2014 is set to be a banner year for BoomBustBlog. As you may have noticed, positings have slowed down to almost nothing. This due to another battle with hackers on the server. As we bounce back, we will take the global macro world by storm. This includes the digital currencies and how they will affect the world as we know it.

I have recorded a brief simple video to explain my perspective on digital currencies. Let it be known to all who don't normally follow me: I'm not a gold bug, I'm not crypto-currency bug, I'm a risk-adjusted return bug! I attempt to see things as they truly are and will call it as I see it. Those of you who instanteously dismiss Bitoin as a bubble or Ponzi scheme are likely doing so without taking the time to fully understand it (it is quite different, I must admit), or read the disruptive change that it's capable of bringing into play - a disruptive change at the level of the Internet and World Wide Web during the the early to late 90's. For an example of this broad based, yet widely followed misunderstanding, reference The "Anti-Economist" Calls Bitcoin the A…

Now, there's no doubt that Bitcoin has been on a tear as of late, after all...

image012  

The vast majority of that 6 digit (that's right, "Six" digit) return has occurred within the last year.

 image015 

The most likely reason stems from media exposure. Please note that I don't think it's due to media exposure, it stems from it. You see, as explained in the short video below, Bitcoin's primary value stems from its inherent ability to truly and absolutely circumvent the gate keepers of monetary value today - the Central and Money Center Banks of the world.

Basically, the gatekeepers of money can now have the locks on their gates picked. The tertiary value is that this new money is "programmable," but more on that later. The more people who realize the value of this new, finite, cryptographic money, the higher the demand pushes the value of the money. 

Do I have a point? Well, look at it from obscurity in 2010 to media darling in 2013 - Yes! All 391,288% worth of appreciation!  

   image023

Stay tuned for more on my take on smart money in the very near future.

Published in BoomBustBlog

krugman-picsay

Paul Krugman wrote an anti-cryptocurrency Op-Ed piece in the NY Times titled the "Anti-social Network". Now, I know the Times needs to sell ad space and subscriptions, hence technical accuracy may not be exactly what they are going for, but Mr. Krugman (the classical Keynesian economist type - I don't particularly subscribe to such schools of thought, I guess I'm not educated enough) has spewed so many inaccurate statements, false facts and just plain old indications of his total misunderstanding of the subject matter one would think it would behoove the Times to either have him issue corrections (or, since it is Op-Ed after all) have someone such as my self (you know, maybe a little less academically involved) come after him and clean up a little. 

Now, where shall I start? To quote Mr. Krugman:

So how is bitcoin different? Unlike credit card transactions, which leave a digital trail, bitcoin transactions are designed to be anonymous and untraceable. When you transfer bitcoins to someone else, it’s as if you handed over a paper bag filled with $100 bills in a dark alley.

I don't think that's true Mr.Krugman. Let's refer to Wikipedia's write-up on the Cryptocurrency...

 Once validated, every individual transaction is permanently recorded in a public ledger known as the blockchain.[8] 

I believe Mr. Krugman made this error due to the accuracy of a statement made earlier in the Wikipedia description of Bitcoin, to wit:

Bitcoin (signBitcoinSign.svg; code: BTC or XBT[7]) is a peer-to-peer digital currency that functions without the intermediation of a central authority.[8] 

You see, the old school way of applied economics may very well have a big problem wrapping their collective heads around the concept of the absence of a "central authority" (read central bank) to act as the Grand Pubah, or ultimate financial intermediary. I'm just saying..

And to go on with the oh so witty comments from Mr. Krugman...

And sure enough, as best as anyone can tell the main use of bitcoin so far, other than as a target for speculation, has been for online versions of those dark-alley exchanges, with bitcoins traded for narcotics and other illegal items.

Bitcoin is a currency that's no older than 4 or 5 years. Has any other currency experienced a genesis any different than Bitcoin? The US dollar, when freshly minted was used for the spurious trade of human lives, the lives of my very own relatives several generations back, actually. It was the tool for rampant speculation as well, prone to extreme volatility and purposeful devaluations. Was it really so different from Bitcoin before it went mainstream (that is except for the purposeful devaluations part since there is no Grand Pubah to unilaterally call the market shots)? Methinks this economist may be picking and choosing his facts. For instance, look at how he started the Op-Ed missive in the first place...

Bitcoin’s wild ride may not have been the biggest business story of the past few weeks, but it was surely the most entertaining. Over the course of less than two weeks the price of the “digital currency” more than tripled. Then it fell more than 50 percent in a few hours. Suddenly, it felt as if we were back in the dot-com era.

The economic significance of this roller coaster was basically nil. But the furor over bitcoin was a useful lesson in the ways people misunderstand money — and in particular how they are misled by the desire to divorce the value of money from the society it serves.

Volatility is the name of the game with new currencies that have limited penetration and distribution, no? Why pick on bitcoin? Let's recall how the US dollar got started via the continental note, as per Wikipedia:

By the end of 1778, Continental Currency retained between only 1/5 to 1/7 of their original face value. By 1780, Continental bills - or Continentals - were worth just 1/40th of their face value. Despite efforts by Congress to reform the currency by removing the old bills from circulation and issuing new ones, the attempt met with little or no success. By May 1781, Continentals had become so worthless they ceased to circulate as money. Benjamin Franklin noted that the depreciation of the currency had, in effect, acted as a tax to pay for the war.[1] In the 1790s, after the ratification of the United States Constitution, Continentals could be exchanged for treasury bonds at 1% of face value.[2]..

Hey, it doesn't end there...

 On August 8, 1785, the Continental Congress of the United States authorized the issuance of a new currency the US dollar.

However runaway inflation and the collapse of the Continental currency prompted delegates at theConstitutional Convention in Philadelphia in 1787 to include the gold and silver clause into the United States Constitution preventing individual States from issuing their own bills of credit. Article One states they were prohibited to "make any Thing but gold and silver Coin a Tender in Payment of Debts."[4] 

 Paul then goes on to compare Bitcoin enthusiasts to Goldbugs - which was inevitable. I'm far from a Goldbug, and those that follow me can attest. Apparently Mr. Krugman isn't either, but he appears to make a specious argument, to wit:

The similarity to goldbug rhetoric isn’t a coincidence, since goldbugs and bitcoin enthusiasts — bitbugs? — tend to share both libertarian politics and the belief that governments are vastly abusing their power to print money. At the same time, it’s very peculiar, since bitcoins are in a sense the ultimate fiat currency, with a value conjured out of thin air. Gold’s value comes in part because it has nonmonetary uses, such as filling teeth and making jewelry; paper currencies have value because they’re backed by the power of the state, which defines them as legal tender and accepts them as payment for taxes. Bitcoins, however, derive their value, if any, purely from self-fulfilling prophecy, the belief that other people will accept them as payment.

I really need somebody from the academic ivory towers to explain to me the difference between paper currencies being backed by the power of the state and Bitcoins alleged self fulfilling fulfilling prophecy of the belief that other people will accept them as payment. Both of these concepts share one common theme that seems to have escaped Mr. Krugman - Belief!!! Being backed by the full faith and power of the government means nothing unless you believe that government backing has a real value. That real value, if you do believe in it, is solely a function of your level of belief in the government and the governments willingness to back the currency  and to what extent. After all, Greek bonds written under Greek law are backed by their government as well, as are Somalian bonds. So, pray tell, what's the difference between the value of those bonds and US treasuries? Belief, that's the difference! Again, a refresher from Wikipedia:  

Today, like the currency of most nations, the dollar is fiat money, unbacked by any physical asset. A holder of a federal reserve note has no right to demand an asset such as gold or silver from the government in exchange for a note.[28] Consequently, some proponents of theintrinsic theory of value believe that the near-zero marginal cost of production of the current fiat dollar detracts from its attractiveness as a medium of exchange and store of value because a fiat currency without a marginal cost of production is easier to debase via overproduction and the subsequent inflation of the money supply.

Published in BoomBustBlog

Two months ago I answered the query, Is There A Bubble In The Canadian Condo Market? for my subscribers. The missive started off like this: 

The Canadian condo market is running into a precarious over-supply situation with large inventories slated to be entering the market in 2014 and 2015. Major centers such as Vancouver, Montreal and Toronto are witnessing a rapid pace of condo construction, despite falling sales. The demand for housing overall is slowing down, with sales in the last few months of 2013 falling on y-on-y basis. In most major Canadian markets there is an increase in listings and decrease in sales (even though prices are still somehow rising, which should in and of itself be indicative of a problem). 

Well, the Financial Times is now weighing in on the issue... Canada’s housing market teeters precariously

Robert MacFarlane, a long-time crane operator, surveys his empire from the top of one of Toronto’s flashy new apartment buildings. “I can see more than 50 tower cranes,” said Mr MacFarlane, whose bird's-eye photography from the country’s tallest crane has gained him online notoriety as interest in Toronto’s property sector escalates.

These cranes – which can offer clues to bubble-like conditions – emerged in response to lofty demand for condominiums from investors and homebuyers taking advantage of Canada’s ultra-low interest rates.

This is a fact. I've observed this in the bubble markets that I've personally experienced: Miama, NYC, DC - cranes and construction galore. In retrospect it appears virtually impossible for anyone NOT to realize we were in a bubble.

But as home prices rally and construction projects proliferate – particularly in Toronto, Montreal and Vancouver – industry analysts say the country’s property sector is perched precariously at its peak.

David Madani, economist at Capital Economics, believes the nation is on the verge “of what will prove to be a prolonged correction”.

“Canada’s housing market exhibits many of the symptoms that preceded disruptive housing downturns in other developed economies, namely overbuilding, overvaluation and excessive household debt,” he adds.

Mr Madani’s comments chime with a chorus of policy makers, rating agencies and hedge fund managers who have warned of the risks posed by Canada’s overheated housing market.

Alongside Norway and New Zealand, Canada’s overvalued property sector is most vulnerable to a price correction, according to a recent OECD report. It is especially at risk if borrowing costs rise or income growth slows.

And why in the world would borrowing costs rise with all of the world's most powerful central banks pushing #ZIRP4EVA???

In its latest monetary policy report, the Bank of Canada, the nation’s central bank, noted: “The elevated level of household debt and stretched valuations in some segments of the housing market remain an important downside risk to the Canadian economy.”

The riskiest mortgages are guaranteed by taxpayers through the Canada Mortgage and Housing Corporation, somewhat insulating the financial sector from the sort of meltdown endured by Wall Street in 2007 and 2008. But a collapse in home sales and prices would be a serious blow to consumer spending and the construction industry that employs 7 per cent of Canada’s workforce.

But isn't that a circular argument???

...the flipside of a low interest rate policy designed to buttress the economy has meant that household debt levels have hit record highs as homebuyers stretched themselves to jump into the housing market. That in turn propelled demand and prices.

... Household debt has risen to 163 per cent of disposable income, according to Statistics Canada, while separate data show a quarter of Canadian households spend at least 30 per cent of their income on housing. This is close to the 1996 record when mortgage rates were substantially higher.

On a price-to-rent basis, which measures the profitability of owning a house, Canada’s house prices are more than 60 per cent higher than their long-term average, the OECD says.

... Year-to-date new home sales in the Greater Toronto Area – an area accounting for a fifth of Canada’s home building activity – are down by half from two years ago, according to the Building Industry and Land Development Association.

... Mr Madani forecasts a market correction in home prices over the next few years, predicting a 25 per cent drop.

But those that are bullish on the market point to resilient regional data. October sales of existing homes rose 38 per cent in Vancouver and 19 per cent in Toronto.

“It’s a mistake to think that what happened in the US will happen in Canada,” said Gregory Klump, CREA’s chief economist said.

Yes, because this time it's different!!!

... Mr MacFarlane too has yet to be convinced of an imminent slowdown. “In the past when things have slowed down, there has been a distinct ‘feeling’ from the boots on the ground perspective. I don’t really sense that right now.”

Nothing like that good 'ole empirical forensic analysis to make an investor feel all warm and cozy, right?!

All paying subscribers, feel free to download.

File Icon Is There A Canadian Condo Bubble? (Residential Real Estate)

Non-subscribers can purchase this report through a day pass subscription via PayPal orCredit Card 

More on this topic...

    1. The Canadian Real Estate Bubble? Featured -Jul 25, 2012 - Below is an email that I recieved from a reader: RIO Canada is one of the biggest reit's in Canada I know some of there management and from 

...

Published in BoomBustBlog

Inflation vs deflation vs stagflation

The primary business of banks is lending.

  1. In a recession, not many people and businesses borrow, hence lending tends to be a poor business.
  2. In order to make money off of lending assets you need a reasonable return.
  3. When ZIRP (Zero Interest Rate Policy) is applied, said reasonable return does not exist unless banks dramatically mark up the cost of the loan which brings up back to point one.

In the states I made this point when most analysts insisted that ZIRP was good for the banks, to wit...

Now remember, I've been very bearish on the EU and thier banks and sovereign debt in particular, since Q! 2010 - way before most - reference Pan-European sovereign debt crisis. Yesterday morning if you were to Google the term EU recovery, you would see something like this in return... 

Well, somebody better tell Draghi, as per Bloomberg: ECB Cuts Key Rate to Record Low to Fight Deflation Threat

The European Central Bank cut its benchmark interest rate to a record low after a drop in inflation to the slowest pace in four years threatened its mission to keep prices stable.

Policy makers meeting in Frankfurt today reduced the main refinancing rate by a quarter point to 0.25 percent. The decision was predicted by three of 70 economists in a Bloomberg News survey. The ECB kept its deposit rate at zero and trimmed the marginal lending rate to 0.75 percent. ECB President Mario Draghi will hold a press conference at 2:30 p.m.

The ECB now has just one more quarter-point cut left before reaching zero, increasing the likelihood of unconventional tools such as quantitative easing or a negative deposit rate if prices slow further or the economic recovery stalls. Euro-area inflation is less than half the ECB’s target and unemployment is at the highest level since the currency bloc was formed in 1999.

“There comes a point where inflation is so weak, and coming in weaker than anticipated, that the case for loosening policy becomes too hard to resist,” said Richard Barwell, senior European economist at Royal Bank of Scotland Group Plc in London, who predicted the cut. “Bad unemployment numbers only make the case stronger.”

Does it seem like I've predicted the future hear once again as that Financial Nostradamus Dude???

Quantitative Easing

A Fed-style quantitative easing program has repeatedly been ruled out by ECB policy makers. The central bank is barred by European Union treaties from financing state debt, making large-scale purchases of government bonds open to a legal challenge.

While Draghi has floated the prospect of a negative deposit rate, the rate for commercial lenders who park excess cash at the central bank, policy makers have said that its effects can’t be adequately predicted. A negative deposit rate could hurt banks’ profitability by lowering money-market rates, potentially hampering credit supply to companies and households and reducing banks’ incentive to lend to other financial institutions.

“If inflation stays low, as seems likely, and the threat of inflation expectations becoming unanchored to the downside increases significantly, then all the tools in the box can come into play,” said Ken Wattret, chief euro-area economist at BNP Paribas SA in London. “But knowing the way the ECB operates and how long it has taken to try and get support for a refi rate cut, doing the big stuff could take some time.”

Well, I believe QE has already been implemented by the ECB accepting trash sovereign debt as marketable collateral, but that's a discussion for another day. Just listen to the Financial Nostradamus dude when he warns what happens when a larger, admitted QE program is instituted. For one, you'd probably eliminate that inflation problem... replacing it with...

Published in BoomBustBlog

IMG 34530563165874

Four months ago I posted the self explanatory piece aptly titlted "Bernanke's Bluffing Because A True QE Pullback Will Cause Fundamentals To Reassert In Banking Sector". In it I stated the obvious... 

Ever hear of NEGATIVE interest rates where YOU have to PAY someone to LEND THEM MONEY!!!

So, BoomBustBloggers, where do YOU think rates are going to go from here? Up of Down???

Today, ZH reports:

Just out from Fed "hawk" Dick Fisher:

    • FISHER: FISCAL SHENANIGANS HAVE `SWAMPED' QE TAPER PROSPECTS
    • FISHER: HARD TO NOW ARGUE TO CHANGE COURSE OF MONETARY POLICY
    • FISHER HAS FAVORED TAPERING FED MONTHLY BOND PURCHASES
    • U.S. FED'S FISHER REPEATS BEST TO 'STAY THE COURSE' ON BOND BUYING AT OCTOBER FOMC MEETING

For anyone who is surprised by this, don't worry... I have this levered deal to by this Bridge in Brooklyn, real cheap too, near zero percent interest! 

 

Published in BoomBustBlog

I like Professor Shiller and respect his work. Really, I do, but... Massive bubbles, the sort of the proportion of the 2008 crisis, are nigh impossible to miss if you can add single digits successfully and are able to keep your eyes open for a few minutes at a time. Yes, I truly do feel its that simple. I saw the property bubble over a year in advance, cashed out and came back in shorting - all for a very profitable round trip. Was I a genius soothsayer? Well, maybe in my own mind, but the reality of the situation is I was simply paying attention. Let's recap:

  1. The housing market crash in the spring of 2006 and publicly in September of 2007:Correction, and further thoughts on the topic and How Far Will US Home Prices Drop?
  2. Home builders falling and their grossly misleading use of off balance sheet structures to conceal excessive debt in November of 2007 (not a single sell side analyst that we know of made mention of this very material point in the industry): Lennar, Voodoo Accounting & Other Things of Mystery and Myth!
  3. The collapse of Bear Stearns in January 2008 (2 months before Bear Stearns fell, while trading in the $100s and still had buy ratings and investment grade AA or better from the ratings agencies): Is this the Breaking of the Bear?

We all know what happened after this part. Well, 5 years later, before we even ran off the effects of the last crash, things are looking bubblicious again and again very few are facing facts. Reuters/CNBC reports "Nobel Prize Winner Says Housing Market Looking A Little Bubbly":

Robert Shiller, who shared the 8 million Swedish crown ($1.25 million) prize with fellow laureates Eugene Fama and Lars Peter Hansen, said the U.S. Federal Reserve's economic stimulus and growing market speculation were creating a "bubbly" property boom.

You think so?!

The Royal Swedish Academy of Sciences lauded the economists' research on the prices of stocks, bonds and other assets, saying "mispricing of assets may contribute to financial crises and, as the recent global recession illustrates, such crises can damage the overall economy."

This was the case in the collapse of the U.S. housing market, which helped trigger the 2008-2009 global financial crisis. Markets are at risk of committing the same error now, Shiller told Reuters after learning he had won the Nobel prize.

"This financial crisis that we've been going through in the last five years has been one that seems to reveal the failure to understand price movements," Shiller said.

Bubbles are created when investors fail to recognize when rising asset prices become detached from underlying fundamentals.

Shiller and other economists warn that prices in some markets have risen too far, too fast due to the Fed's ultra-easy monetary policy. The benchmark U.S. Standard & Poor's 500 index hit a record in September, though it is generally not considered overvalued based on expectations for corporate earnings results or economic growth.

Shiller's work led him to suggest in 2005 that the U.S. housing market might be overheating. He helped create a closely watched gauge of housing prices, the S&P Case/Shiller Index.

In June this year, he pointed to a potential new housing bubble in some of America's largest cities. 

"It is up 12 percent in the last year. This is a very rapid price increase right now, and I believe that it is accelerated somewhat by the Fed's policy," he said.

China, Brazil, India, Australia, Norway and Belgium, among other countries, were witnessing similar price rises. "There are so many countries that are looking bubbly," he said.

The Fed has held U.S. interest rates near zero since late 2008 and almost quadrupled its balance sheet to around $3.7 trillion through a campaign of bond buying, or quantitative easing, to hold down long term borrowing costs.

Bloomberg TV & Reggie Middleton on the Flawed Case Shiller Index: "That's what they said in Japan about 12 years ago, look where they are now!"

Previous opinions on the topic...

Is There A Bubble In The Canadian Condo Market? We Drill Down Into The Facts To Find Out

The Canadian condo market is running into a precarious over-supply situation with large inventories slated to be entering the market in 2014 and 2015. Major centers such as Vancouver, Montreal and Toronto are witnessing a rapid pace of condo construction, despite falling sales....

20130406 FBC371

Bernanke's Bluffing Because A True QE Pullback Will Cause Fundamentals To Reassert In Banking Sector

A little over two years ago I queried "Is Another Banking Crisis Inevitable?". This post attracted the attention of certain ING executives who apparently were asking themsevles the same question. I was invited as the keynote speaker at their valuation conference in Amsterdam wherein I dropped the negative reality bomb! Interest rates were GUARANTEED to spike and when they do, those banks with fictitious bank sheet values and business models predicated upon credit bubble metrics were GUARANTEED to start collapsing. 

It's not just the European banks either. In 2009 I queried "Why Doesn't the Media Take a Truly Independent, Unbiased Look at the Big Banks in the US?". Then there's real esate in both the US... CNBC's Fast Money Discussing Hopium in Real Estate...

 

hat visual relationship is corroborated by running the statistical correlations...

Reggie Middleton ON CNBC's Fast Money Discussing Hopium in Real Estate

 

Crain's New York illustrating Reggie's BoomBustBlog and the followup article in Crains illustrating his accuracy in calling real estate and the European debt debacle,"

“His work is so detailed, so accurate, it's among the best in the world,” says Eric Sprott, CEO of Sprott Asset Management, a Toronto firm that manages about $5 billion and subscribes to Mr. Middleton's research.

Published in BoomBustBlog

 As per Bloomberg: IMF says Greece will miss bailout target

The International Monetary Fund published a report predicting that Greece's 2014 budget surplus will fall 0.4 percentage points short of the 1.5 percent gross domestic product mark required by the terms of the country's international bailout. Greece was previously thought to be on track to meet the surplus target, but the forecasts were overoptimistic.

Get the hell outta here! Optimistic! Really? From the IMF???!!! As I channel my post from 2010, aptly titled "Lies, Damn Lies, and Sovereign Truths: Why the Euro is Destined to Collapse!"

image005.pngimage005.pngimage005.png

Notice how dramatically off the market the IMF has been, skewered HEAVILY to the optimistic side. Now, notice how aggressively the IMF has downwardly revsied their forecasts to still end up widlly optimistic. image018.pngimage018.pngimage018.png

Ever since the beginning of this crisis, IMF estimates of government balance have been just as bad...

image013.pngimage013.pngimage013.png

... The EU/EC has proven to be no better, and if anything is arguably worse!... If the IMF was wrong, what in the world does that make the EC/EU?

The EC forecasts have been just as bad, if not much, much worse in nearly all of the forecasting scenarios we presented. Hey, if you think tha's bad, try taking a look at what the govenment of Greece has done with these fairy tale forecasts, as excerpted from the blog post "Greek Crisis Is Over, Region Safe", Prodi Says - I say Liar, Liar, Pants on Fire!...

Alas, I digress. Back to the Bloomberg/IMF snippet...

Tax collection is sagging; Greece is still in recession; and privatization is proceeding much slower than planned.


But this was quite evident last year as Greece failed to achieve Primary Balance and was slipping ever so farther away from that rather lofty (at least to most of continental Euope on a real, applied basis) goal. Don't say you didn't know, because I told you so, and on a European broadcaster as well...

And back to our snippet of the day...

The Greek finance ministry immediately responded to the new IMF projection, saying the government would do whatever was necessary to achieve a surplus of 1.5 percent GDP: cut spending, step up tax collection or both.

Oh yeah, that will work just fine. Cut off your legs to reduce your weight and drag so you can run faster. Does anyone in these financial ministries know anything about FiNANCE???!!! 

Further cuts, however, may be politically untenable: The country is already in turmoil over the government's austerity measures. Meanwhile, failure to reach fiscal targets may delay further aid from both the IMF and the euro area. A new Greek crisis is a distinct possibility for next year.

Uhhh. PSSST!!! But, we haven't finsighed the "OLD Greek crisis" yet, you know the one I warned you about in 2010! From my 2010 article for subscribers, Greek Debt Restructuring Analysis - Professional, I excerpt as follows:

In 2012, Der Speigel ran an article stating what I told my subscribers for the two years previous - Greece was in a hole that it simply couldn't crawl out of. From the piece aptly titled "Greece Fulfills Its BoomBustBlog Derived Destiny - Shows This Time Really Isn't All That Different After All!!!":

I believe I was one of the very few to declare Greece a foregone default in February 2010 (I Think It’s Confirmed, Greece Will Be the First Domino to Fall and then with with more specificity a month later As I Explicitly Forewarned, Greece Is Well On Its Way To Default, and Previously Published Numbers Were Waaaayyy Too Optimistic!).
By the 2nd quarter of 2010 I was one of the very few to clearly and articulately detail exactly how Greece would default with specific structures in play- What is the Most Likely Scenario in the Greek Debt Fiasco? Restructuring Via Extension of Maturity Dates. Due to a few institutions who were skeptical, I attempted to make it a bit more real - A Comparison of Our Greek Bond Restructuring Analysis to that of Argentina.

Well, Greece defaulted according to plan, despite all of the "people in the know" saying otherwise -Greek Crisis Is Over, Region Safe”, Prodi Says – I say Liar, Liar, Pants on Fire! - from government officials tothe EC and IMF - Lies, Damn Lies, and Sovereign Truths: Why the Euro is Destined to Collapse! Even after the default, I made clear that this wasn't over for Greece, for the default actually left Greece worse off fundamentally, not better. Go wonder... I know I did, reference the warning from 5 months ago:

This will be exacerbated by a re-default of the Greek debt that was designed to bail out the defaulted Greek debt. Why will this happen? Greece has severe, rigid structural
problems that simply cannot (and will not) be solved by throwing indebted liquidity at it. As a matter of fact, the additional debt simply exacerbates the problem - significantly! This was detailed in the post Beware The Overly Optimistic Greek Speculators As Icarus Comes Crashing Down To Earth!

..Subscribers can download my full thoughts on Greece's sustainability post bailout here - debt restructuring_maturity extension blog - March 2012. Professional and institutional subscribers should feel free to email me in order to receive a copy of the Greek restructuring model used to create these charts and come to these conclusions.

Despite extensive, self-defeating, harsh and punitive austerity measures that have combined with a lack of true economic stimulus, Greece has (to date) failed to achieve Primary Balance. For the non-economists in the audience, primary balance is the elimination of a primary deficit, yet the absence of a primary surplus, ex. the midpoint between deficit and surplus before taking into consideration interest payments.

Alas, I digress. Back to the der Spegiel article...

According to a preliminary troika report, the additional shortfalls are the result of lower than expected tax revenues due to the country's ongoing recession as well as a
privatization program which has not lived up to expectations. The troika plans to calculate the exact size of the shortfall when it returns to Athens at the beginning of next month.

I'm sorry, but I simply cannot resist. This article was posted on BoomBustBlog in July of 2011 - Greek Asset Sales Fall Short, As We Virtually Guaranteed They Would In Spring 2010.
In it I reviewed how the BoomBustBlog team detailed EXACTLY how bullshit the privatization plan was, in explicit detail - in the spring of 2010. THAT WAS MORE THAN TWO AND A HALF YEARS AGO, PEOPLE!!!
If a blog can have this much foresight, with this much specificity, than what does one make of this so-called troika??? As excerpted:

This is a tragic Greek comedy. Professional/institutional subscribers should reference the Greece Public Finances ProjectionsGreece Public Finances Projections 2010-03-15 11:33:27 694.35 Kb in its entirety.
For those who chose not to subscribe, I am posting excerpts from pages 5 and 6 from said document, don't read this while eating or drinking for fear of spitting up your lunch!

Any subscribers who would have went heavily bearish into these banks when I first commented on the would have done quite well:


Okay, I digress - yet again... With such excessive bullshit, one does tend to get thrown off track. Back to the der Spiegel excerpts...

The news of the potentially greater financing needs comes at a sensitive time for the country. Many in Europe, particularly in Germany, are losing their patience and there has been increased talk of the country leaving the common currency zone. Over the weekend, German Finance Minister Wolfgang Schäuble reiterated his skepticism of additional aid to Greece. "We can't put together yet another program," he said on Saturday, adding that it was irresponsible to "throw money into a bottomless pit."


Well, my friend, if you had that BoomBustBlog subscription, you would have known before you spent that first euro that Greece was a bottomless pit. Let me reiterated what I pasted up top... This situation will simply get worse, considerably worse. I demonstrated in the post The Ugly Truth About The Greek Situation That's Too Difficult Broadcast Through Mainstream Media that anyone who purchased the last set of bailout bonds from Greece will simply lose their money as well (that's right, just like those who purchased the previous set) since Greece is still running deep in structural problems and can't afford the interest nor the principal on its borrowing. It's really that simple. And guess what? Anyone who dips new money into Greece now will suffer the EXACT same fate!

As excerpted from Greece Sneezes, The Euro Dies of Pneumonia! Yeah, Sounds Bombastic, Yet True!

Wait until a 2nd Greek default (virtually guaranteed as we supplied user downloadable models to see for yourself, the same model used to forecast the 1st default) mirrors history. Of the 181 yrs as a sovereign nation after gaining independence, Greece been in default 58 of them. Don't believe me! Check your history, or just read more BoomBustBlog - Sophisticated Ignorance Or Just A Very, Very Short Term Memory? Foolish Talk of German Bailouts Once Again...

image022image022image022

Greece's default will hit an already bank NPA laden Spain quite hard: The Spain Pain Will Not Wane: Continuing the Contagion Saga and ditto with Italy "As We Assured Clients Two Years Ago, Italy's Riding The Broken Promise Express To Restructuring". Once Italy gets hit, the true bank runs will start as socialist France (the so-called half of the EU anchor) loses control of its banking system. Reference "As The French Bank Runs....": 

Saturday, 23 July 2011 The Anatomy Of A European Bank Run: Look At The Banking Situation BEFORE The Run Occurs!: I detail how I see modern bank runs unfolding

image012

Will Greece Set Off the Pan-European Sovereign Debt Crisis?

Published in BoomBustBlog

About 6 months ago I said "Economic Depression Is The New Success". In said article, I forcast serial European bank runs, to wit:

From the BBC: Iceland's 'tenacity' lifts economy out of crisis

Whisper it - Iceland's economy is on its way back. The frozen island on the edge of the Arctic, which had 10 straight quarters of shrinking GDP, is suddenly on a steady run of seven quarters of growth averaging at 2.5% per annum - something that few European countries can boast. Unemployment has fallen to just below 5% and confidence is returning...

Ready! Set! Bank Run!!!

Cyprus contagion rawCyprus contagion raw

Subscriber downloads below (click here to subscribe):

Well, today Bloomberg reports "Icelanders Run Out of Cash to Repay Foreign Debts: Nordic Credit". Basically, as percieved to be cut off from foreign markets, Icelanders are running out of non-Krona denominated cash to pay off foreign debts. Here's more on the dilemma:

Non-krona debt owed by entities besides the Treasury and the central bank due through 2018 totals about 700 billion kronur ($5.8 billion), the bank said yesterday. The projected current account surpluses over the next five years aren’t estimated to reach even half of that and will equal a shortfall of about 20 percent of gross domestic product.

The nation faces a “repayment risk of foreign debt by private entities in the economy, who don’t have access to foreign financial markets,” Sigridur Benediktsdottir, head of financial stability at the Reykjavik-based central bank, said yesterday in an interview. “We view this as being exacerbated or made worse by the fact that our current account is actually declining.”

Prime Minister Sigmundur David Gunnlaugsson has said Iceland’s foreign exchange shortfall is “a matter of huge concern” as he tries to scale back currency controls in place since 2008. The government’s biggest challenge is to allow capital to flow freely without triggering a krona sell-off that would cause Iceland’s foreign debt to spike and undermine the nation’s economic recovery.


Wait a minute, if the Icelandic debt spikes, what happens to the Icelandic banks banks whose primary government bond (aka "risk free", ahem...) holdings happen to be Icelandic. Here's a hint: The Anatomy of a Europan Bank Run!

Published in BoomBustBlog

Last week I queried "Is There A Bubble In The Canadian Condo Market?" We Drilled Down Into The Facts To Find Out and offered our researched opinion to paid subscribers (see below). Boombustblogger backwardsevolution has shared some interesting charts that appear to go straight into the heart of the matter..

Vancouver house prices - 40 years

All paying subscribers, feel free to download.

File Icon Is There A Canadian Condo Bubble? (Residential Real Estate)

Non-subscribers can purchase this report through a day pass subscription via PayPal or Credit Card

Published in BoomBustBlog

The Canadian condo market is running into a precarious over-supply situation with large inventories slated to be entering the market in 2014 and 2015. Major centers such as Vancouver, Montreal and Toronto are witnessing a rapid pace of condo construction, despite falling sales. The demand for housing overall is slowing down, with sales in the last few months of 2013 falling on y-on-y basis. In most major Canadian markets there is an increase in listings and decrease in sales (even though prices are still somehow rising, which should in and of itself be indicative of a problem).

However, what is holding the housing market from the “steep and prolonged fall” that the American and periphery EU markets experienced is the extremely low interest rate offered by the banks in a bid to maintain their top line and bottom line. (Note: ~>70% of the mortgages in Canada are insured by Canada Mortgage and Housing Corporation.  The banks therefore are more than motivated to lend for home mortgages). This “ZIRP” (Zero Interest Rate Policy) environment portends material volatility when it comes to an end, either voluntarily through the prospect of organic economic growth, or involuntarily through natural market forces coming to bear. The reason is that at no time in the history of the developed world has interest rates been this low for this long.

20130406 FBC371

The caveat is, economic growth, the primary reason for cutting rates this low for this long – has never materialized, dispute the flood of free or even negative interest rate money that's been flooding the markets. 

When (and that's "when", not "if") risky asset prices decide to revert to mean the snapback to bank balance sheets and economic profit has the potential to be devastating. Yes, even to those conservative Canadian banks.

Click to enlarge, and study carefully...

Reggie Middleton Canadian Condo Bubble

... and on the topic of "Bail-ins"

All paying subscribers, feel free to download.

File Icon Is There A Canadian Condo Bubble? (Residential Real Estate)

Non-subscribers can purchase this report through a day pass subscription via PayPal or Credit Card

Published in BoomBustBlog