Tag Archives: Europe

Time to Bail on Credit Suisse

March 15, 2023 tremendousblog 1 Comment

tl,dr: Get out of Credit Suisse.

The Swiss bank is suffering severe stress today, with its stock and bond prices plummeting. Depositors and investors are questioning its ability to survive.

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The Swiss National Bank has pledged to offer liquidity to CS if necessary, per Bloomberg.

However, the stock has barely reacted as of Wednesday afternoon in New York. Investors seem unconvinced.

What has gone so wrong at Credit Suisse?

Just about everything. Again from Bloomberg:

Credit Suisse’s failings have included a criminal conviction for allowing drug dealers to launder money in Bulgaria, entanglement in a Mozambique corruption case, a spying scandal involving a former employee and an executive and a massive leak of client data to the media. Its association with disgraced financier Lex Greensill and failed New York-based investment firm Archegos Capital Management compounded the sense of an institution that didn’t have a firm grip on its affairs. Many fed up clients have voted with their feet, leading to unprecedented client outflows in late 2022.

Problems came to a head today as CS’s largest investor, the Saudi National Bank, refused to provide more capital to CS.

Credit Suisse appears to have ample reserves to pay depositors.

It has enough cash and highly liquid assets to pay back half its liabilities quickly. It even has 62 billion Swiss francs of cold, hard cash on deposit at central banks.

Yet its stock is in the toilet, and its bonds trade at levels implying a strong possibility of default. The cost to insure its bonds through credit default swaps is also sky high.

Credit Suisse is done.

Bailout or bankruptcy time. pic.twitter.com/D0hDsO2WUC
— Alexander Campbell (@abcampbell) March 15, 2023

Are all 3 of these markets wrong? Maybe, but I wouldn’t want to make that bet.

For companies and individuals, there is little downside to pulling your money out.

Even if the Swiss National Bank, Federal Reserve, or others bail them out, there could be delays in getting your money. That was the case with SVB.

Can you afford that delay?

In the end, I doubt central banks will let CS collapse. But things could get very messy in the mean time.

What do you think of the problems at Credit Suisse?

Europe Has…Too Much Natural Gas?

October 25, 2022 tremendousblog Leave a comment

Russia has cut off Europe’s gas supplies. But despite Putin’s best efforts, it’s looking like a toasty winter on the continent.

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Ships carrying liquefied natural gas (LNG) are lined up in ports across Europe. The only problem: finding a place to put it all!

From a report out this morning in Bloomberg:

Europe suddenly has more gas than it can use.

Starved of the Russian imports on which its long relied, Europe has rushed to import liquefied natural gas from around the world to fill up storage. Now, a combination of unusually warm weather and successful bidding for cargoes means facilities are almost full before Europeans have even turned the thermostats up. Gas prices have also fallen back sharply, and are less than a third of their summer peak.

Bloomberg’s index for loaded tankers on the water for 20 days or more has risen to the highest since at least 2017. Last week, Spain’s Enagas SA warned it may need to limit numbers as it has little room to absorb excess imports.

This sudden turnabout shows how well markets work. Natural gas prices spiked in Europe, so suppliers sent their gas there.

After all, why not get the best price?

But so many sent gas, the price has plummeted. It’s now lower than when the war in Ukraine began.

Russia has lost its best bargaining chip. If it can’t freeze the continent, what other options does it have?

Russia has also damaged its economic future.

Europe will never view it as a reliable supplier again. Putin may struggle to find a buyer for his gas, given his prior treachery.

Russia should keep in mind that there’s an expiration date on that gas. Solar energy is already cheaper in many circumstances.

Governments are working to limit CO2 emissions. Renewables are scaling and getting cheaper every day.

In a few decades, there may be little demand for fossil fuels.

The future for Russia looks bleak. Meanwhile, with its energy supplies diversified, Europe will be more secure than ever.

What do you think the future holds for Russia and Europe? Leave a comment at the bottom and let me know.

This Tiny Country Beat COVID

April 12, 2021 tremendousblog Leave a comment

On the southern tip of Spain, the tiny UK territory of Gibraltar has vaccinated almost its entire population. COVID deaths have dropped to zero:

Gibraltar has 33k residents and 7k day workers, vaccinated almost all of them. #COVID19 deaths this week = Zero, l… twitter.com/i/web/status/1…—
Keith Humphreys (@KeithNHumphreys) April 11, 2021

Life is beginning to get back to normal. Masks are no longer required outside, curfews are gone, and bars and restaurants are full. Even sporting events have resumed:

Events have also returned to the Rock as Gibraltar hosted what’s thought to be the first fully vaccinated major sporting fixture in the world on Saturday.
Five hundred spectators, each tested for Covid-19 prior to the event, were able to witness British heavyweight fighter Dillian Whyte claim victory over Russia’s Alexander Povetkin at Gibraltar’s Europa Sports Complex.
The fight, called the Rumble on the Rock, was originally meant to take place at the Matchroom HQ, a venue in southeastern England, but was switched to Gibraltar thanks to its Covid-19 safe environment.
Soccer fans were also allowed to witness sporting matches starting with Gibraltar’s World Cup qualifier clash against the Netherlands on Tuesday.
Victoria Stadium welcomed 600 attendees who had previously received two doses of the vaccine and tested negative for the virus on the day of the match.

Only 3% of residents refused the vaccine, which may be one reason why Gibraltar’s results are so good. That may be difficult to recreate in the US or other nations, but Gibraltar provides a welcome view of what life could look like soon as the world races to vaccinate.

I encourage you to get your shot if you haven’t already. Let’s get back to normal life!

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Photo: “Gibraltar – Rosia” by Roy McGrail (krm gib) is licensed under CC BY-SA 2.0

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The Tiny Village That Beat the Great Depression

April 8, 2021 tremendousblog Leave a comment

Nestled in the Austrian Alps is the tiny village of Worgl. In 1932, as the world economy was in the depths of the Great Depression, Worgl too had fallen on hard times:

The Great Depression was in full swing and of its population of nearly 5000, a third were jobless, and about 200 families were bankrupt. The situation was desperate. The town would try anything.
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What followed was one of the most radical economic experiments in history. The town created a new form of money. It was a lot like the standard Austrian schilling it replaced, except its value dropped by 1% every month. In a year, you’d have just 88.64 left of every 100 schillings.

This gave residents a strong incentive to stop hoarding currency, a natural reaction to a scary economic climate:

The speed that money changed hands (14 times higher than the national schilling) helped keep local businesses afloat and, in time, brought back the town’s lost jobs.

Soon, the town went from 1/3 jobless to full employment. Tax revenues boomed as people paid their bills in the new currency before it lost its value.

Worgl’s success attracted attention from its neighbors:

Things looked up for Worgl and [Mayor] Unterguggenberger. The town did so well that six neighbouring villages successfully copied the system and over 200 grew an interest in following suit.

Ultimately, the central bank shut down this experiment in a local currency. Shortly thereafter, unemployment shot right back up to where it was before Worgl’s mayor made this bold move to save his town.

It makes sense that Worgl would’ve rocketed ahead of nearby villages. Worgl essentially had (very) negative interest rates and a far more accomodative monetary policy than its neighbors.

Today too, lowering interest rates, even below zero, is a commonly used tactic to stimulate economic activity. The US Federal Reserve lowered interest rates substantially at the beginning of the COVID crisis, and Japan and much of Europe has had negative rates for years.

But despite the success of Worgl, the results of negative rates today are mixed. Negative rates might encourage consumers to spend, but they could also discourage banks from lending. After all, who wants to lend when you might have to pay for the privilege!

Worgl remains an interesting footnote to monetary policy. Whatever the applications to today may be, I applaud the bravery of those villagers who took a radical step to try to save their home.

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Photo: “File:Pfarrkirche Woergl Osten.jpg” by Thom16 is licensed under CC BY-SA 3.0

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