Forex failure continues in Poland/It’s getting bleaker by the minute in Eastern Europe

[seemslikeadream]

http://jsmineset.com/index.php/2009/02/17/europe-unwinding/
Europe Unwinding

Dear Friends,

To underscore my statement that "It has hit the fan," please review the following:



http://ftalphaville.ft.com/blog/2009/02/16/52508/forex-failure-continues-in-poland/


Forex failure continues in Poland
Posted by Izabella Kaminska on Feb 16 21:43.

It’s getting bleaker by the minute in Eastern Europe. In case you didn’t catch the latest from the Telegraph’s Ambrose Evans-Pritchard, he warned at the weekend how a growing crisis in Eastern Europe could cause nothing less than a total collapse in the West, or as he put it: “If one spark jumps across the euro zone line, we will have global systemic crisis within days.”

To make his point Evans-Pritchard quotes Morgan Stanley’s Stephen Jen on the fact that Eastern Europe has borrowed a total of $1,7oobn abroad. Furthermore about $400bn of that debt has to be rolled over this year - a number equivalent to about a third of the region’s GDP.

As we outlined a couple of weeks ago, the concern is now greatest not for the retail mortgage sector, which practiced the issuance of foreign-currency based mortgages on a grand scale, but for corporates — which it appears practiced the art of derivative forex exposure on an even grander scale.

And so it comes as no surprise on Monday that yet another corporate forex failure has occurred in Poland, this time at Polski koncern Miesny Duda, a Polish meatpacking business. The stock sank to a record low on the news. As Bloomberg reports:

Feb. 16 (Bloomberg) — Polski Koncern Miesny Duda SA posted the steepest drop since it started trading in Warsaw in 2003, after the Polish meatpacker reported losses on derivatives. Duda slumped 0.4 zloty, or 33 percent, to 0.8 zloty, closing at a record low. The WIG Index retreated 3.3 percent. The company’s unrealized losses on open currency derivatives contracts reached 29.3 million zloty ($7.8 million) at the end of last year, it said in a regulatory statement today. Duda’s net income was 22.4 million zloty in the first nine months of 2008, according to a regulatory filing on Nov. 5. Polish companies lost on contracts designed to protect them from the strengthening of the zloty, which climbed to a record against the euro in July. The currency has tumbled 33 percent since then as investors shunned emerging-market assets in the global financial crisis.

All of this comes in the context of a clearly intensifying panic in the country. First of all there was a string of bad-news stories from the financials last week. On Monday, the zloty set fresh record lows on most major crosses leading to the Warsaw WIG20’s lowest close since November 2003, down 3.6 per cent in late afternoon trade. The country’s two largest banks PKO BP and Pekao (owned by Unicredit) fell as much as 8.2 per cent.



Polish business daily Puls Biznesu described the zloty rout as nothing more than a panic –in the absence of any other major fundamental news the paper blamed unfavourable reports in the western press, among them The Telegraph, for the intensifying deterioration.

Bloomberg, meanwhile, reported that Bank of America Securities-Merrill Lynch expects the zloty to weaken even further against the dollar in the next two months, down by at least another 13 per cent to 3.85 per dollar.

All of which should incite some sort of reassurance or action from the authorities/government or central bank right?

No such luck. In fact, the Polish central bank warned on Monday against joining the pre-euro ERM 2 mechanism, which had been viewed by many investors as the only potential saving grace for the Polish economy.

Polish authorities’ apparent reluctance to intervene is really beginning to worry analysts who believe the best solution is some sort of coordinated forex intervention, ideally with other Eastern European states.


http://market-ticker.org/archives/801-RED-ALERT-FX-Dislocation-In-Process.html


11:47 PM - It appears that FX has settled down although the equity market damage in Asia remains significant in many areas, with South Korea (one potential flashpoint) being off close to 4%. Europe opens soon with spreadbetter info up around 12:15 CT most mornings; if we get through the euro open without the crosses going nuts again this may remain capped. Watch the Euro crosses in particular; if there is an "ignition" sort of event you won't miss it (a ~500 pip near-vertical move would not surprise, on top of the 150 pips we've already taken tonight.) Last update on this for this evening unless something pops up.


RED ALERT: FX Dislocation In Process - Updated (11:47 PM)
8:17 CT

I do not know what is going on here, and I don't think I want to.

Someone, apparently someone in Asia, wants dollars. A LOT of dollars. There is a forced-liquidation event underway that is massive, it is against all asset classes and it is spreading.

It originated at approximately 7:15 CT this evening and originated out of Asia somewhere. All of the primary currency crosses got hit at once - Euro, Pound, Yen - all weakened dramatically against the dollar and it is still going on. The Asian stock markets got walloped at the same time in coordinated waves of forced selling.

At the same time the US futures markets got nailed as well, down some six handles on the /ES in a near-vertical drop. While this sounds "not that big" to move these markets in a coordinated fashion like this is a trillion-dollar enterprise - this is not some small company that went bankrupt, or even a large company.

There is no news coverage at the present time identifying the source of this but it is not small and contrary to some reports it is not "automatic selling"; this is forced liquidation.

Folks, if this translates into Eastern Europe where there are severe instabilities already brewing literally everything in the financial world could come apart "all at once."

[marketcrazy1]

1. been watching this unfold

another symptom of massive debt destruction and collapsing credit markets............. GAME ON!!!

[leftstreet]

2. "Someone, apparently someone in Asia, wants dollars."

"A LOT of dollars. There is a forced-liquidation event underway that is massive, it is against all asset classes and it is spreading."

:shrug:

Interesting stuff!

[cottonseed]

3. This looks like it could be big.

gold bugs and inverse etf boards are going crazy right now

[seemslikeadream]

4. Bank of East Asia Posts First Loss in Four Decades

http://www.bloomberg.com/apps/news?pid=20601087&sid=aDXfF3o0lkm0&refer=home

Feb. 17 (Bloomberg) -- Bank of East Asia Ltd., the Hong Kong lender that suffered a run on deposits during a few days in September, had its first loss in at least four decades after writing down the value of credit-market investments.

The HK$855 million ($110 million) deficit for the six months ended Dec. 31, derived by subtracting first-half earnings from full-year numbers reported by the company today, compares with profit of HK$2.26 billion a year earlier.

Chairman David Li said he’ll “fast track” measures to cut costs after expenses rose 23 percent last year and bad-loan charges more than doubled. Bank of East Asia’s shares tumbled 61 percent in the past year, and the September run on the lender spurred Hong Kong’s central bank to guarantee all bank deposits.

“They have never been good at controlling expenses but the 23 percent increase is just way too high,” said Lee Yuk-kei, Hong Kong-based analyst at Core-Pacific Yamaichi International Ltd. “The rise in loan charges is also quite worrying.”

[Hardrada]

5. This has something to do with Polish sausage??

[TheWatcher]

6. Keep Giggling And Snickering.

One of these days, the joke is going to be on all of us.

It may not happen tonight, but the Economic Crisis that has enveloped this planet is far worse than you will ever allow yourself to know.

The shit is going to hit the fan at some point.

Now, back to Reality TV and wondering what we as Citizens can do to reign in that pesky Michael Phelps.

[seemslikeadream]

7. GLOBAL MARKETS: European Stocks To Open Down As Asia Slumps

http://www.fxstreet.com/news/forex-news/article.aspx?StoryId=e860eaa6-7a0f-4a20-8cbb-4361e37add53

GLOBAL MARKETS: European Stocks To Open Down As Asia Slumps

By Andrea Tryphonides
Of DOW JONES NEWSWIRES


LONDON (Dow Jones)--European stocks were expected to open lower Tuesday, after a negative session for Asian indexes that saw the Nikkei hit its lowest level since November.

Banks led the decline in Asia, and much the same is expected in Europe, particularly as concerns persist about the health of the U.K. and euro-zone banking sectors.

"We're looking at another slightly softer start for equities in Europe today, although direction may be a little difficult to establish with Wall Street having been closed for a holiday," said Matt Buckland at CMC Markets.

Buckland called London's FTSE 100 index down nine points, or 0.1%, at 4126.8, Frankfurt's DAX index down 25 points, or 0.5%, at 4341.6 and Paris's CAC-40 index 15 points, or 0.5%, lower at 2947.2.

Asian share markets were weaker, with financial stocks falling across the region and the euro sliding as concerns mounted about the health of the European economy and its banks in particular.

Investors were also waiting to see how Wall Street would fare after its three-day weekend. They are awaiting details of further steps by the U.S. administration to shore up sentiment, with General Motors and Chrysler expected to detail their long-term recovery plans later Tuesday.

[TheWatcher]

11. Make NO Mistake. The Official Sector is going to try and Stick Save this again

To put all the Sheep back to sleep and Safely tucked into their Network Shows for more Heroin High numbness from the ever creeping Reality, and perhaps they will pull another Rabbit out of the hat at 3:30 PM, and there will be much Giggling and Snickering and cries of "Thank God It Passed! AGAIN!"

But this is very serious.

This is Global, and it is REAL.

We'll have to see how it all shakes out today and what GM does.

And of course whatever new scheme they announce that they are "Probably" going to do to save everything.

The Circus Of Insanity Continues.....

[originalpckelly]

9. I feel like an East Berliner watching the wall come down.

[originalpckelly]

8. How many Poles does it take to screw up a world economy?

[TheWatcher]

10. You are way ahead of me tonight, dear SLAD. :)

I was just reading about this and was going to Post something in the Economic Forum about it, but Thank You for posting it here.

Sadly this thread will probably drop to the bottom like a rock, because as you and I both know, the "Stimlus" has saved the planet, and a meltdown could never occur without TPTB warning us first through the Cable News Channels, because dammit, we're "America" and nothing is real until we say it is.

The Goebbels 2.0 Media in our country has been so focused on the menace that is Michael Phelps, and other species-threatening events, that they just haven't had the time to tell us about such trivial, inconsequential matters such as the massive unrest going on in Greece, France, and Iceland where everything is collapsing, and the Citizens, who can't seem to understand more pressing threats like Michael Phelps, have had enough.

Also, over the weekend it was reported that Ireland may default on all it's debts this week, and GM may be considering bankruptcy and starting a new company. :wtf:

It would seem that most are still safe in their Bubbles here in Pleasantville, um, I mean America, but I wonder how much longer it will be before they finally burst.

K&R

Wake Up America.

[seemslikeadream]

16. Have you got your heirloom seeds stashed away?

http://www.heirloomseeds.com/

[BigBearJohn]

12. Can somebody please change my diaper?

[Truth2Tell]

13. Thank you SLAD. U rock. KR nt

[seemslikeadream]

15. Norway’s largest oil and gas company, posted a 67 percent drop in fourth-quarter

:hug:


http://www.bloomberg.com/apps/news?pid=20601085&sid=aNJaKd2.vizE&refer=europe


StatoilHydro Profit Drops 67% on Weaker Krone, Oil (Update1)

By Marianne Stigset and Vibeke Laroi

Feb. 17 (Bloomberg) -- StatoilHydro ASA, Norway’s largest oil and gas company, posted a 67 percent drop in fourth-quarter profit as a weaker krone pushed up debt costs and crude oil plunged more than $100 a barrel from a record.

The company had net income of 2.01 billion kroner ($285 million), or 0.63 kroner a share, from a profit of 6.15 billion kroner, or 1.93 kroner, a year earlier, the Stavanger-based company said today. A loss of 409 million kroner was expected, according to the median estimate in a survey of analysts.

“We have delivered record production and carried out our most active exploration program ever,” Chief Executive Officer Helge Lund said in the statement. “StatoilHydro is well positioned to manage through the global economic downturn. A strong balance sheet and active cost management will enable us to pursue our long-term strategic direction,” he said.

Benchmark Brent North Sea crude tumbled 54 percent in the quarter, paring earnings for oil companies. Royal Dutch Shell Plc, Europe’s largest oil company, posted its first quarterly loss in 10 years, while BP Plc, the second-largest, had its first loss in seven years. Oil producers such as StatoilHydro are cutting exploration spending and reducing costs as a result.

[B o d i]

14. I'm not sure I understand this, but is what you're trying say is the greenback is up?

Currency valuation is always relative to other currency, right?

Can someone put this in layman's terms?

[galileoreloaded]

18. The most likely scenario is that some other country, with money problems

will be our undoing. Eastern Europe failures spread to UK. One or two UK banks (say RBS, who has debt exceeding UK's GDP) need a bailout, which trigger deleveraging to make them whole. UK is large purchaser of US Treasuries, and we get a run on bonds as UK dumps them. UST yields pump to 12-15%, and at that point, our government shuts down. So much revenue will be expended on debt service, that there will be not much left over for daily operations.

It is happening right now, but at a much slower pace. This is just an acceleration. How many dollars of GDP does one dollar of debt generate today?? Big fat zero.

Hamden will be along shortly to tell you how wrong I am, but that's OK. Everybody has to pick their own horse to ride.

[HamdenRice]

19. Ironically, this is very good for the US and will finance the stimulus

I was just posting about this elsewhere. Before the crisis, there were about $70 trillion in global savings. Much of it was saved up in Asia where people and companies are extremely frugal and save 50% of what they earn.

That money was lent back to the US, as well as elsewhere around the world, which helped fuel the speculative boom in housing prices. But it was also lent to more speculative countries where returns were higher, whether oil and gas fields in Russia, industry and urban development in Poland, or mining in South Africa.

Now as the world economy is scary to those savers, they want to put everything in what they consider to be the world's safest investment -- US treasury bills. To buy US treasury bills, you first have to buy US dollars. The demand for US dollars goes up, so the price of US dollars goes up compared to all other currencies. The demand for T-bills is so high, that investors are willing to buy them for zero interest -- just so long as they won't lose money as they might on any other investment.

This is what allows the Obama administration to borrow $800 billion more in the middle of a financial crisis to fund the stimulus. The world is throwing trillions of dollars at the US and saying, please just take it and hold it, you don't have to pay me anything, so long as I don't have to bet on Polish zloty, Russian rubles, South African rands, and so on.

We caused the crisis, but ironically, we will benefit to some extent from our own incompetence as long as the US dollar remains the world's safe currency.

[leveymg]

20. But, here's the downside: a run on the Dollar.

A spike in foreign holdings of Treasuries and dollars is going to give an awful lot of leverage in the hands of foreign hedge funds who will make a play in the opposite direction, leading to a massive sell-off. When that happens, the dollar will inflate relative to other currencies.

Need an alternator for your Toyota? $1900. A barrel of sweet Middle East crude? $330. Need to borrow on international credit markets? Expect to pay 40 percent/annum on dollar denominated collateral short-term loans.

It happened in 1997 to a whole bunch of Asian economies and currencies. It can happen here.

[seemslikeadream]

21. as long as the US dollar remains the world's safe currency.

:hi:

[Ghost Dog]

24. Ah. Echoing that often infuriating Spengler fellow:

http://www.atimes.com/atimes/Global_Economy/KB18Dj05.html

(whose remarks I'm this time more deeply pondering...)

[HamdenRice]

25. I hadn't seen that, but there's a lot to think about!

Overall, I think he's right. The two things I disagree about are that Reagan's supply side strategy worked, and the dire picture of an aging Japan. I'm always amazed when an economist can picture the youth of a society subsidizing the aged of that same society, but can picture the youth of the global economy subsidizing the aged of a particular society. The Japanese are accumulating financial assets from countries that have a less dire demographic outlook. If Spengler can imagine the Chinese supporting the old age through acquisition of financial assets, I don't see why he can't picture that the Japanese have done the same. I suppose it's because Japan's government is in debt while China's is not, and Japan's old age support is channeled more through the government.

[Hissyspit]

17. Kick nt

[seemslikeadream]

22. Eastern Europe worries spark Western bank slide

http://www.marketwatch.com/news/story/western-banking-stocks-slide-eastern/story.aspx?guid=%7B8FAB875E-38D6-41F6-850A-EC784420BE57%7D&dist=msr_1

LONDON (MarketWatch) - Several of Europe's top banks skidded on Tuesday as investors fretted that exposure to their once-fast growing Eastern neighbours will prove to be a thorn in the side of many lenders.
The sell-off was sparked by a report from Moody's Investors Services, which said it's concerned about Western European banks that are supporting subsidiaries in Eastern Europe against a rapidly deteriorating global macroeconomic backdrop.
"Deteriorating financial strength of East European subsidiaries has a negative spillover effect on their West European parents. Maintaining a robust risk-return profile during a downturn in the untested and still more volatile East European markets will prove a challenge going forward," the agency said.
The rating agency said that banks headquartered in Austria, Italy, France, Belgium, Germany and Sweden account for 84% of the total Western European bank claims on Eastern Europe.

[seemslikeadream]

23. Max Keiser and Alec Baldwin - December 2008

http://www.democraticunderground.com/discuss/duboard.php?az=show_mesg&forum=385&topic_id=272077&mesg_id=272077

[KamaAina]

26. Looks like we need a global stimulus package

the G8 or whoever needs to get one together pronto.

Hey, I know! The U.S. has an elected leader again! Maybe he could call for the meeting!

[KamaAina]

27. Apparently there actually was a G7 summit in Rome over the weekend

not exactly saturation news coverage over here, since Sarah and Bristol Palin weren't there :sarcasm:

http://news.yahoo.com/s/ap/20090217/ap_on_re_as/as_japan_politics

Japan's finance minister resigned in disgrace Tuesday after slurring his speech and nodding off during the G-7 summit in Rome last weekend in yet another political distraction as the world's No. 2 economy battles an ever-deepening recession.

G7 again? Did Russia (or someone else) get kicked out?

[Ghost Dog]

28. Russia either unwilling or uninvited this time? But word is, G20

(or G21 at least, also including Spain, I hope) is where it's at now.

On the G7 meeting: http://news.yahoo.com/s/afp/20090214/bs_afp/financeeconomyg7_20090214164005 (Ah ha! Russia was represented).

On the forthcoming G20+ meeting: http://www.fxstreet.com/news/forex-news/article.aspx?StoryId=f92904cb-5650-48f6-b7cb-f0ce970d1704