***UPDATE July 23, 2010 European Bank Stress Test Results Announced***
The results of the European Bank Stress Test were exactly as I predicted. 7 0ut of 91 European banks were found to be short of the required 6% Tier 1 capital needed, or as Steve Liesman puts it, “we’ve made a mountain out of a mole hill.”
This small amount of course comes as a surprise to everyone on CNBC.
The data before the announcement follows:
S&P 500 1094.86
10 Year 2.85
CAC 40 3605.56
The immediate effect on the markets saw Gold take a little bit of a hit falling to $1,187.90 along with the U.S. stock market where all three indexes turned negative. The EURO fell to 1.281 while other data was unchanged .
If one analyzes the banks balance sheets, not just in Europe, but in the U.S., these stress tests don’t reveal the bigger picture of the bad loans that banks everywhere are trying to unwind as I pointed out in my prediction below 2 days ago.
While CNBC mocks the results…their enjoyment won’t last. Any fall in the price of gold should be seen as an opportunity to dollar cost average into a position, not a reason to sell.
I’m going to go out on a limb here and predict the results of the July 23rd European Bank Stress Test. The research I conducted for my forthcoming book, “Buy Gold and Silver Safely,” shows the U.S. banks are in deep trouble. I have presented the case in that book for some severe problems with the largest U.S. banks in the months and years ahead. Europe is no different and any Bank Stress Test Results won’t reveal the underlying problems that the major banks of the world are facing.
Bankers Meet and Discuss Announcement
As ECB bankers meet ahead of the ahead of the Stress-Test Results, what do you think they are banding together to discuss? I believe they are plotting to allow a few troubled banks to be exposed to some further scrutiny, but overall they’ll make sure the European Bank Stress Test Results will paint a positive picture of the European economy, thus further restoring confidence in the Euro and the monetary system overall.
After all, it’s one big confidence game to begin with based on pieces of paper having the ability to buy you things. Emphasis on “con” as in the movie by the same name starring Dustin Hoffman and Ed Norton, where they performed one con after another.
In this case, the con is on the people who trust in the banks that have made the bad loans as these banks are now struggling to meet higher capital requirements. This struggle is as a result of the banks lending a multiple of what they had historically, exposing the fallacy of fractional reserve banking.
This excess lending resulted in the boom when credit was easy to come by. Now that the credit is contracting, banks aren’t loaning and businesses can’t get the capital needed to finance operations or expand. Individuals are finding stricter rules in qualifying for mortgages at the same time. It’s the banks themselves who are struggling with the excess reserve requirements in “restoring confidence” in the system.
Just looking at some of the larger banks of the 91 going under stress tests reveals the startling fact that at a time when capital to asset ratios are required to improve, total income is declining rather quickly. At the same time, bad loans are increasing.
Remember, banks primarily make money when they are lending, outside of some insurance and other financial activities to generate income. Without this lending business occurring, banks aren’t making money liked they used to.
How Are European Banks Really Doing?
JAKE Doesn't matter what the con is. Insider trading, a line we got on a bookie club, insurance scam, whatever... You saw the money and you want it. More of it. Who cares if you have to bend the rules a little? As long as no one gets hurt. Jake spins the gun cylinder then SLAPS it closed, pointing it straight at the CAMERA. JAKE (cont'd) Then someone does... BLAM!!!
The July 23rd European Bank Stress Test Results Will Be One Big Con
I don’t expect any real bad news to come from the July 23 Bank Stress-Results. They’ll just reveal how the capitalization ratios have been increased to where banks can sustain any further sovereign debt crisis should it come.
But the data tells me things are much worse than anything they may say.
The system can’t afford any panic. Panic results in runs on banks. The bankers meeting today don’t want any panic to occur when they announce the results. “All is well with the banks!” will be their mantra.
Doug Eberhardt is a 28 year financial services veteran and precious metals broker selling gold and silver at 1% over wholesale cost. Doug has written a book to help investors understand how gold and silver fit into a diversified portfolio, how to buy gold and silver, and what metals to buy. The book; “Buy Gold and Silver Safely” is available by clicking here Contact phone number for Buy Gold and Silver Safely is 888-604-6534
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