EU banks stress test? Shock surprise? Not on your Nelly!

A very brief post today, we are awaiting the results of a "European Banks Stress Test".


Even before the results are released (and it's 8:30 am UK time), I am doubtful about their authenticity. Let's not forget they are two weeks overdue. The tests were completed a while ago, but there were "delays", in releasing the results. It has to be said that no matter what the tests said about the banks, there is absolutely no room for manoevre for the EU to say anything other than "everything is fine". I've no doubt there has to be a few minor Spanish "Caja's" that will be facing intense scrutiny, but anything other than that (i.e a major financial institution in trouble) and that could trigger a complete collapse.

So in anticipation of the results, and the fact that there has been plenty of time to "sex-up" the report, leaves me in little doubt that there will be no surprises today. Overall, it is my gut feeling that the banks are still struggling for clean air, and so those that are aware of how figures are now being massaged to tell share holders and investors what they want to hear, will still be advised to exercise caution. Only today I read that Dell, the computer manufacturer (and I quote from the BBC): "Dell has agreed to pay $100m to settle charges that the computer maker used accounting fraud to make it appear it was meeting analysts' profit forecasts."

There is no way any report is going to say anything other than "all is wonderful". I have a gut feeling that Ben Bernanke was a test run for market confidence recently when he said that the US economy was "unusually uncertain". This sent markets tumbling, so on that basis, the EU now knows that any market confidence is quickly eradicated with bad news.

So no bad news today... and if I'm wrong, I'll leave this here anyway.

Of course, there may really be no bad news, but going by what I'm reading, and how various banks are still conducting themselves, I don't believe that for a moment, sorry. I predict confidently that barring another huge "quantitative easing" program, and more bail-outs, we will be in yet another recession very soon.

Finally, whilst this is conjecture and my promise is to give fair warning of such, have you noticed how there is no "bad news"? When we had the collapse of 2008, Michael Howard MP complained to the BBC that Robert Peston (Bongo Bob - the drum of the city as I call him), shouldn't have reported so quickly causing the markets to suffer even more.

Even now, when reading the BBC and Bloomberg sites, it's scattered with good news, and yet, when I read further away from the mainstream, I still see some very worrying trends, especially in the US housing market.

Here is the Baltic Dry Index which is an indicator of good travelling around the world by sea. Reading this would you take comfort in the global economic recovery?

Baltic Dry Index

And this from JP Morgan is sobering.

It seems the phrase "No news is good news" has taken a new twist if it's not even being reported.



UPDATE Saturday 24th July 2010

Well we have the results and they have certainly been massaged as far as possible to show positivity, but, it has to be said, even with all that manipulation, they still don't look good.

I'm amazed how investors put up with even the most basic manipulation, the release of this data, after markets close on Friday afternoons. I know it's obvious, but that gives everyone the weekend to forget about the data and by Monday, they're chomping at the bit to buy up those cheap stocks.

As for the actual manipulation, it's appalling that we just can't seem to get any straight answers. Let's not forget, these ministers, politicians, civil servants are paid by us the general tax payers, and yet even now, after all what has happened, they are still messing around with the numbers. The most obvious is only accounting for sovereign debt.

I'm not going to critique in depth because The Daily Telegraph does a much better job here.

About the only decent thing to come out of these tests is that they were actually completed in some harmony by all 27 states. However, the opaqueness of the outcome doesn't inspire confidence at all, and my gut feeling is this was purely a way of all banks getting a gauge on each other.

So to summarise, these tests were only for the current sovereign debt held by the banks and not for the debt being held until maturity. The only conclusion is that this debt is so toxic, it doesn't bear contemplation... otherwise, why not include it?