German government while paying extra money (1% of their investment) a year from now. Thereby losing money with their investment.

I can think of only one reason for this and that is: "your money is not safe in the bank".

Why would someone not just put their savings in a bank which pays around 1,5 % yield a year. Instead they want to lose money by buying German government bonds. Exactly because your cash is not safe in your bank. At any time your bank will go bankrupt. I know Germany is a safe haven, but there are far better alternatives here like buying precious metals: gold and silver.

Figure 1:

The 1 year US government bond yield is really almost the same. Amazingly low yields with minimal return in an inflationary environment (see Figure 2).

Figure 2:

Completely the opposite is the 1 year Greece Government Bond Yield (see Figure 3), which is surging past a record 380 %, which basically means a default on their debt.

Figure 3:

It amazes me that people still buy these government bonds, knowing that the bond bull market is coming to its end.
US government bond yields have run a 30 year bull market (1980-2012). I think it's time for the market to start moving the money from government bonds to precious metals.

Greece wants to default

Greece wants out. But the only way to do that is to default in a big way by devaluing their currency.

If it does happen though, we will see massive losses on bank's balance sheets and we will see a cascade effect to neighbouring countries like Italy, Spain, Portugal and Ireland.

It will be good for the euro though, because we don't have to keep supporting the Greece people anymore.