Seeking Alpha

Graham Summers'  Instablog

Graham Summers
Send Message
Graham Summers is Chief Market Strategist for Phoenix Capital Investment Research, an independent investment strategy firm based in Washington DC with clients in 56 countries around the world.
My company:
Daily Market Alert
My blog:
Daily Market Alert
  • Investors Are Delusional About Europe 0 comments
    Jul 17, 2014 1:50 PM

    The markets continue to operate based on total delusion regarding to Europe.

    We've been told dozens of times that the EU Crisis was solved in 2012. This is the theme that has been pounded out first by the political elite and then by the mainstream media month after month after month.

    Unfortunately, all of them were either ignorant or liars. Neither should make investors confident in their ability to protect their capital.

    Yesterday's market wipeout was blamed on the troubled of a Portuguese bank. It's rather striking that the bank's problems first became apparent TWO MONTHS AGO. Where was the media on that one? Where were the warnings?

    We've been through this mess multiple times in the last three years. The most notable cases involved Spain and Cyprus. And the formula is as follows:

    1) A problem first emerges.

    2) Various political and financial officials state that the problem is contained and there's nothing to worry about.

    3) Months later, the market and mainstream media catch on… usually when the problem is already a massive crisis and a bank holiday needs to be declared.

    4) Individual investors lose a LOT of money while the same folks who cause the problem A) are not fired, fined or jailed B) never come clean about the full scope of the problem and C) claim that they can solve the problem and have all the answers.

    Consider the story of Bankia in Spain.

    Bankia was formed by merging seven bankrupt regional Spanish banks in 2010.

    The new bank was funded by Spain's Government rescue fund… which received "preference shares" in return for over €4 billion in funding for the bank (all provided by taxpayers of course).

    These preference shares were shares that A) yielded 7.75% and B) would get paid before ordinary investors if Bankia failed again. So right away, the Spanish Government was taking taxpayer money to give itself preferential treatment over ordinary investors (including said taxpayers).

    Indeed, those investors who owned shares in the seven banks that merged to form Bankia lost their shirts. They were wiped out and lost everything when the new bank was created.

    Bankia was taken public in 2011. Spanish investment bankers convinced the Spanish public that the bank was a fantastic investment. Over 98% of the shares were sold to Spanish investors.

    One year later, Bankia was bankrupt again, and required the single largest bailout in Spain's history: €19 billion. Spain took over the bank (again) and Bankia shares were frozen on the market (meaning you couldn't sell them if you wanted to).

    When the bailout took place, Bankia shareholders were all but wiped out and forced to take huge losses as part of the deal. The vast majority of these were individual investors, NOT Wall Street or its European equivalent (Bankia currently faces a lawsuit for over 140,000 claims of mis-selling shares).

    So that's two wipeouts in as many years.

    The bank was taken public a second time in May 2013. Once again Bankia shares promptly collapsed, losing 80% of their value in a matter of days. And once again, it was ordinary investors who got destroyed.

    Indeed, things were so awful that a police officer stabbed a Bankia banker who sold him over €300,000 worth of shares (the banker had convinced him it was a great investment).

    Bankia is hardly an isolated incident. Consider what happened in Cyprus with the Bank of Cyprus.

    Here's the timeline:

    · June 25, 2012: Cyprus formally requests a bailout from the EU.

    · November 24, 2012: Cyprus announces it has reached an agreement with the EU the bailout process once Cyprus banks are examined by EU officials (ballpark estimate of capital needed is €17.5 billion).

    · February 25, 2013: Democratic Rally candidate Nicos Anastasiades wins Cypriot election defeating his opponent, an anti-austerity Communist.

    The initial stage of this took over six months to develop. But once things got hairy, the seizure took place over the course of ONE WEEKEND.

    · March 16 2013: Cyprus announces the terms of its bail-in: a 6.75% confiscation of accounts under €100,000 and 9.9% for accounts larger than €100,000… a bank holiday is announced.

    · March 17 2013: emergency session of Parliament to vote on bailout/bail-in is postponed.

    · March 18 2013: Bank holiday extended until March 21 2013.

    · March 19 2013: Cyprus parliament rejects bail-in bill.

    · March 20 2013: Bank holiday extended until March 26 2013.

    · March 24 2013: Cash limits of €100 in withdrawals begin for largest banks in Cyprus.

    · March 25 2013: Bail-in deal agreed upon. Those depositors with over €100,000 either lose 40% of their money (Bank of Cyprus) or lose 60% (Laiki).

    Now get ready for the real kicker… the Bank of Cyprus, the bank that imploded in 2013 and STOLE clients' funds was voted Best Bank for Private Banking in Cyprus by EUROMONEY magazine in 2012.

    No joke…

    Bank of Cyprus has been named as the Best Bank for Private Banking in Cyprus, by the internationally acclaimed magazine EUROMONEY

    Bank of Cyprus Private Banking ranked first among Cypriot, Greek and other international financial institutions operating in Cyprus in the Private Banking sector. This accolade classifies the Bank among the leading financial institutions offering Private Banking services and is yet another important international distinction for the Bank of Cyprus Group…

    This recognition by EUROMONEY is ever more important in today's macroeconomic environment as it reaffirms the Bank's ability to safely and successfully respond to its clients' financial needs and emphasizes its clients' loyalty and trust.

    http://www.bankofcyprus.com.cy/en-GB/Cyprus/News-Archive/Best-Bank-for-Private-Banking/

    So… just WHO actually has a CLUE about the true state of the banks in Europe? More importantly, who will actually bother WARNING investors about the risks therein?

    As Jean-Claude Juncker openly stated, "When it becomes serious, you have to lie."

    Now we're going through another round of this game with Portuguese bank Banco De Espirito Santo. We wonder what will happen…

    This concludes this article. If you're looking for the means of protecting your portfolio from the coming collapse, you can pick up a FREE investment report titled Protect Your Portfolio at http://phoenixcapitalmarketing.com/special-reports.html

    This report outlines a number of strategies you can implement to prepare yourself and your loved ones from the coming market carnage.

    Best Regards

    Phoenix Capital Research

Back To Graham Summers' Instablog HomePage »

Instablogs are blogs which are instantly set up and networked within the Seeking Alpha community. Instablog posts are not selected, edited or screened by Seeking Alpha editors, in contrast to contributors' articles.

Comments (0)
Track new comments
Be the first to comment
Full index of posts »
Latest Followers

StockTalks

More »

Latest Comments


Instablogs are Seeking Alpha's free blogging platform customized for finance, with instant set up and exposure to millions of readers interested in the financial markets. Publish your own instablog in minutes.