Yes Europe is screwed, but it’s not Portugal that’s the problem

Apparently the only people in the world who don’t know the Euro crisis is about to get worse, are fund managers.

Last week when Portugal’s largest bank, Banco Espirito Santo shat the bed so to speak, most of the world perked up and was rightfully concerned.    It was a clear indication that things in Europe are still very much “not okay”.

But not fund managers:   According to the Wall Street Journal, they’re confident that this will all blow over in no time.

Large money managers don’t expect the worries over one of Portugal’s largest lenders to have a lasting impact on global financial markets depite a rout in Europe’s markets Thursday.

“This particular incident seems fairly isolated to the Portuguese bank as opposed to a return to the euro zone crisis of a few years ago,” said Eric Stein, global fixed income portfolio manager at Eaton VanceEV -0.13% which has about $286 billion assets under management.

Mr. Stein said he believes “many of the euro zone bonds out there may continue to rally in the short-term after we get through this Portuguese bank issue” thanks to firm support from the European Central Bank’s easy monetary policies.

Right then.  Glad that’s settled.  For a minute there we thought the only thing holding Europe together were bank bailouts from Europe’s unelected leaders and an apparent refusal to have a “plan B”.

But then there’s this chart,  which clearly shows that on a private-sector level, Europe hasn’t managed to de-leverage much at all since the crisis.

You don't mind waiting, do you?

You don’t mind waiting, do you?

Given the problems with Banco Espirito Santo, we can’t help noticing that Portugal’s private-sector has barely even begun to de-lever and serious tremors are already shaking up her banks.   One seriously has to wonder what new surprises should await us if Portugal’s private debt levels were to descend to a mere 200% Private Sector Debt to GDP (let alone some level resembling “responsible”).

How anyone can think Europe is “on the mend” is beyond us.   But the experts say otherwise:

Robert Tipp, chief investment strategist at Prudential Fixed Income in Newark, NJ, which has over $400 billion bonds under management, said the selloff provides a buying opportunity.

Looking six to 18 months ahead I’d expect, all else equal, Portugal to fully recovers from this and then some,” he said. Mr. Tipps said the company has added to its holdings of euro zone’s periphery government bond holdings in recent weeks.

That light blue line above sure doesn’t look like it’s falling fast enough to be anywhere near safe within 6 months, to us.

With all this abounding optimism we might have retreated into our man caves to leave the thinking to the “experts”  – but then along came a certain CEO:

Maximilian Zimmerer is the CEO of Europe’s largest insurance company, Allianz.   His take on the situation in Portugal?

“The fundamental problems are not solved and everybody knows it,” Maximilian Zimmerer said at Bloomberg LP’s London office. The “euro crisis is not over,” he said.

“There is only one country where the debt level last year was lower than 2012 and this is a signal the debt crisis can’t be over, only a recognition of the debt crisis has changed,” Zimmerer said on July 9. “If the debt levels are not going down in the end we will have a problem, that is for sure.”

Oh no you didn’t, Maximilian.

In our view, Zimmerer hits the nail rather squarely on the head.   But Portugal isn’t really where we’re looking.

Italy is a much bigger deal than Portugal

Actually, to be fair, both Italy and France continue to be larger and more serious issues than Portugal, across the board.   But Italy in particular is a disaster.  Italy’s GDP is approximately 10 times the GDP of Portugal.   The problems there are exponentially more serious.

(Please note that the pale blue boxes below are “estimates”)

 

Mama mia

Mama mia

As the Wall Street Journal reports:

What should worry investors is less Portugal but the fact that growth appears to be stalling in some of the euro zone’s biggest economies. The latest surveys point to manufacturing having contracted in June in Germany, France and Italy. Some of this may be explained by one-off factors, including weather disruptions and the timing of public holidays. The crisis in Ukraine also appears to have hit German exports.

But the real disappointment has been in the weakness of the recovery in the new sick men of Europe: France and Italy, both of which have been slow to deliver the reforms that have been boosting productivity and competitiveness elsewhere in the euro zone. Indeed, whereas J.P. Morgan last week raised its growth forecast for Spain for this year to 1.5%, reflecting the success of its structural reforms, it downgraded its forecast for Italy to 0%.

Given the size of its economy and the scale of its public debt—at 133% of gross domestic product—Italy’s lack of growth remains the single biggest threat to the stability of the euro zone. Yet to the concern of many policy makers and investors, Prime Minister Matteo Renzi appears to be spending more political capital seeking changes to euro-zone fiscal rules to allow Italy to borrow yet more, than he is on pushing through reforms that might boost Italy’s growth prospects.

One thing is for sure, there are loads of fund managers who are going to lose their shirts.  The situation is still far from over, and we predict major losses on the horizon.

Will Draghi’s gift of $1.4 Trillion dollars to Europe’s banks solve Europe’s predicament?   Of course not.  We’ve seen that movie before.

This gets worse before it gets better.

  • gerry d welder

    Countries out there want to immediately start saving money AND get rid of the major problem at the same time?

    Here’s a (partial) post originally meant for US citizens:

    The UN is about globalists attacking our wallets and regulating our freedom, who do you think pays for the UN (that PAYS NO TAX)?

    Imagine how much extra money we would have if we defunded …

    UN, IMF and taxes

    When will there be more focus on the other giant vampire squid that is a far greater threat than all the demopublicans put together?

    They dumped the League of Nations which only spawned an even bigger and obscenely more expensive threat to freedom (that is dependent on YOU to fund).

    The UN and all of it’s huge organizations, commissions and agencies including the IMF and World Bank, generate no revenues, are not subject to the laws of any country it operates in, pays no tax, produce nothing, is dictating ‘world’ regulations, confiscating your wealth through federal taxation and backdoor taxation through complicit federal government agencies like the EPA.

    One dollar spent on a ‘FEDERAL’ level cost 10 times more than if that same job was done on a ‘STATE’ level, logic would point to keeping federal government no bigger than our constitutional mandate, notice the federal government taking states property and states rights away form states and handing control of US properties and law making over to the UN?

    Now add in the cost of the UN and the obscene waste and inefficiency of ‘world’ dollars:

    Wikipedia the UN and see how HUGE it now is with all it’s agencies, peace keeping forces, organizations, commissions and each comes with their own building complexes, vehicles, uniforms, equipment, support complexes, staff, salaries, travel, security, food and energy expenses, conferences AND the now tens of thousands of UN retirees (mostly foreign) and their pensions, perks and benefits.

    YOO HOO, who do you think is paying for all of that?

    WAKE UP, maybe next time you look at your pay check or worry about your own pension.

    With the full backing of our traitorous federal monster government, the UN is ramming ‘Agenda 21′ and ‘Common Core’ down the throats of the world, the UN’s World Bank is complicit in forcing poor farmers off their own land in Africa and South America for corporate and endowment ‘tree farm/carbon credit’ investments, is deeming sovereign resources off limits, trying to eliminate (citizen’s only) the right to bear arms, our country’s sovereignty and our individual freedoms and now trying to force a ‘world’ climate change tax and ‘world’ wealth tax on us AND under the guise of saving us from asteroids, the UN is trying co-opt our US space program, it’s technology, resources and NOW ABOUT TO GET CONTROL OF THE INTERNET and MORE OF OUR TAXES.

    YOO HOO! Imagine the savings if the USA stopped funding the UN.

    Lagarde’s (IMF) salary is over $300,000 + per year PLUS tens of thousands in ‘stipends’. and she PAYS NO TAX.

    “most UN employees pay no tax”.

    The IMF and World Bank are UN agencies of now countless agencies, commissions and organizations, one big Trojan Horse and tool of a few dynastic families, sucking the wealth, sovereignty, freedoms and life out of the world.

    The IMF is nothing more than a world asset stripping debt collector for the western alliance.

    Global taxation, a ‘one world’ currency and open borders are all part of the globalists plan to eliminate sovereignty of nations.

    10 nations that control the world’s gold – MarketWatch
    Oct 20, 2012 … The International Monetary Fund is the third-largest official holder of gold, with more than 2,814 tonnes.

    The IMF is ANOTHER UN agency, it is not a ‘nation’, it has been deemed ‘supranational sovereignty’ (deemed by the UN’s ‘International Court of Justice’ -yep, another UN agency). so the UN creates an agency to deem itself and it’s other agencies supranational sovereignty over the world and makes it’s own laws, decides it needn’t pay any tax nor provide any revenues -sweet deal if your a UN employee.

    UN? Proven corrupt, unelected, made up mostly of 3rd world dictatorships.

    NATO, the UN and all of it’s agencies, commissions, organizations, etc (UN agencies include the IMF and World Bank), all have the same boss, they’re all really just tentacles of the giant, globalist vampire banksters squid.

    Notice the elimination of individual accountability? ‘NATO’ decided this or that, the ‘UN’ deemed this or that, and we must all comply regardless of our rights, freedoms and laws of OUR OWN COUNTRY. Any official that your taxes fund needs to be thrown out if they support the UN. The working tax payer needs to be mobilized against funding the UN.

    We have to stop giving credibility and decision making powers to unelected foreign entities that we are forced taxed to fund while they supplant our own country’s laws and sovereignty and take control over our resources.

    Time to take away the UN’s ‘supranational sovereignty’,

    Through imposed ignorance we are handing over our resources, funding (taxes), technology and sovereign law making to basically an unelected, new monarchy (UN) made up of mostly 3rd world dictatorships who are just tools of a few dynastic families.

    … time to defund and reform federal into constitutional compliance, reign in regulatory down to it’s original intended purpose, defund the IRS and the Department of Education (responsible for all our LOW INFORMATION VOTERS), re-coup our state’s rights, take back federal land -our state’s property from the feds), time to take back control of our own waterways and national parks and de-fund the UN, kick them out of our country, claw back pensions and restitution of it’s assets starting with the IMF’s gold hoard.

    US citizens (working and paying taxes) fund 22% of the entire UN world budget & our ‘federal’ regulatory is also back door funding the UN (with your taxes, especially the EPA). We have been funding the United Nations University Institute for Sustainability and Peace (UNU-ISP) since 1972. How’s that sustainability & peace working out? How many of their ‘professors’ & administrators are now comfortably retired on obscenely fat tax funded pensions? The UN includes the ‘World Tourist Agency’, and it is tax funded.

    When our own US citizens were furloughed, why wasn’t the massive 22%++ of US tax funding of the UN and it’s countless agencies, organizations and commissions withheld or even mentioned by MSM?

    Why then isn’t MSM all over this? A co-conspirator of the Rothschilds explained it years ago:

    “We are grateful to The Washington Post, The New York Times, Time magazine and other great publications whose directors have attended our meetings and respected their promises of discretion for almost forty years. … It would have been impossible for us to develop our plan for the world if we had been subject to the bright lights of publicity during those years. But, the world is now much more sophisticated and prepared to march towards a world government. The supranational sovereignty of an intellectual elite and world bankers is surely preferable to the national auto-determination practiced in past centuries. ”

    -David Rockefeller, Baden-Baden, Germany in June 1991

    1991?

    …and George Bush Sr. New World Order Speech Sept 11, 1991

    Sept. 11?

    WHAT A COINCIDENCE!!!

    Wikipedia:

    The United Nations Headquarters complex was constructed in stages with the core complex completed between 1948-1952. The Headquarters occupies a site beside the East River, on 17 acres (69,000 m2) of land purchased from the foremost New York real estate developer of the time, William Zeckendorf, Sr. Nelson Rockefeller arranged this purchase, after an initial offer to locate it on the Rockefeller family estate of Kykuit was rejected as being too isolated from Manhattan. The US$8.5 million (adjusted by inflation US$82.6 million) purchase was then funded by his father, John D. Rockefeller, Jr., who donated it to the city.[6] Wallace Harrison, the personal architectural adviser for the Rockefeller family, and a prominent corporate architect, served as the Director of Planning for the United Nations Headquarters. His firm, Harrison and Abramovitz, oversaw the execution of the design.[7]

    -

    With their huge international investment exposure and influence, wouldn’t you expect the Rothschilds and Rockefellers to be just a little more concerned and vociferous, as the world ‘s economic structure is crumbling toward chaos and war and people’s freedoms are systematically taken away?

    Unless they are orchestrating it.

    Understand the problem and your already on your way to fixing it.

    Who the RINOs and democrats bow to.