Thursday, June 21, 2012

Markets tumble on a slowdown in global economic growth

Dow sank 250, decliners over advancers 4-1 & NAZ plunged 71.  The Financial Index dropped 4+ to the 191s on worries about euro debts & credit downgrades.  The MLP index fell a very big 6+ to 363 after its 20 point rally in Jun & the REIT index dropped 4 to 252.  Junk bond funds were strong & Treasuries rose as stocks sold off.  Oil is solidly below $80, an important support level, & gold lost $47 to the mid $1500s, close to the 2012 lows.

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CLQ12.NYM...Crude Oil Aug 12...78.54 ...Down 2.91 ...(3.6%)

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Spain’s Banks Need Up to $78 Billion, Report Shows

Photo:   Bloomberg

Spanish banks could need as much as €62B ($78B) to withstand a worst-case economic scenario, according to 2 consulting firms hired by the gov to conduct stress tests on the lenders.  One firm estimated banks would need €51-62B should Spanish GDP shrink by 6.5% & house prices drop 60% from the peak.  Another firm said lenders would need €51.8B under those conditions.  And the study didn’t consider potential losses on gov bonds.  “This exercise adds information and it’s information that is not unfavorable,” said Fernando Restoy, deputy governor of the Bank of Spain, said. “The majority of institutions are in a comfortable situation.”  Spain hired 2 firms last month to estimate the capital shortfall at the nation’s banks as investors questioned the health of lenders pummeled by a 5-year real estate slump.  Economy Minister Luis de Guindos has said Spain will use the results of the studies to determine how much money it might need to draw from the €100B made available after it requested funding to clean up banks.  The European Commission likes the idea of setting up a bad bank, Deputy Economy Minister Fernando Jimenez Latorre said.  “From the contacts we have had with them, they like the idea of the bad bank, but we’ve only just started talking and it will become clearer,” Latorre said.  These studies follow the publication on Jun 8 of an IMF report that showed banks needed at least €37B to withstand a worsening economy.  An IMF official said at the time Spain may need to build a buffer of €60-80B.  No surprise, Spanish banks will need a huge bailout.

Spain’s Banks Would Need Up to $78 Billion in Extra Capital in Stress Test

Greece's new conservative-led coalition gov pledged to try & revise the country's austerity commitments to its creditors, but insisted that would not endanger ties with the rest of Europe or Greek use of the euro currency.  Today the new gov issued a policy statement saying it would seek to serve its full 4-year mandate.  It also named a 38-member Cabinet that includes prominent banker Vassilis Rapanos, chairman of the National Bank of Greece, in the crucial post of finance minister.  The gov's "aim is to tackle the crisis, to open the road to development and to revise the terms of the loan agreement without jeopardizing the country's European course or its presence in the euro," it said.  At the same time, the coalition said, Greece will continue to reduce its fiscal deficit, control its debt & implement structural reforms.  Greece depends on intl rescue loans, granted on condition of a harsh austerity program that has forced deep cuts in incomes and public services, amid soaring unemployment & a deep recession now in its 5th year.  The new gov was cutting all his ministers' salaries by 30% immediately, & would limit the use of state cars by gov members to the absolute minimum.  A nice start, but is only the beginning of austerity moves which are badly needed.

Greek gov't pledges to safeguard euro membership AP

Moody’s Said to Be Poised to Announce Bank Downgrades Today

Photo:   Bloomberg

Moody’s has told banks it may announce later today downgrades of the credit ratings for as many as 17 lenders & securities firms with global capital markets operations.  The announcement could come after the close of trading.  The company said in Feb it may lower the ratings of banking firms as part of a review of how Europe's sovereign debt crisis was hurting more than 100 lenders.  Downgrades could raise borrowing costs & force banks to increase collateral.

Moody’s Said to Be Poised to Announce Bank Downgrades Today

Stocks tumbled as signs of a slowdown in global manufacturing added to disappointing housing & labor market data in the US.  This is not how those smart guys were forecasting at the start of 2012 when they were revising their forecasts upward.  Dow is up about 350 YTD & 150 in what was supposed to be a recovery month (Jun).  Dow went straight down today to close at the lows, losing money in every hour.  The markets continue to look very tired.

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