2014—The Tragic Year? Update

In 2014—The Tragic Year?, I linked to a few sources that show some similarity between 1931 (The original "Tragic Year") and 2014. The main one is the great optimism that the corner was turned and a real recovery was underway. There were several other similarities, and here's another: Austrian bank risk.

Will Austrian Bank Woes Be Again the Catalyst for a European Kondratieff Winter?
Sad affairs have been heating up in the tiny Alpine republic in the center of the European Union. While Austria experiences record unemployment at record growth rates and tax revenues have fallen behind optimistic projections, the looming bankruptcy of a mid-sized regional bank, Hypo Group Alpe Adria (HGAA), may propel the country to the disdained position of being the catalyst for a new round of bank failures due to interwoven banks risks on both the domestic and the international level.

Austrian politicians are up in arms since a third-party expert opinion that recommends to wind down the bank at a cost of €18 billion has been leaked to the media, but keep on marching on the most fatal route that will not dissolve the problems: They keep flogging the dead horse HGAA with taxpayer's millions in a monthly money injection routine that has cost so far around €4.5 billion.

......Austria's banking woes look eerily similar to the failure of Creditanstalt in 1931 that was the fuse for the last European Kondratieff winter. For those sticking with K-cycles this may not be a good outlook. 83 years later such an event is more than overdue in Europe and given Europe's overall outlook it does not take much anymore to set the Great EU Chaos into full fledged motion.

Below is a chart of iShares MSCI Austria (EWO) and below that, a chart of EWO divided by EZU showing the index's under performance relative to the rest of the eurozone. EWO is 42% financials; EZU is 24% financials. However, EWO performed about as bad against EUFN, an ETF of European financial companies, so under performance is not due to financials under performing generally.

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