It's time to shine some light on the combination of financial wizards who have caused this massive loss of global wealth in August 2011. Let's take a look at the underground events that have unfolded over the last few weeks:
One month ago I suggested that the most important man in the world was the newly appointed Chairman of the International Accounting Standards Board, a Dutch fellow by the name of Hans Hoogervorst. Hoogervorst had a plan to save Europe which included the adoption of a new rule called IFRS 9 that would eliminate mark-to-market accounting of sovereign debt from European bank balance sheets.
We all should be experts on the dangers of mark-to-market accounting after observing the U.S. banking crisis of 2008/2009 and the Great Depression in the 1930s. Mark-to-market was repealed at 8:45 a.m on April 2, 2009, which finally put a stop to the short term liquidity crisis and at the same time ushered in a stock market recovery. Banks no longer had to raise capital as long term stability was brought back to the system. The exact same scenario would have happened in 2011 Europe under Hoogervorst's plan. Without the threat of failure by those banks who hold high amounts of euro sovereign debt, investors would be free to move on from the European crisis and the stock market could resume its fundamental course.
On July 13, the head of European Regulation, a Frenchman by the name of Michel Barnier came out in strong opposition to Hoogervorst's plan. The back and forth dialogue between the two men is quite revealing. From a London based Reuters article I quote the following:
The European Union won't give the green light yet to a new accounting rule that could ease fallout from the euro zone's sovereign debt crisis on banks, a top EU official said on Wednesday. "I do not believe this will be the first solution to the problems we face in Europe at the moment," EU Internal Market Commissioner Michel Barnier told a webcast meeting in New York.
The first completed part of the new IFRS 9 standard would allow European banks to exclude some of the broader markets effects as the "financial crisis has come back with a vengeance," Hoogervorst said.
The European Commission must approve any IASB rule change to become applicable for listed companies in the EU. "Under IFRS 9, impairments will still be painful but I am convinced it would be more timely done because the cliff effect is much less severe," Hoogervorst said.
"There is no change in our position," responded Barnier.
On July 15th Barnier released the results of his European banking stress tests, which appeared to calm the markets - until the hedge funds got a better look.
The unintended consequence of the stress tests was that it revealed more transparent data on the actual exposure of each bank to eurozone sovereign debt. Without IFRS 9, those banks from the test are at serious risk of bear raids by the hedge funds. The fact that we permit hedge funds to profit from this kind of financial destruction opens the door to the same kind of chaos that we witnessed when Lehman Brothers and Bear Stearns were brought down. There were many who believed, including me, that Lehman was fit for survival back in 2008, but we all learned that you never underestimate the power of a bear raid. Hedge funds act like ravenous wolves relentlessly attacking their prey no matter what the fundamentals show. The European bear raid is increasing in frequency. What used to happen every other quarter has evolved into an event that happens every other week and will soon happen every other day. European bonds and European banks are under attack. Hedge funds monitor the unintended consequences of government regulation because their livelihood depends on it while the average individual investor along with the financial media is completely ignorant of the magnitude of these events. Barnier's stress test began a troubled string of events.
On July 20th Barnier announced sweeping regulatory reforms for the European banking sector that now force banks to hold more capital of a higher quality.
Are you kidding me? Through this reform, Barnier gained the ability to dole out fines that could amount up to 10% of an institution's annual turnover. In the midst of a crisis, the worst thing a regulatory agency can do is force banks to raise capital as a reaction to short term market gyrations, or in other words, hedge fund manipulation. In this era of hedge fund volatility, banks need to be more stable than the short term market. In my opinion, this crisis has been enabled by Barnier and engineered by hedge funds who are acting more like financial terrorists than they are money managers. European banks will be rushing to raise new capital, but soon enough there will be no capital to be had.
On August 4th it was announced that IFRS 9 would be delayed until January 1, 2015.
One day earlier, on August 3rd the Dow hovered around 12,000. After the European mark to market announcement the Dow closed at 11,383, down 510 points on the day as the big money recognized that bear raids on European banks are officially endorsed by the European Commission.
Then after the market close on Friday August 5th, we received word that S&P CEO Deven Sharma had taken control of the ratings agency and personally led the push for a U.S. downgrade. There is a lot of evidence that he has deliberately tried to trash the U.S. economy. Even after discovering that the S&P debt calculations were off by $2 trillion, Sharma made the decision to go ahead with the unethical downgrade. This is a guy who was a key contributor at the 2009 Bilderberg Summit that organized 120 of the world's richest men and women to push for an end to the dollar as the global reserve currency. Guess who else are confirmed attendees at past Gilderberg conferences... none other that Michel Barnier and the godfather of hedge fund manipulation Mr. George Soros himself. The financial decisions coming from this group are a having a terrorist-like effect on global markets. The contagious spread of fear is happening before our very eyes.
I'm not even sure how to conclude this post, other than to say that the S&P downgrade is completely ridiculous and that European banking problems are far from over. The fact that S&P downgraded the U.S. after an agreement on the debt ceiling was reached reeks of hidden agenda. There is no threat of U.S. default so why do it now? The only explanation that I can come up with is that it was Sharma's chance to strike during the vulnerable month of August. I don't think that Sharma's move will have a long term impact on the U.S. - in fact I think the fear surrounding the U.S. will be gone by Labor Day and the market will move strongly off the August lows. However, I also believe the Europe mess will continue to be manipulated by hedge funds each and every time they want a broad market selloff. The door is wide open for a euro-zone failure.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.