Second Leg of Crisis Beginning: Hedge Fund Manager
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By: Patrick Allen
CNBC Senior News EditorSeptember and October hold bad news for stock markets and banks remain overleveraged as we head into the second leg of the financial crisis according to Pedro De Noronha, the managing partner at Noster Capital in London.
"We are seeing one of the most challenging years for investors ever," De Noronha told CNBC Tuesday. "Major investors are simply leaving the market. When it looks like markets are about to fall off the cliff they rally and vice versa.
Photo: Oliver Quillia for CNBC.com
"There are problems coming from the resetting of US mortgages and (the) euro area remains a big worry," he said.
"Germany is unwilling to save any other European country," De Noronha said. "Merkel used up lots of political capital saving Greece and she saved the Greek bond market in order to save the French and German banking system from more big losses."
"There are four or five countries that have major structural problems that should not be in the euro," he said. "I still have (yet) to see a politician who will shoot themselves in the head on austerity."
"The Greeks have no choice but to cut, the others like Spain are not doing enough, I am with the 'Austerian' school and do not buy the Keynesian argument," he said.
On Monday, Nobel-prize-winning economist Paul Krugman called for another big stimulus program for the US, saying "(e)verything is pointing to the need for more spending."
Laughable Tests?
De Noronha said he is also very worried about the banking industry and is shorting five of the biggest bank stocks in Europe: UBS, Barclays [BARC-LN 315.50
13.10 (+4.33%) 
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, Intesa Sanpaolo, Unione de Banche and BBVA."The recent stress tests made me laugh," he said. "We only stress tested what the banks told us, I did not see anyone testing anyone until they had gone broke."
"When I look at Tier 1 Capital ratios, I find things propping them up that are not assets that can be drawn on in a crisis," he said. "The real capital 1 ratio of some major banks is just 1.7 percent and I am shorting five major European banks as a result."
The majority of banks remain over leveraged going into what could be the second leg of the financial crisis, De Noronha added.
“The regulators used 6 percent as the threshold for defining the minimum capital ratios, but that 6 percent number includes non-cash assets such as deferred tax assets and goodwill," he said. "If you use only tangible book equity the 6 percent of the biggest offenders turns into closer to 2 percent which implies a leverage ratio of 50 times. That is hardly conservative for current the current economic reality."
On Tuesday, Credit Suisse took a different stance, boosting its rating on banking to "overweight" from "market weight," saying that economic risks are "overplayed" and that "funding should be less costly than initially feared."
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i am strong believer in the theory of austerity measure and not keynesian theory.
as such i believe it is inevitable a double dip recession is unavoidable. we cannot simply buy our way out of trouble.
USA cannot spent like this foreover. either we deal with this crisis now or future generation.
The singapore govt tackle the housing issue recently just somehow remind me why they do it now and not 6mths ago when we are riding on waves of recovery.
If singapore govt do not tackle the housing bubble now, imagine what situation will it be like if we are going into L shape recovery or double dip. more ppl will get burn and buried.
just remind yourself when you make a big purchases. think twice.
Some of my customers serving the US market are experiencing a slowdown in order in 3/4Q. i suspected the americans consumers which drive the US economy are cutting down spending. And there is no way singapore can avoid it.
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Finally someone shares my school of thought. Paul krugman doesn't deserve his nobel prize by making such statements and even more other horrid ones. TS sure knows whats happening.
Double dip recession? i call the second dip a depression.
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very right.................i've been saying a depression is absolutely possible since 2004 !
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He missed the boat la.
I think I will follow my theory of cycles instead. Happily quietly huat huat can liao.
Woohoo my Starhub lots bought at $1.90 average yielding >10% p.a.!