Bloomberg reports U.K. Plunges Into Double-Dip Recession, as does CNBC, UK Back Into Recession in First 'Double Dip' Since 1970s:

Britain's economy slid into its second recession since the financial crisis after official data unexpectedly showed a fall in output in the first three months of 2012, piling pressure on the embattled coalition government.

My contention is that the UK has not fallen back into recession, but has never truly risen out of the last one. Accounting parlour tricks, financial engineering machinations and outright verbal sleight of hand (what some may call not telling the truth) has given the illusion of organic growth, but in reality and at best, it was simply buying $1.00 worth of growth with $1.20 worth of stimulus - or should I reference this in pounds.

As we clearly articulated two years ago, when it was alleged that recession was over, in the subscriber (click here to subscribe) document  UK Public Finances March 2010:

 UK_Public_Finance_Analysis_2.0_Page_01_copy

UK_Public_Finance_Analysis_2.0_Page_02

UK_Public_Finance_Analysis_2.0_Page_03

Reggie_Middleton_Facebooks_Valuation

The MSM is echoing BoomBustBlog analysis today, as per Bloomberg: Facebook First-Quarter Profit Drops; Costs Almost Double

Facebook Inc. (FB), the social network planning an initial public offering, said first-quarter profit fell 12 percent as sales growth slowed and marketing costs more than doubled. 

This is exactly as I warned in my initial Facebook analysis to subscribers - The Final Facebook Forensic IPO Analysis: the Good, the Bad & the Ugly... 

Sales had risen 55 percent to $1.13 billion in the fourth quarter, and net income had climbed 20 percent.

Thus, it is highly unlikely one can legitimately factor in the type of growth needed to justify the current Goldman $50B valuation - particularly when you consider that Facebook's growth is already slowing!

Now, back to the Bloomberg article...

Net income dropped to $205 million in the three months through March, Menlo Park, California-based Facebook said yesterday in a regulatory filing. Sales climbed 45 percent to $1.06 billion, a slowdown from 55 percent in the December period.

“Facebook has a pretty steep hill to climb to meet the expectations that we set out,” Williamson said.

Facebook may seek an IPO valuation of $75 billion to $100 billion, people with knowledge of the matter have said. The upper end of that range would value the company at about 25 times trailing 12-month sales, more than double Google (GOOG) Inc.’s valuation when the search-engine operator went public in 2004.

Before last quarter, Facebook’s sales were already projected to gain at a slower rate this year than Google’s at the time of its IPO, according to data compiled by Bloomberg. At $6.1 billion, 2012 revenue would be 64 percent higher than the $3.71 billion reported in 2011. Google’s revenue more than doubled to $3.19 billion the year it went public.

Zynga Revenue

Facebook said 82 percent of its revenue came from advertising last quarter, down from 83 percent in the preceding period. The company also derived less revenue from gaming companyZynga Inc. (ZNGA), which contributed 11 percent of the total in the quarter, down from 13 percent a year earlier.

The number of daily active users rose to 526 million, an increase of 41 percent from a year earlier. Facebook’s employee base rose 46 percent to 3,539 from a year earlier.

“Our costs are growing quickly, which could harm our business and profitability,” the company said in the filing. “Providing our products to our users is costly and we expect our expenses to continue to increase in the future as we broaden our user base, as users increase the number of connections and amount of data they share with us, as we develop and implement new product features that require more computing infrastructure, and as we hire additional employees.”

The paragraph above, decoded: These expenditures are true expenses, and not actual investments for they are needed to keep the company above water in the competition with Google, et. al., and are the stuff that actually fosters long term growth.

From C|Net:

 Its first-quarter revenue rose 45 percent to $1.06 billion compared with a year ago, but it was down 6 percent compared with the last quarter of 2011.

At the same time, the company's net income for the first quarter fell 12 percent, to $205 million from $233 million a year ago. And it was down from $302 million in the fourth quarter of 2011.

That drop in quarterly revenue and profit comes even as Facebook continues to see big user growth, meaning that it's making less on each user. Facebook said that it now has 500 million daily active users, compared with 372 million a year ago, and that its monthly active user number -- people who use Facebook at least once a month -- has climbed to 901 million from 845 million in December.

Its average revenue per use, called ARPU, fell 12 percent from the fourth quarter of 2011, and Facebook said that was mainly due to "seasonal trends." The company points out that it saw the same seasonal weakness during the fourth quarter of 2010.

Even more telling are the comments from that article...

15% of revenues came from Zynga...and that stock's not looking too hot these days. For those on the fence about whether this is a worthwhile investment, consider the last time you actually clicked on an ad in FB.

Posted by techgeekdude 

I am a once-a-month FB user at most. If FB is making any money off of me they are ripping off the one paying them that money. I may be counted as a visitor, but I am worthless to FB and anything connected to them as I cause no $s to pass their way.

Posted by UnderStress 

I discussed Facebook on the Peter Schiff radio show yesterday. The entire show can be heard via podcast from his site, and the Facebook excerpt is below...

From my previous Facebook analysis public excerpt:

Yeah, I was on a roll last year, wasn't I? That's not the gist of it either, as we reminisce even more...

Additional Facebook analysis, valuationa and commentary.

On Max Keiser, go to the 13:55 marker for more on Facebook...

Of course Facebook enthusiasm is burning hot. The coals in the "investor" (and I put this lightly) fire are being stoked by none other than the sell side agents doing God's work, among others...

Professional and institutional BoomBustBlog subscribers have access to a simplified unlocked version of the valuation model used for this report, available for immediate download - Facebook Valuation Model 08Feb2012. The full forensic opinion is available to all subscribers here FaceBook IPO & Valuation Note Update. It is recommended that subscribers (click here to subscribe) also review the original analyses (FB note final 01/11/2011) as well as the following free blog posts on the topic:

1. Facebook Registers The WHOLE WORLD! Or At Least They Would Have To In Order To Justify Goldman’s Pricing: Here’s What $2 Billion Or So Worth Of Goldman HNW Clients Probably Wish They Read This Time Last Week!
2. Facebook Becomes One Of The Most Highly Valued Media Companies In The World Thanks To Goldman, & Its Still Private!
3. Here’s A Look At What The Goldman FaceBook Fund Will Look Like As It Ignores The SEC & Peddles Private Shares To The Public Without Full Disclosure
4. The Anatomy Of The Record Bonus Pool As The Foregone Conclusion: We Plug The Numbers From Goldman’s Facebook Fund Marketing Brochure Into Our Models
5. Did Goldman Just Rip Its HNW and Institutional Clients Once Again? Facebook Growth Slows Pre-IPO, Just As We Warned!
6. The World's First Phenomenally Forensic Facebook Analysis - This Is What You Need Before You Invest, Pt 1
7. The Final Facebook Forensic IPO Analysis: the Good, the Bad & the Ugly

Roughly two years ago, I penned a piece called How Greece Killed Its Own Banks! It outlined the end result of Greece attempting to hide sparse demand for its debt by forcing its banks to binge on it using excessive leverage. Of course, once you eat too much garbage, you start to stink, and eventually... Well, let's look at it from a visual perspective:

image001

 Greece and the ECB kicked the can down the road for two years, but as fate would have it... Reality rears its ugly head, as exemplified in today's MSM headline from CNBC: Record Losses at Greek Banks Show Pain of Bond Swap

Greece's top banks posted historic losses for 2011 on Friday, hit by a bond swap last month that blew holes in their balance sheets and nearly wiped out their capital base.

Together, National, Alpha, Eurobank and Piraeus, posted an aggregate loss of 28.2 billion euros ($37.3 billion), about 10 times their current market worth or 13 percent of the country's GDP .

The banks treated losses from last month's bond swap to cut the country's debts — part of a rescue package for Greece negotiated with the European Union and International Monetary Fund — as if they took place last year.

Inflicting real losses of about 74 percent on bondholders, Greece's debt swap proved a near fatal financial torpedo for lenders, crippling the sector's capital base.

From the big four banks, only Alpha spelled out clearly where this left its Core Tier 1 capital ratio. The other three reported where capital ratios would land after their use of standby funds provided by a capital backstop, the Hellenic financial Stability Fund (HFSF).

Alpha's core capital ratio (Tier 1) fell to 3 percent. Eurobank [EFG-FF  0.61    0.004 (+0.66%)   ], the country's second biggest, did not disclose the figure but said the hit left it with total equity of 875 million euros.

National Bank [NAG-FF  1.73    -0.02  (-1.14%)   ], the country's biggest lender with operations in Turkey, said its Core Tier 1 ratio would reach 6.3 percent, taking into account the use of a 6.9 billion euros standby facility provided by the HFSF fund.

Piraeus gave no Tier 1 figure but said tapping up to 5 billion euros of HFSF funds would boost its total capital adequacy ratio to 9.7 percent.

Greek bank shares have shed 74 percent in the last 12 months, underperforming the Greek stock market which is down 50 percent.

...Battered by a shrinking deposit base, rising loan impairments and unable to access wholesale funding markets, banks will need to fill the resulting capital shortfall and meet capital adequacy targets set by the central bank.

They face a core Tier 1 target of 9 percent by end-September.

... With the economy mired in recession...

I think its fair to say "depression' at this point. The destruction of the banking system is what pushed the US over the edge in the early 1900s, and it had a lot more going for it than Greece does.

... and unemployment at a record 21.8 percent, asset quality deteriorated, meaning banks' non-performing loans rose further — by 130 basis points to 12.9 percent of Alpha's loan book. Eurobank's bad debt provisions rose 4.7 percent last year.

Relevant BoomBustBlog research:

Greece Public Finances Projections

Banks exposed to Central and Eastern Europe

Greek Banking Fundamental Tear Sheet

Those who follow me know that I have warned of this ad nauseum, through a variety of venues and media, focusing particularly on the destructive damage the bank collapses will bring, again...

image008

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!

This situation will simply get worse, considerably worse. I demonstrated in the post The Ugly Truth About The Greek Situation That'sToo 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. 

Unlike as portrayed in the media, Greece is not a standout profligate child, but simply a microcosm of what is to come to a good portion of Europe. Just scan today's headlines for evidence of such.... German Manufacturing Shrinks Fastest Since 2009

Of course it did. Germany is a net export nation whose trading partners are dancing between hard landings, serial recessions, and outright depression! Exactly how does one expect this song to be sung? Let me count the ways for you, as Germany is currently the undeserved linchpin to what's left of EU fiscal integrity. Reference The Biggest Threat To The 2012 Economy Is??? Not What Wall Street Is Telling You...

Google posted robust 1Q results topping the consensus estimates by a wide margin – revenues increased 24% to US$10.6 billion as against US$8.6 billion in the same period, a year earlier. This was significantly higher than the consensus estimate of US$8.2 billion for the period.Revenues were in line with our estimates – we expect full year revenues to total US$43.1 billion. Revenues from Google websites accounted for around 69% of total advertising revenues while that from the partner websites contributed to around 27% of revenues. The remaining 4% of revenues were accounted for by licensing and other fees. Geographically, the US generated around 46% of total revenues, UK accounted for 11% of total revenues while other markets accounted for the rest 43% of revenues.

Growth in revenues was driven by an increase in click volumes, especially in the US market. The number of clicks increased by a significant 39% year-on-year and 7% quarter-on-quarter during 1Q highlighting the increasing popularity of the search engine. However, on the flip side, the cost-per-click or the average cost paid by advertisers declined 12% year-on-year during the period – largely due to the growing business in the emerging markets and mobile space, which usually carry lower margins. Nonetheless, Google's strong position in the mobile space – including both smartphones and tablets – is enabling the company to generate robust revenue growth. The Company also continues to benefit from the success of its DoubleClick ad exchange as well as the overall improving quality of advertisements. Google also witnessed growth in the European and Asian markets. Japan registered strong performance largely on account of higher contribution from SMB segment.

Untitled

Total costs increased 16% year-on-year to US$3.8 billion as against US$2.9 billion in the same period, a year earlier. This was largely due to the fact that the Company made investments in new products, increased its advertising expenses as well as increased wages. Further, higher amortization charges, the data center operations cost as well as content acquisition costs drove the overall cost of sales higher. As a result, higher costs had a negative impact on gross margins which contracted by 136 basis points to 64.4% as against 65.8% in the year earlier quarter.

Operating expenses increased 16% year-on-year to US$7.3 billion as against US$6.3 billion in the same period, a year earlier. A 25% jump in selling and marketing expenses was largely responsible for the spike in operating expenses. The R&D expenses in fact declined as a percentage of sales during 1Q. Higher operating expenses had an adverse affect on margins which contracted 77 basis points to 31.8% during 1Q.

Untitled_copy

From the profitability perspective, Google outshone nearly all its competitors as earnings increased by a significant 61% to US$2.9 billion (or US$8.75 per share) as against US$1.8 billion (or US$5.51 per share). Further, the Company continues to have a strong balance sheet with cash balances at an enormous US$49.3 billion at the end of 1Q.

Untitled_copy_copy

A little more than a year ago I introduced the concept of the "Economic Circle of Life" in the post Do Black Swans Really Matter? Not As Much as the Circle of Life ... In said post, I posited the interference from the concerted efforts of the global central bank price fixing cartel has done significantly more damage than it has good - to wit: 

And in today's news... Rescue Plan Falters

Europe's bold program to defuse its financial crisis by cash into banks is running out of steam. 

Go figure! Today's MSM commentary also features Print More Money? Central Banks May Have No Choice.

But wasn't this a a cause of much of the liquidity trap problem in the first place? Reference Portuguese Liquidity Trap: When You Add Too Liquidity to FIRE it Burns! The BofE agrees with this postulation, reference BoE Warns Inflation Could Run Into Medium Term. Of course, I have commentary on these guys as well... BoomBustBlog analysis: Subscription only -  UK Public Finances March 2010

The only bright side to this is what I posted earlier today... 

The EurAsian Global Distressed Asset Acquisition Initiative: 

I'm still quite bearish on banks/sovereigns, but as history dictates the greatest wealth has been created during the greatest dislocations, not during the greatest bull markets as popular opinion would lead many to believe. Think of the robber barons after the Great Depression...

Elsewhere in today's news... 

Spain Issues $3.2 Billion in Bonds, Demand Solid. Of course, this headline fails to convey one very key fact, and that is the borrowing Costs Rise For Spain:

Spain's 10-year borrowing costs increased at its debt auction, reflecting concerns about its ability to cut its budget deficit amid rising unemployment and falling economic output. 5:26 AM

I went through this in explicit detail just 3 days ago in the post The Spain Pain Will Not Wane: Continuing the Contagion Saga. It is a highly suggested read. I have also warned on Spain thoroughly in the past. It has BIG problems firmly nestled in its property, banking and financial systems. Big Problems... Elsewhere in today's MSM fodder: Spanish Banks' Bad Loans Highest Since Oct. 1994

BoomBustBlog analysis:

• As If On Cue After My Step By Step Illustration Of A Spanish Default, Spanish Yields Climb at Auction As Pressure Continues Thursday, December 16th, 2010

• Will Spain Default? The Answer Is Not Hard To Determine If You Take An Objective Look At The Numbers And Recent History! Monday, December 13th, 2010

• Subscribers only -  Spanish Banking Macro Discussion Note

Click here for the Pan-European Debt Crisis series archives or here for my latest on the topic.

Follow me!

Last month I penned the piece Abu Dhabi & the UAE Can Leverage PetroDollar profits to capitalize on the plight of EU nations, wherein I announced that I was putting together an initiative to capitalize on the inevitable deleveraging of European (and soon Asian) banks and sovereign (as well as quasi-sovereign) nations. Those insititions and UHNW individuals who are interested in said initiative should click through and read the article and contact me afterward as there has already been significant indications of interest. I already have my analysts going through a plethora of opportunities, identifying hard assets first, and financial assets with deep, deep discounts in mind (100%+ cash on cash return within one year, unlevered).

As fate, and an adherence to viewing things analytically, would have it the opportunities may come to bear sooner than expected - to wit: European Banks Could Deleverage by $2.6 Trillion: IMF

A drastic contraction of European bank balance sheets during the next 18 months could jeopardise financial stability and economic growth, according to the IMF. The FT reports.

This is simply a reiteration of my warnings from as far back as 14 months ago, proffered in explicit detail, simple reference Is Another Banking Crisis Inevitable? (Attention subscribers: The subscription document is available as well The Inevitability of Another Bank Crisis)

Banks NPAs to total loans

Source: IMF, Boombust research and analytics

Euro banks remain weak as compared to their US counterparts

Later on today I will post the first of several documents to professional/institutional subscribers detailing what I have in mind in this potential asset grab.

Apple has started exhibiting the behavior that I have been warning about, dropping four and five percent over the last 24 hours or so, then regaining a third of the same.

NAsdapple_or_Appldaq

This volatility should be of no suprise. If you look at the chart above, you will clearly and unequivocally see Apple (or AppleDAQ or NASDApple - regardless of the nomenclature) is essentially the NASDAQ, as was pointed out in previous posts from BoomBustBlog, ex. When The Most Contrarian Trade Of The Year Is No Longer Contrarian, It's About That Time - Enter The Rotten Apple and that of ZH Apple Responsible For 90% Of Intraday NASDAPPLE Gain - to wit:

Or perhaps the 209 hedgies who rely on this stock for their year will play prisoner's dilemma (and free ride) one too many times and dismiss their recency bias to remember that the first one to migrate wins when prices go vertical.

Again, as pointed out in When The Most Contrarian Trade Of The Year Is No Longer Contrarian, It's About That Time,  this process of Apple purging may have already started...

3h8sj2p

This interesting observation was brought up up in my Twitter feed, to wit:

# of funds in this order (%) since 12/2010: +1.4%, -4.0%, +8.7%, +4.3%, +5.4%, +3.2%, -25.8% (1st big drop) 

@PierreLeroux28 @ReggieMiddleton I just find it interesting (if the data is accurate) that more than 1,000 funds sold out during rise 

PierreLeroux28 Pierre Leroux So if institutions dump some $AAPL on strenght after that THEY ALSO BUY THE DIPS Like i will rebuy my 10 calls 

Of course the lovefest with Apple dictates the BTD will reign, but suppose the dips are accompanied  - better yet caused - by widespread use of technologies known as calculators, spreadsheets or BoomBustBlog subscriptions?

Correction, courtesy of @cperruna, author of the chart above: 

The MarketSmith chart I uploaded was not correct but I have revised my feed with the correct data. I actually questioned MarketSmith when I saw a large drop in another leader I have been tracking. In any event, the updated data is as follows, as I posted on my twitter feed:

"Although Institutional #'s were incorrect, $AAPL still down 8% from 4/7 chart stks.co/3FrS| sponsorship is now 4,196 from 4,308"

This isn't just about quantitative analytics uber blind hedgefund managers reaching for cap gains. There are very fundamental reasons for Apple owners to expect a pullback or slowing of growth. After all, that margin compression theory is ready to come into its own. We have created a very realistic scenario analysis that shows what could happen, and when, and topped it off with what we feel should happen. Interesting indeed! Subscribers, reference the Apple Margin & Valuation Note. I gave free readers an example of the evidence we uncovered showing Apple already experiencing margin compression and a loss of market share in one of its flagship products (Apple's iPad Is Losing Market Share And …).

If the biz class 101 rules ring true, this could very ugly very fast... The Company had a slam bang quarter last, but much of that is essentially unrepeatable in the near term, reference Anecdotal Observations On Apple's Recent Quarter.

image061

image051

As with Greece, Spain, Portugal and Ireland, I warned thoroughly and quite early that Italy will deliver a rash of broken promises in regards to it public finances leading up to a probably restructuring. Today's MSM headlines simply confirm more of the same, just two years later...

Per CNBC: Italy to Miss Budget Deficit Targets, Debt to Rise: IMF 

Italy will miss its budget deficit targets in 2012 and 2013 and its public debt will rise in both years despite the government's austerity measures, the International Monetary Fund forecast on Tuesday. 

The IMF said in its Fiscal Monitor report that Italy's deficit would fall this year to 2.4 percent of output, well above Rome's 1.6 percent target, and would decline to 1.5 percent in 2013, when Italy is aiming to balance its budget.

The forecasts are a blow to Prime Minister Mario Monti, whose popularity is sliding and whose reform efforts are meeting rising criticism and resistance as the country's borrowing costs rise.

Italy's huge public debt, the second highest in the euro zone after Greece's as a proportion of GDP, will jump to 123.4 percent of gross domestic product this year, from 120.1 percent in 2011, and edge up to 123.8 percent in 2013, the IMF said.

Earlier on Thursday the IMF forecast the Italian economy would shrink by 1.9 percent this year and contract by 0.3 percent in 2013.

The Fund's forecast that Rome will significantly overshoot its balanced budget target next year will put pressure on Monti to adopt additional corrective measures, though the IMF itself has urged against this due to the weak economy.

Here are the first four pages of our subscriber research released in March 2010, sans the Italian crystal ball of course. Subscribers, please reference Italy public finances projection.

Italy_public_finances_projections_Page_01

Italy_public_finances_projections_Page_02

Italy_public_finances_projections_Page_03

Italy_public_finances_projections_Page_04

We should all keep in mind that Contagion Should Be The MSM Word Du Jour, Not Bailouts and Definitely Not Greece! The following are what we consider to be the focal point of sovereign debt stress if things continue to kick off.

Subscribers reference:

•  Report_122511 - Professional/Institutional edition (Insurers, Insurance & Risk Management)
•  Report_122511 -Retail edition (Insurers, Insurance & Risk Management)

Bank Haircuts, Derivative Risks and Valuation10/20/2011

Bank report 170610 Professional & Institutional07/07/2010

Bank report 170610 Retail07/07/2010

Bank Holdings_Report_04August2008 - retail09/16/2008

 Bank Holdings_Report_04August2008 - pro09/16/2008 

Just over two years ago I warned that Spain posed a significant threat to the EU area economies. This was a very unpopular stance, and since I'm more of a medium to long term strategist and Spain didn't experience any immediate pain, my stance was considered even more morose. Well, luckily, I supplied ample research to paying subscribers who were well prepared for what is now evidently coming down the pike.

CNBC reports: Spanish Bond Yields Top 6% as Debt Crisis Flares

Spanish 10-year government bond yields broke above 6 percent for the first time this year on Monday as concerns over the country's ability to keep its finances under control pushed debt markets back into "crisis mode".

Spanish yields were expected to rise further towards the panic-triggering 7 percent level beyond which debt costs are widely seen as unsustainable unless the European Central Bank  resumes its bond purchases after a two-month break.

Yields on Germany's benchmark 10-year Bund, viewed as the euro zone's safest debt, hit a record low of 1.628 percent. The previous record was established in November 2011, at the height of the debt crisis before the ECB injected around 1 trillion euros of cheap three-year funds into the banking system.

"We're back in full crisis mode," Rabobank rate strategist Lyn Graham-Taylor said. "It is looking more and more likely that Spain is going to have some form of a bailout. Assuming there is not an (ECB) intervention you would not see a cap on Spanish yields, they would just keep increasing."

The latest blow to Spanish markets followed data on Friday that showed record borrowing by its banks from the ECB. Investors' main fear is that banks parked most of the funds in domestic government debt, making them more vulnerable to sovereign stress.

Spain faces a test of investor confidence this week with an auction of two- and 10-year bonds on Thursday. 

Spanish 10-year yields rose 16 basis points at 6.15 percent, five-year yields topped 5 percent, while two-year yields spiked to 3.70 percent, all 2012 highs.

Six percent is psychologically important for markets as the pace at which yields rise has accelerated on previous occasions when that level was broken. Beyond 7 percent, Greece, Portugal and Ireland struggled to raise cash in the market and were forced to seek financial aid.

Underlining investor fears, the cost of insuring Spanish debt against default hit a record high of $520,000 a year to buy $10 million of protection.

  Bloomberg reports: Europe Seeks More IMF Funds on Spanish Debt

European officials travel to Washington this week seeking a bigger global war chest to combat the debt crisis as Spain’s government battles to quell renewed market turmoil over its finances.

Three weeks after European leaders unveiled emergency euro- area funding exceeding the symbolic $1 trillion mark, concerns about Spain’s position have ratcheted the nation’s borrowing costs to the highest levels this year. Crisis-fighting resources will dominate talks at the International Monetary Fund’s spring meeting in Washington from April 20-22.

While the U.S. insists that Europe can overcome the crisis using its own financial firepower, euro-area officials say they’ve done enough to trigger additional global assistance. The urgency was underscored last week as Spanish and Italian yields jumped, challenging assumptions among the region’s leaders that the worst of the fallout was behind them.

“After three months that were calmer than expected, the euro crisis is back,” said Holger Schmieding, chief economist at Berenberg Bank in London. “The speed of the recent surge in yields has elements of a renewed market panic.”

Spain’s 10-year bond yield climbed as much as 18 basis points today to 6.16 percent, the highest level since Dec. 1, before retreating to 6.06 percent at 2:45 p.m. in Madrid. That extended a rise of 19 basis points last week. Similar-maturity Italian yields rose 4 basis points to yield 5.56 percent. The 17-nation currency fell 0.2 percent to $1.3048 at 2:49 p.m. in Frankfurt, after sliding below $1.30 for the first time since January.

...The surge in borrowing costs prompted one of Spain’s deputy economy ministers, Jaime Garcia-Legaz, to call on theEuropean Central Bank to resume its direct intervention in the markets.

“They should step up purchases of bonds,” Garcia-Legaz said in an April 13 interview, wading into a debate that has split the ECB. While Executive Board member Benoit Coeure signaled April 11 the ECB may buy up Spanish bonds, his Dutch colleague Klaas Knot said two days later that the ECB is “very far” from reactivating the measure.

Professional subscribers can now actually download the original Spanish Bond Haircut Model that we used to calculate loss scenarios - Spain maturity extension_010610 (The Man's conflicted copy). Despite the fact I was probably the most realistically bearish out of the bunch, things have actually gotten materially worse since this model was constructed two years ago, hence it can use a refresh. Alas, it is still quite useful.

In the general subscriber document Spain public finances projections_033010, the first four (or 12) pages basically outline the gist of the Spanish problem today, to wit:

Spain_public_finances_projections_033010_Page_01

Spain_public_finances_projections_033010_Page_02

Spain_public_finances_projections_033010_Page_03

Spain_public_finances_projections_033010_Page_04

The stress caused by Spain breaking the central bank will bring to full fruition the theory behind our European Banking and Insurance research from the last few quarters. All would do well to remember (and re-read, if need be),

Contagion Should Be The MSM Word Du Jour, Not Bailouts and Definitely Not Greece!

Subscribers reference:

•  Report_122511 - Professional/Institutional edition (Insurers, Insurance & Risk Management)
•  Report_122511 -Retail edition (Insurers, Insurance & Risk Management)

On the banking perspective:

Bank Haircuts, Derivative Risks and Valuation10/20/2011

Bank report 170610 Professional & Institutional07/07/2010

Bank report 170610 Retail07/07/2010

Bank Holdings_Report_04August2008 - retail09/16/2008

 Bank Holdings_Report_04August2008 - pro09/16/2008 

Related Spain subscriber research from BoomBustBlog:

CNBC reports Bank of Spain Says Banks May Need More Capital where this was woefully evident over two yeas ago...  Spanish Banking Macro Discussion Note

 A Review of the Spanish Banks from a Sovereign Risk Perspective – retail.pdf

 A Review of the Spanish Banks from a Sovereign Risk Perspective – professional

I have decided to allow those who are curious or who may not have not heard of me, and those oft celebrated MUPPETS (see Goldman Sachs Executive Director Corroborates Reggie Middleton's Stance: Business Model Designed To Rip Off Clients) to actually see what I keep behind the BoombBustBlog paywall by distributing our premium research for free. Why do such a thing? Well, to be honest, I do it in celebration of the man quoted as saying "Lets start having fun... lets get funky... let's announce everything... let's be WILDLY positive in our forecasts... lets take this thing to the extreme... if we get wacked [sic] on the ride down-who gives a shit... THE TIME TO GET RADICAL IS NOW... WE HAVE NOTHING TO LOSE..." (hint, this is the current Groupon CEO) in addition to the underwriters of said wonderful company. Read on and you'll see why such independent research is desperately - and I do mean desperately - needed. As a matter of fact, there's no valide reason why (after reading this rather meaty article) my servers should not be overloaded by the deluge of ex-muppets looking for some guidance through the fog of muppet master bankers stateside. To wit...

Wall Street Rakes in $42 Million From Groupon IPO - Deal Journal ...

And just so you don't think this is a personal vendetta against said muppet master pulling the strings that do God's work (it's probably more like an impersonal vendetta), let's sprinkle a little yellow stream on the Morgan Stanley parade shall we? After all, Morgan Stanley can be expected to pay up to 60% of those (ill-found? Depending on where your values lie...) gains in compensation, namely bonuses - apart from whether said bonuses were ever really deserved in the first place.... Yes, I'll go back there again, see Wall Street Real Estate Funds Lose Between 61% to 98% for Their Investors as They Rake in Fees!":

Last year I felt compelled to comment on Wall Street private fund fees after getting into a debate with a Morgan Stanley employee about the performance of the CRE funds. He had the nerve to brag about the fact that MS made money despite the fact they lost about 2/3rds of their clients money. I though to myself, "Damn, now that's some bold, hubristic s@$t". So, I decided to attempt to lay it out for everybody in the blog, see "

The example below illustrates the impact of change in the value of real estate investments on the returns of the various stakeholders - lenders, investors (LPs) and fund sponsor (GP), for a real estate fund with an initial investment of $9 billion, 60% leverage and a life of 6 years. The model used to generate this example is freely available for download to prospective Reggie Middleton, LLC clients and BoomBustBlog subscribers by clicking here: Real estate fund illustration. All are invited to run your own scenario analysis using your individual circumstances and metrics....

... Under the base case assumptions, the steep price declines not only wipes out the positive returns from the operating cash flows but also shaves off a portion of invested capital resulting in negative cumulated total returns earned for the real estate fund over the life of six years. However, owing to 60% leverage, the capital losses are magnified for the equity investors leading to massive erosion of equity capital. However, it is noteworthy that the returns vary substantially for LPs (contributing 90% of equity) and GP (contributing 10% of equity). It can be observed that the money collected in the form of management fees and acquisition fees more than compensates for the lost capital of the GP, eventually emerging with a net positive cash flow. On the other hand, steep declines in the value of real estate investments strip the LPs (investors) of their capital. The huge difference between the returns of GP and LPs and the factors behind this disconnect reinforces the conflict of interest between the fund managers and the investors in the fund.

re_fund_returns.png

Okay, enough the Muppet Manipulating, Money Marauding, Doing Work in God's Name Brand Bank Bashing... Let's get down to the nitty gritty of the report that I said I will give away for free. I am offering the report, earnings advisory addendum and accompanying simplified model to show what we're made of. Of course paying subscribers, and even casual blog readers, cannot say that I didn't thoroughly warn you! Early shorts on this stock as per our research notes valuation matrices would have given pleasant Christmas presents and would have also stuffed one hell of an Easter basket as well!!!

In case you still don't get it, the sell side research departments of these banks did not offer BoomBustBlog research to their clients. Oh no, then how in the hell can they dump their stock??? They issued glowing reports from their own analytical cum soft sales staff.

On that note, let's reminisce.... In June of 2011 I release proprietary research to BoomBustBlog Subscribers. You can now download said report absolutely free, here  Groupon Forensic Analysis & Valuation (923.04 kB 2011-06-16 10:34:36). After reading said report, prepare for some real comedy, as reported by Dailypolitical.com:

Groupon (NASDAQ: GRPN) was downgraded by equities research analysts at Stifel Nicolaus from a “hold” rating to a “sell” rating in a research note issued to investors on Monday.

Other equities research analysts have also recently issued reports about the stock. Analysts at Bank of America (NYSE: BAC) downgraded shares of Groupon from a “buy” rating to a “neutral” rating in a research note to investors on Monday. They now have a $20.00 price target on the stock, down previously from $30.00. Separately, analysts at Benchmark Co. cut their price target on shares of Groupon from $32.00 to $28.00 in a research note to investors on Monday. They now have a “buy” rating on the stock. Finally, analysts at Goldman Sachs (NYSE: GS) reiterated a “buy” rating on shares of Groupon in a research note to investors on Thursday, February 9th.

Groupon traded down 3.20% on Monday, hitting $14.54. Groupon has a 52-week low of $14.85 and a 52-week high of $31.14. The company’s market cap is $9.376 billion.

Whoa!!! Goldman Sachs reiterated their "buy" recommendation just in time for their damn Muppet Clients to lose ~40% by the close of the market today. Go ahead, stuff those damn Muppets, fellas!

Groupon_Crash_warnings

For the record, in June of 2011, a full ten months ago, I made clear to my subscribers the following (as excerpted from the now free download)...

We value Groupon at $6.6bn using DCF. The current valuation is based on 10 years of revenue projections which are overly optimistic in our view.  We have forecasted revenues of $4.0bn in 2011 and expect revenues to nearly double to $7.5bn in 2012 and reach $35bn by 2020. We have assumed cost of equity of 12% and terminal growth of 3% from 2021 onwards. We have kept gross profit at stable levels and assumed operational gearing to (∆ Operating Profit / ∆ Revenue) to improve considerably. Despite these optimistic projections we were still not able to justify a valuation close to $10bn let alone $20-25bn. We only see downside risks to valuation of $6.6bn and believe that Groupon’s rejection of Google offer of $6.0bn was a mistake in first place. Google’s valuation of $6.0bn most assuredly included a premium for synergies that Google could have achieved with Groupon which would be clearly absent in the standalone entity. We see the fair value of Groupon close to $3.0-4.0bn if we assume a more realistic picture. Given all kinds of questions surrounding Groupon’s business regarding the sustainability of revenue growth, costs control and even the business model itself (i.e., the relationship with merchants) and external competition, we remain deeply concerned even on the sustainability of a successful IPO for Groupon. 

For the record, at about $14 per share, Groupon is market-valued at about $9.1 billion dollars!!!! Here are some key highlights: Groupon restates revenue, EXACTLY as I warned just three months earlier.

1. Monday, 26 September 2011 What's The Best Way To Profit From Groupon's IPO?
2. Groupon Revenue Restated 09/26/2011

1. Sunday, 13 November 2011 I Hope You Groupon IPO Investors Got Coupons At The IPO!!! Yeah, That's Right I Was The First To Say It

Groupon revenue restated Page 1Groupon revenue restated Page 2

Groupon Valuation redacted Page 03Groupon Valuation redacted Page 04Groupon Valuation redacted Page 05

Semantic Housekeeping

I noticed in the comment columns of some of the blogs that there was some controversy concerning my dressing up as a Zulu warrior in my hunting of the giant Vampire Squid. I wish to correct thee. I did not dress up as anyone but Reggie. I had shorts on from the Gap. As for the weaponry donned, yes I did grab a little something from my personal stash, but it was not Zulu, it was Masai in origin. I suggest all brush up on their African warrior history. Why don weapons at all? Well as intellectually and physically capable as I desire myself to be, hunting Vampire Squid can be a dangerous occupation, therefore one should go into the fray fully packed. Was I somehow regretfrul of marketing my brand as who I actually am? Of course not. If anything, I suggest many of you institutional asset manager types don intellectual weaponry of some sort or fashion, be it of Zulu, Masai or other origin. After all...

Who would rather be, a 45% to 62% capital LOSS MUPPET or a Masai (or Zulu) Warrior? Should I even have to ask?

Shaka kaSenzangakhona (aka Shaka Zulu)
KingShaka
The only known drawing of Shaka—standing with the long throwing assegai and the heavy shield in 1824, four years before his death
Reign	1816 - 1828
Born	ca. 1787 KwaZulu-Natal, near Melmoth
Died	c. 1828 KwaZulu-Natal
Occupation	Monarch of the Zulu Kingdom

Masai Warriors 

Bundesarchiv_Bild_105-DOA0556_Deutsch-Ostafrika_Massaikrieger

Maasai warriors in German East Africa, c. 1906-1918.

For some reason, it appears that there are still many monied interests that would literally want to be a little green (yet cute) victim versus an entity that would stand up, arm itself intellectually and defend its own economic interests. Alas, to each their own....

Goldman Clients aka MUPPETS!!!

Click any and all graphics in this post to expand to print quality

Reggie_Middleton_hunting_the_Squid_Known_As_Goldman_Sachs_GS

I'm Hunting Big Game Today: The Squid On A Spear Tip Summary: This is the first in a series of articles to be released this weekend concerning Goldman Sachs, the Squid! In this introduction (for those who do not regularly follow me) I demonstrate how the market, the sell side, and most investors are missing one of the biggest bastions of risk in the US investment banking industry. I will also...
Hunting the Squid, Part2: Since When Is Enough Derivative Exposure To Blow Up The World Something To Be Ignored?Hunting the Squid, Part2: Since When Is Enough Derivative Exposure To Blow Up The World Something To Be Ignored?Hunting the Squid, Part2: Since When Is Enough Derivative Exposure To Blow Up The World Something To Be Ignored?	Hunting the Squid, Part2: Since When Is Enough Derivative Exposure To Blow Up The World Something To Be Ignored? Welcome to part two of my series on Hunting the Squid, the overvaluation and under-appreciation of the risks that is Goldman Sachs. Since this highly analytical, but poignant diatribe covers a lot of material, it's imperative that those who have not done so review part 1 of this series, I'm Hunting Big Game Today:The Squid On The Spear Tip, Part...
Reggie Middleton Serves Up Fried Calamari From Raw Squid: Goldman Sachs and Market Perception of Real Risks!Reggie Middleton Serves Up Fried Calamari From Raw Squid: Goldman Sachs and Market Perception of Real Risks!Reggie Middleton Serves Up Fried Calamari From Raw Squid: Goldman Sachs and Market Perception of Real Risks!	Hunting the Squid Part 3: Reggie Middleton Serves Up Fried Calamari From Raw Squid For those who don't subscribe to BoomBustblog, or haven't read I'm Hunting Big Game Today:The Squid On The Spear Tip, Part 1 & Introduction and Hunting the Squid, Part2: Since When Is Enough Derivative Exposure To Blow Up The World Something To Be Ignored?, not only have you missed out on some unique artwork, you've potentially missed out on 300%...
Hunting the Squid, part 4: So, What Else Can Go Wrong With The Squid? Plenty!!!Hunting the Squid, part 4: So, What Else Can Go Wrong With The Squid? Plenty!!!Hunting the Squid, part 4: So, What Else Can Go Wrong With The Squid? Plenty!!!	Hunting the Squid, part 4: So, What Else Can Go Wrong With Goldman Sachs? Plenty! Yes, this more of the hardest hitting investment banking research available focusing on Goldman Sachs (the Squid), but before you go on, be sure you have read parts 1.2. and 3:  I'm Hunting Big Game Today:The Squid On A Spear Tip, Part 1 & Introduction Hunting the Squid, Part2: Since When Is Enough Derivative Exposure To Blow Up The World Something To...

• Hunting the Squid, Part 5: Sometimes Your Local Superhero Doesn't Look Like What They Show You In The Movies 
• What Was That I Heard About Squids Raising Capital Because They Can't Trade?
• Reggie Middleton vs the Squid That Can't Trade!

And back to Groupon for a minute... Way to Go Muppet Masters Goldman et Morgan, eh? Let's not fret too much about the $42 million  in fees. My assumption is that it is both expensive and fraught with red tape, you know getting a Ponzi scheme authorized by the SEC!!!

Groupon IPO Scandal Is the Sleaze That's Legal

Izard Nobel LLP Announces Class Action Lawsuit Against Groupon, Inc.

MarketWatch - 17 hours ago

Izard Nobel LLP Announces Class Action Lawsuit Against Groupon, Inc.

Reuters Key Development - 17 hours ago

Bernstein Liebhard LLP Announces That a Class Action Has Been Filed Against <...

MarketWatch - 19 hours ago

Pomerantz Law Firm Has Filed a Class Action Against Groupon, Inc. -- GRPN

Girard Gibbs LLP Launches Groupon Legal Investigation

MarketWatch - Apr 3, 2012

Girard Gibbs LLP Launches Groupon, Inc. Legal Investigation

Reuters Key Development - Apr 3, 2012

Newman Ferrara LLP Investigates Groupon, Inc. for Possible Breaches of <b>......

MarketWatch - Apr 3, 2012

Robbins Geller Rudman & Dowd LLP Files Class Action Suit Against Groupon,...

Reuters Key Development - Apr 3, 2012

Groupon to Settle Class-Action Lawsuit for $8.5 Million

Bloomberg - Apr 2, 2012

Groupon Inc. (GRPN) Faces Accounting Issues, Why is Anyone Surprised?

ValueWalk - Apr 2, 2012

Rigrodsky & Long, P.A. Announces an Investigation of Groupon, Inc. for <b...

MarketWatch - Apr 2, 2012

Rigrodsky & Long, P.A. Announces Investigation 

Harwood Feffer LLP Announces Investigation of Groupon, Inc.

MarketWatch - Apr 2, 2012

Harwood Feffer LLP Announces Investigation Of Groupon, Inc.

Reuters Key Development - Apr 2, 2012

Groupon Revisions Highlight New Model's Risks

BusinessWeek - Apr 2, 2012

Groupon Inc. (GRPN) Is Declining After Q4 Revision

NASDAQ - Mar 30, 2012

A quick visual op-ed courtesy of williambanzai7...Reggie Middleton Serves Up Fried Calamari From Raw Squid: Goldman Sachs and Market Perception of Real Risks!Reggie Middleton Serves Up Fried Calamari From Raw Squid: Goldman Sachs and Market Perception of Real Risks!