Talk about contrarian bets. How many people do you think were substantially overweight European banks coming into 2012? Better yet – how many people got shaken out of such a position in the middle of the Summer when it looked like Europe’s problems were about to get worse?
Our friend Martin at Macronomics has some details on the bigger picture there (see here):
In addition to factor (8) coined “Hoarding” by Irving Fisher, Europe is as well a good example of the application of “Synchronicity” given as described by Irving Fisher, “Banks have been curtailing Loans for Self-Protection”courtesy of the European Banking Association rule of reaching 9% of Core Tier 1 Capital before the end of June 2012 with the economic impact we all have witnessed by now mostly in peripheral countries (see our conversation “Money for Nothing“):
“We mean “Money for Nothing” given our friends at Rcube Global Macro, in their latest study of the ECB quarterly bank lending survey indicate a significant worsening of the credit crunch in Europe, meaning plenty of liquidity impact for banks but confirming our 2011 fears of credit contraction for corporates and households (“Money for nothing and the Casino Chips for free…” – Macronomics)-February 2012
“European bank CDS levels have fallen to lows not held since June 2011, before the sovereign crisis and funding concerns in Spain and Italy flared aggressively and markets fell heavily. Down more than 250 bps since November 2011 highs, the improvement in European bank perceived creditworthiness has far outpaced that of U.S. and Asian peers” – source Bloomberg
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.