As I warned last week in Why Greece Bailout Games Will Cause The Rest Of The EU To Break Out The Grease, the games being played in the EU to hide the Grecian sausauge will not end well. To wit, and as reported by Bloomberg... ECB Suspends Greek Debt as Collateral

The European Central Bank said Greek debt will temporarily be ineligible as collateral for loans after Standard & Poor’s yesterday cut Greece’s credit rating to “selective default.”

The ECB “has decided to temporarily suspend the eligibility of marketable debt instruments issued or fully guaranteed by the Hellenic Republic for use as collateral in Eurosystem monetary policy operations,” the Frankfurt-based ECB said in a statement today. “This decision takes into account the rating of the Hellenic Republic as a result of the launch of the private sector involvement offer.”

While the ECB’s risk management rules prevent it from accepting collateral deemed to be in default, the central bank will resume taking Greek debt once a 35 billion-euro ($47 billion) guarantee scheme agreed by European governments comes into force in mid-March. A reduction in Greece’s credit rating was anticipated after the country agreed a debt write-down with private sector investors, seeking to reduce national debt to 120 percent of gross domestic product by 2020 from 160 percent last year.

“After the downgrade it was clear this was going to happen,” said Christian Schulz, an economist at Berenberg Bank in London. “The ECB isn’t going to make an exception to its rule on not accepting defaulted collateral, and this is anyway a temporary arrangement.”

The ECB said banks affected by the suspension of Greek debt as collateral can turn to so-called Emergency Liquidity Assistance schemes provided by their national central banks.

Greece published the formal offer document last week for its agreement to exchange bonds for new securities, with investors taking a haircut of 53.5 percent. The Greek government agreed that bonds held by the ECB and euro-area central banks would be exempt from any debt restructuring.

Bullishness in equities is simply uncalled for and shows how true price discovery is lost in today's capital markets.

I warned, in the video above, that the bullying behavior of the ECB may save it from insolvency but will near guarantee solvency issues for anyone needing market liquidity in the short to medium term. You see, nobody likes to get robbed, as Bloomberg amplifies my statements above - ECB Special Lender Status Threatens Backlash:

The European Central Bank’s willingness to ride roughshod over bondholder rights risks pushing up borrowing costs for indebted governments by making investors less willing to lend.

The ECB swapped about 50 billion euros ($67 billion) of Greek bonds for new securities, identical to the old ones in every way save for identification numbers. The switch makes the ECB senior to other investors, exempting it from the largest sovereign restructuring in history as Greece rewrites the terms of its notes to ensure lenders forgive 53.5 percent of the debt.

“Bondholders are effectively being subordinated every time the ECB gets involved -- not legally, but economically,” said Saul Doctor, a credit strategist at JPMorgan Chase & Co. in London. “Foreign investors are going to be less willing to buy sovereign bonds when the ECB can exert itself.”

I have enabled my professional and institutional subscribers to run their own haircut scenarios on Greece select other members of the PIIGS group. The Bloomberg article above was known to be the case TWO YEARS ago to BoomBustBloggers. See The Ugly Truth About The Greek Situation That's Too Difficult To Broadcast Through the MSM for a public preview of said haircut models.

Check this out!

The ECB’s bond exchange with Greece shows how documentation of securities governed by local law can be changed to introduce clauses that reduce investor protection. Private creditors now risk losses both from the likelihood of imposed writedowns and from effective subordination by official lenders, according to Stuart Thomson, who helps oversee $121 billion at Ignis Asset Management in Glasgow.

“It’s the subordination of capitalism,” he said. “Governments raise money to grow their economies. If that fundraising is subject to governments changing the rules as they see fit, then that’s a subordination of the capitalist system.”

It costs a record $7.3 million upfront and $100,000 annually to insure $10 million of Greek debt for five years. That signals a 94 percent chance of default within that time, based on investors recovering 22 percent of their money.

Greece and Portugal are now the world’s most expensive governments to insure, topping Pakistan, Argentina, Ukraine and Venezuela. Developed sovereigns may be treated more like emerging markets in future because investors will demand bonds be issued under international law rather than the issuer’s domestic law, according to Doctor at JPMorgan.

Grecian Tragedy Formula, Bailout Number 3 shows one of the many reasons why Greece will probably need nearly all of its debt wiped; clean, resulting in LGD of nearly 100%. Where have we heard this before? Oh yeah, the BoomBustBlog nearly 8 months, to wit - LGD 100+: What's the Possibility of Certain European Banks Having a Loss Given Default Approaching 100%? I strongly suggest any who dare label me a doom and gloomer read this piece, coming from the same man that called the collapse of Bear Stearns, Lehman Brothers and GGP... Ain't nothing changed! Ignore the truth if you deems such wise...

For those of you who may be bothered by my proclamations on CNBC or that of RT's Capital account, reference what was said in the aforelinked article, to wit:

As illustrated above, there is a higher probability for a Greek sovereign debt restructuring in 2013, which will definitely not hurt IMF (since it has a preferred right) but the Euro Members and other investors who will be holding the Greek debt.

image021

LGD: Loss Given Default... ~100%???

We're talking damn near complete wipeouts boys and girls. There are practicaly no entities holding this debt at par that are leveraged under 30x. The starting point in case of default for Greece is between roughly 48% to 52% of par. You've seen the math on BoomBustBlog many a time - Over A Year After Being Dismissed As Sensationalist For Questioning the ECB's Continued Solvency After Sovereign Debt Buying Binge, Guess What!
 

image003image003

Add forced subordination due to IMF and US imperialitic dictate, and discussion of recoveries may very well be moot.

After all, and as also pontificated last week (I was on a Grecian roll)...

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

thumb_Sovereign_Contagion_Model_-_Pro__Institutional_demonstration_of_Greek_default

Published in BoomBustBlog

Yesterday I shared my opinion of Grecian bailout games with Capital Account's Lauren Lyster. It was direct, honest, hard hitting and borderline offensive - hopefully par for the course of what is expected from me.

Just in case you didn't get the hints thrown in the video, Greece is truly fuc#ed, truly... The leaked Troika document referenced in the video assumes positive GDP growth of 2% to 4% in a year and a half. Here is where we stand now.

Greece_GDP_YoY

Luckily, employment hasn't been hit that hard. after all we all need to work...

Greece_Unemployment

Because... If you didn't have a job, you wouldn't be able to pay back your loans. Then again, one way to solve this problem is simply not to give anybody a loan, eh?

Greece_Bank_Lending_To_Households

Alas, we don't have to worry about that since the money spigots are just so turned on to the Greek corporate sector you don't have to worry about a scarcity of jobs. With all of that capital sloshing around the system, Grecian companies are bound to start going on a hiring binge ANY MINUTE NOW!

 Greece_Bank_Lending_to_Corporates

I know I was a little skeptical about the optimism of the leaked Troika report, but considering how accurate those EU/IMF guys have been in the past regarding Greece, I should be ashamed of myself for even considering the possibility of doubting my betters, eh? Simply reference Lies, Damn Lies, and Sovereign Truths: Why the Euro is Destined to Collapse!...

This document/blog post alone should serve to sink the Euro and blow out CDS spreads for several European sovereign. Why? Because the truth hurts and the truth is not what has been coming from European sovereign states as of late.

The IMF and the EU have been consistently and overtly optimistic from the very beginning of this crisis. Their numbers have been dramatically over the top on the super bright, this will end pretty, rosy scenario side - and that is after multiple revisions to the downside!!! We can visit the US concept of regulatory capture (see How Regulatory Capture Turns Doo Doo Deadly and Lehman Brothers Dies While Getting Away with Murder: Regulatory Capture at its Best) for the EU, but due to time constraints we will save that topic for a later date. To make matters even worse, the sovereign states have taken these dramatically optimistic and proven unrealistic projections and have made even more optimistic and dramatically unrealistic projections on top of those in order to create the illusion of a workable "austerity" plan when in reality there is no way in hell the stated and published plans will come anywhere near reducing the debts and deficits as advertised - No Way in Hell (Hades/Tartarus/Anao/Uffern/Peklo/Niffliehem - just to cover some of the Euro states caught fudging the numbers)!

Let's take a visual perusal of what I am talking about, focusing on those sovereign nations that I have covered thus far.

image005.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.png

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

image013.png

The EU/EC has proven to be no better, and if anything is arguably worse!

image031.png

Revisions-R-US!

image044.png

and the EU on goverment balance??? Way, way, way off.

image040.png

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!...

greek_debt_forecast.png

Think about it! With a .5% revisions, the EC was still 3 full points to the optimistic side on GDP, that puts the possibility of Greek government forecasts, which are much more optimistic than both the EU and the slightly more stringent but still mostly erroneous IMF numbers, being anywhere near realistic somewhere between zero and no way in hell (tartarus, hades, purgatory...).

Now, if the Greek government's macroeconomic assumptions are overstated when compared with EU estimates, and the EU estimates are overstated when compared to the IMF estimates, and the IMF estimates are overstated when compared to reality.... Just who the hell can you trust these days??? Never fear, Reggie's here. Download our "unbiased, non-captured, empirically driven" forecast of the REAL Greek economy - (subscribers only, click here to subscribe) Greece Public Finances Projections Greece Public Finances Projections 2010-03-15 11:33:27 694.35 Kb. Related banking research can be downloaded here:

In my post from earlier this week, Grecian Tragedy Formula, Bailout Number 3 I pointed out the abject absurdity of what was contained in said leaked, Troika document.

Greece_public_finances_projections1_Page_06

The Capital Accounts interview above is the culmination of several of these articles on the topic of kicking the Grecian can down the road causing considerably more damage than it can ever hope to solve. Reference: The Ugly Truth About The Greek Situation That'sToo Difficult Broadcast Through Mainstream Media

In Contagion Should Be The MSM Word Du Jour, Not Bailouts and Definitely Not Greece! I included output from our subscriber-only File Icon Sovereign Contagion Model (click here to subscribe).

thumb_Sovereign_Contagion_Model_-_Pro__Institutional_demonstration_of_Greek_default

This model details the various paths of contagion that can be taken given default by "XYZ" country. Examples include the effects of a China slowdown on the EU and vice versa. Hey, guess what's in the news today? Eurozone Recession Could Cut China’s Growth by 50%.

Also in the model and has can be seen in the illustrative chart above, is the signficant influence that the UK has upon the PIIGS. That's right, the same UK that sports 9%+ of its GDP as bank NPAs! And in the news today... UK GDP contraction sparks fear of a technical recession

So, will Greece set off contagion? Well, methinks the EU is not in the condition to find out. More headlines...
  1. Euro Zone Economy To Shrink In 2012
  2. Euro Zone Service Sector Contracted In February
Even the stalwart, supposed savior of the European continent, you know, our cousins from the northwestern Causus mountains, will end up obeying the laws of gravity.
German Final GDP q/q
-0.2% vs. -0.2%

I believe Germany poses the biggest threat to global harmony for 2012. Here's why...

European banks are (in addition to borrowing on a secured basis from those customers they usually lend to) also paying insurers and pension funds to take their illiquid bonds in exchange for better quality ones, in a desperate bid to secure much-needed cash from the ECB, which only provides cash against collateral. This may not be as safe a measure as it sounds. Below is a sensitivity analysis of Generali's (a highly leveraged Italian insurer, subscribers see File Icon Exposure of European insurers to PIIGS) sovereign debt holdings.

image004

As you can see, Generali is highly leveraged into PIIGS debt, with 400% of its tangible equity exposed. Despite such leveraged exposure, I calculate (off the cuff, not an in depth analysis) that it took a 10% hit to Tangible Equity. Now, that's a lot, but one would assume that it would have been much worse. What saved it?

Published in BoomBustBlog

In continuing with my rant on the absurdity of even pretending the Greek situation is salvageable or that Greece will somehow be bailed out without a near complete absolution of their debts, I  bring forth from the BoomBustBlog archives the Sovereign Contagion Model. For those who haven't read my most posts on this topic, please review The Ugly Truth About The Greek Situation That's Too Difficult Broadcast Through Mainstream Media and Grecian Tragedy Formula, Bailout Number 3.

It is my contention that Greece's significant default is a forgone conclusion. It is also my contention that media attention should be much more focused on the damage to be done by a Greek default - considerably more so than whether Greece will ultimately default of not or what type of bailout it may or may not recieve. I have been of this mindset for several years which is why I had my analyst team create the Sovereign Contagion Model below.

foreign claims of PIIGS

I've decided to go through a portion of the model and subset of its output to spark a real, realistic discussion in the media (I will discuss this on Capital Account via RT [Russian Television] live, today at 4:30 pm, re-airs at 7:30pm).

Summary of the methodology

  • We have followed a bottom-up approach wherein we have first identified the countries/regions with high financial risk either owing to rising sovereign risk (ballooning government debt and fiscal deficit) or structural issues including remnants from the asset bubble collapse, declining GDP, rising unemployment, current account deficits, etc. For the purpose of our analysis, we have selected PIIGS, CEE, Middle East (UAE and Kuwait), China and closely related countries (Korea and Malaysia), the US and UK as the trigger points of the financial risk dissemination across the analysed developed countries.
  • In order to quantify the financial risk emanating in the selected regions (trigger points), we looked into the probability of the risk event happening due to three factors - a) government default b) private sector default c) social unrest. The probabilities for each factor were arrived on the basis of a number of variables determining the relative weakness of the country. The aggregate risk event probability for each country (trigger point) is the average of the risk event probability due to the three factors.
  • Foreign claims of the developed countries against the trigger point countries were taken as the relevant exposure. The exposures of each developed country were expressed as % of its respective GDP in order to build a relative scale for inter-country comparison.
  • The risk event probability of the trigger point countries was multiplied by the respective exposure of the developed countries to arrive at the total risk weighted exposure of each developed country.
  • File Icon Sovereign Contagion Model - Retail - contains introduction, methodology summary, and findings
  • File Icon Sovereign Contagion Model - Pro & Institutional - contains all of the above as well as a very detailed methodology map that explains what went into the model across dozens of countries.

What happens when you take the raw public debt exposure and you massage it for reality? Well, BoomBustBlog subscribers already know. Here's a sneak peak of just one such scenario...

(Click to enarge)

 thumb_Sovereign_Contagion_Model_-_Pro__Institutional_demonstration_of_Greek_default

This is a scenario of a 96% chance of a Greek default, which naturally daisy chains along the EU corridor. Why do I say "naturally daisy chains" you query? Well, to begin with, the leveraged holdings of Greek bonds will take a massive, mark to market recognized loss - except for possibly the ECB who holds the most since that institution feels it can rewrite the rules. Bond investors levereaged 10 to 60 percent taking a 75%+ loss on an unlevered basis are not just underwater, they are deep sea fishing.

Then there's the human nature reality that if/once Greece defaults and does not get absolutely obliterated, other nations will wonder why they should suffer through extreme austerity measures while Greece defaults and gets to start over without paying back its debt. Hey, if he doesn't have to honor his loans, why should I? That means Portugal and Ireland will be quite reticent to suffer through high debt service and austerity while Greece doesn't.

Even if point the point above does not come to fruition (eventhough it probably would), EU-wide austerity is the same as a great recession or depression - on topr of historically unprecedented debt service. A simple glance at history reveals default is much, much wiser than suffering through a decade of austerity. Don't believe me, ask the fastest growing economy in the EU, Iceland. Don't forget to look up why Iceland is one of the fastest growing economy in the EU block as well - and they are not even in the EU. Oh yeah, that's right! They defaulted on their debt and moved forward.

Take the above into consideration as you read this article published by Bloomberg today:

Royal Bank of Scotland Group Plc, Commerzbank AG (CBK) of Germany and France’s Credit Agricole SA booked losses on their Greek government debt two days after creditors agreed to the biggest sovereign restructuring in history.

RBS, Britain’s biggest government-owned lender, posted a wider-than-expected full-year loss after taking a sovereign-debt impairment of 1.1 billion pounds ($1.7 billion). Commerzbank, Germany’s second-biggest lender, booked a 700 million-euro ($1.1 billion) writedown on Greek debt in the fourth quarter. Credit Agricole, France’s third-largest bank, reported a quarterly loss after 220 million euros in impairments on Greek debt.

Dexia SA and Allianz SE (ALV) also announced Greek writedowns today. The nation’s private creditors agreed to a debt swap on Feb. 21, paving the way for a second bailout and averting what Deutsche Bank AG Chief Executive Officer Josef Ackermann said would have been a “meltdown” worse than the collapse of Lehman Brothers Holdings Inc.

“Earnings were hit by Greek writedowns, but at least the worst is now behind us,” said Lutz Roehmeyer, who helps oversee about 11.5 billion euros at Landesbank Berlin Investment in Germany’s capital. “By aggressively writing down their holdings, banks want to show that they can cope even if Greece defaults down the road.”

RBS, Commerzbank and Credit Agricole (ACA) have all written down their Greek debt by at least 74 percent, in line with estimated losses in the securities’ net present value from the swap.

Hmmmm! Where have we heard this before?

... RBS shares jumped 4.8 percent to 28.63 pence as of 12:06 p.m. in London on optimism that Chief Executive Officer Stephen Hester has completed the worst of the writedowns and as demand recovered at its U.S. business.

... Allianz (ALV), Europe’s biggest insurer, posted fourth-quarter earnings that missed estimates as the Munich-based company booked 1.9 billion euros of non-operating impairments on Greek sovereign debt and investments, particularly in financials, for the year.

The insurer wrote down its Greek bonds to market values at the end of 2011, representing 24.7 percent of their nominal value. Shares of Allianz were up 0.8 percent to 90.57 euros.

Dexia, the Belgian lender being broken up, reported a record loss of 11.6 billion euros today. Its writedowns on Greek sovereign debt totaled 3.61 billion euros last year, including 1.25 billion euros of impairments taken by its former Belgian bank unit before it was sold on Oct. 20. In addition, Dexia (DEXB) wrote down an additional 1.01 billion euros on derivative contracts tied to the Greek debt.

... Europe’s largest lenders and insurers are likely to accede to the Greek swap because they’ve already written down their sovereign holdings and want to avert the risk of a default, analysts said earlier this week. The success of the swap depends on how many investors participate in the transaction.

Under the deal, investors will forgive 53.5 percent of their principal and exchange their remaining holdings for new Greek government bonds and notes from the European Financial Stability Facility. The plan seeks to reduce Greece’s debt burden by 107 billion euros, the Institute of International Finance, which led negotiations, said earlier this week. The swap is meant to help reduce the country’s debt to 120.5 percent of gross domestic product by 2020.

Will debt at 120% of GDP work for a country thrown into its deepest recession ever by austerity measures? Will anyone know what will happen three years out, not to mention 8 years out as declared by this story? Referencing the interactive spreadsheet published earlier this week - The Ugly Truth About The Greek Situation That'sToo Difficult Broadcast Through Mainstream Media:

image010

As the premise to this story goes, this is definitely not about just Greece.  Let's review the contagion chart once again...

thumb_Sovereign_Contagion_Model_-_Pro__Institutional_demonstration_of_Greek_default

  1. Australia is heavily levered into China, and any who follow me know how I feel about China. There's also speculation of an Aussi Bubble Video to Go With Your Aussie Bubble Speculation?
  2. Austria and Belgium are highly exposed, yet never mentioned in the media
  3. France, held hostage by its socialist stance to its over-leveraged banks - see "BoomBust BNP Paribas?"For those not familiar with the banking book vs trading book markdown game, I urge you to review this keynote presentation given in Amsterdam which predicted this very scenario, and reference the blog post and research of the same:

  4. Ireland heavily levered into the UK whose banking system NPA's represent 9% of GDP!
  5. Germany, the penthouse suite lessor of the Roach Motel, and potentially the biggest threat to Europe? See The Biggest Threat To The 2012 Economy Is??? Not What Wall Street Is Telling You...
  6. Japan: Highest debt outside of Zimbabwe, will force Japan to sell holdings to manage debt, driving up interest rates worldwide??? 

I can go on, but I think many have already got the message.

Published in BoomBustBlog
Tuesday, 21 February 2012 07:19

Grecian Tragedy Formula, Bailout Number 3

The word τραγῳδία (tragoidia), from which the word "tragedy" is derived, is a portmanteau of two Greek words: τράγος (tragos) or "goat" and ᾠδή (ode) meaning "song", from ἀείδειν (aeidein), "to sing". This etymology indicates a link with the practices of the ancient Dionysian cults. It is difficult to know with certainty how these fertility rituals became the basis for tragedy and comedy, but an empirical overview of what the Greek government is proposing it is capable of achieving from fiscal standpoint in a short period of time would be borderline laughable if it didn't portend such serious consequences. Alas, since the vast majority of pundits seem to have actually failed to
read what the Greek government has issued as a supposed solution to the its crisis, this fiscal plan, apparently laid out as comedy, has a more than material chance of achieving a tragic end. 

Yesterday, I demonstrated that the sustainability of various proposed Greek bailouts is tantamount to abject non-sense by supplying the tools for subscribers to calculate their own Greek haircut effects, see The Ugly Truth About The Greek Situation That'sToo Difficult Broadcast Through Mainstream Media. Today I will demonstrate that the incessant lies laid forth virtually guarantee a crash landing. Sourced from ZeroHedge, below is page 4 of the Greek debt sustainability proposal floating around EU policy member corridors aimed at determining the likelihood of the success of a 3rd Greek bailout - Tragic Comedy, indeed...

Click to enlarge...

Greek-Sustainability-Proposal_Page_4

There is so much to comment on, I can literally get lost in the diatribe, so let's try to keep it short and focus on how the Greek privasitation plans are working out thus far by referencing a document that gave to my subscribers TWO YEARS AGO!!! Reference File Icon Greece Public Finances Projections, pages 5 and 6.

 

Greece_public_finances_projections1_Page_05

 

Greece_public_finances_projections1_Page_06

'Nuff said. In case I haven't made it clear, I believe Greece's implosion is a foregone conclusion. What the media should be focusing on is the knock-on effects to Portugal, Spain, Italy and Ireland, and the resultant contagion that is sure to affect France and Germany. My next post on this topic will outline the contagion research that we have conducted. Stay tuned!

  • Follow us on Blogger
  • Follow us on Facebook
  • Follow us on LinkedIn
  • Follow us on Twitter
  • Follow us on Youtube
Published in BoomBustBlog


On Thursday, February 17 I appeared on CNBC's halftime show for and hour, and the topic of Greece was the first to pop up. Here is how it went...

My readers and subscribers know that I have been warning that Greece would guaranteedly default as far back as two years ago. As a matter of fact, I stated that the haircut needed would have to be around the 53% mark in order for Greece's economy to truly cash flow again, and that was two years ago when things were much, much better for the country. Now the issue has metastasized into something much worse. How much worse? Well, it's safe to say the situation is at least twice as bad. That being said, twice times 53% means 60, 70, even 75% NPV haircuts just won't cut the mustard. Since this is already a forgone conclusion, I will now release the research and economic models that have been available to BoomBustBlog professional subscribers two years ago (March 2010), take notice how prescient, how crystal balllish it all seems..

Please take the time to go through the model below and click through all of the tabs at the bottom. Professional subscribers who would like a manipulable version of this model in Excel should email me for a copy.

In "With the Euro Disintegrating, You Can Calculate Your Haircuts Here",  I explicitly illustrated the likely loss to principal of sovereign debt investors who would be forced to take haircuts "for the cause". While we fully stand behind the calculations and the logic, chances are several sovereigns may attempt to undergo sleight of hand in order to placate investors as best they can. We suspect we will soon be hearing of significant restructuring plans in the Eurozone, starting with Greece. The piece below expands on these thoughts and offers subscribers live spreadsheets that illustrate the potential repercussions. It is recommended that these scenarios be taken into consideration in light of the info offered in the post "Introducing The BoomBustBlog Sovereign Contagion Model: Thus far, it has been right on the money for 5 months straight!" and compared to the haircut analysis as well. All paying subscribers are welcome to review our analytical overview of Greece's public finances (Greece Public Finances Projections) as well as the full Pan European Sovereign Debt Crisis analysis which is freely available to everyone.

Originally published in March of 2010...

Greek Restructuring Scenarios

There are several precedents of sovereign debt restructuring through maturity extension without taking an explicit  haircut on the principal amount, and many analysts are predicting something of a similar order for Greece. This form of restructuring is usually followed as a preemptive step in order to avoid a country from technically defaulting on its debt obligation due to lack of funds available from the market. It primarily aims to ease the liquidity pressures by deferring the immediate funding requirements to later periods and by spreading the debt obligations over a longer period of time. It also helps in moderating the increase in interest expenditure due to refinancing if the rates are expected to remain high in the near-to medium term but decline over the long term.

However, the two major negative limitations of this form of restructuring if applied to Greek sovereign debt restructuring are –

  • It solves only the liquidity side of the problem which means that the refinancing of the huge debt (expected to reach 133% of GDP by the end of 2010) will be spread over a longer time period while the debt itself will continue to remain at such high levels. The sustainability of such high debt level, which is growing continuously owing to the snowball effect and the primary deficit, is and will continue to be highly questionable. Greek public finances are burdened by a very large interest expense which is approaching 7% of GDP. The government’s revenues are sagging and the drastic austerity measures need to first bridge the huge primary deficit (which was 8.6% of GDP in 2009), before generating funds to cover the interest expenditure and reduce debt.

Thus, even though the amount of funds required each year to refinance the maturing debt will be reduced by extending maturities, the solvency and sustainability issues surrounding Greece’s public finances, which were the primary reasons for it’s being ostracized from the market in the first place, will remain unanswered.

  • It will lead to a very material decline in present value of cash flows for the creditors since the average coupon rate is lower than the cost of capital (reflected by the yields on the Greek bonds). The average coupon rate for bonds maturing between 2010 and 2020 is about 4.4% while the average benchmark yield for bonds with maturities from 1-10 years is nearly 7.5%. Also, as the maturity of the debt is extended, the risk increases and so does the cost of capital.

In order to assess the effectiveness of this form of restructuring for Greek sovereign debt, we have built three scenarios in which the maturities of the Greek debt is extended. These scenarios weren't designed to be exact predictions of the future but to represent what may happen under a variety of highly likely scenarios (a pessimistic, base and optimistic case, so to say):

  • Restructuring 1 – Under this scenario, we assumed that the creditors with debt maturing between 2010 and 2020 will exchange their existing debt securities with new debt securities having same coupon rate but double the maturity.
  • Restructuring 2 – Under this scenario, we assumed that the creditors with debt maturing between 2010 and 2020 will exchange their existing debt securities with new debt securities having half the coupon rate but double the maturity.
  • Restructuring 3 – Under this scenario, the debt maturing between 2010 and 2020 will be rolled up into one bundle and exchanged against a single, self-amortizing 20-year bond with coupon equal to average coupon rate of the converted bonds.

In all the three scenarios, we computed the total funding requirements and compared the same with funding requirements prior to restructuring. It is observed that restructuring will help in easing the immediate pressure of procuring funds to meet the huge funding requirements lined up in the next 5 years. However, it will also lead to substantial loss to creditors in the form of erosion of present value of cash flows. (Discount rate was the benchmark yields of Greek government bonds for similar maturity period).

  • Under restructuring scenario 1, the decline in present value of cash flows is 9.3% and the cumulative funding requirements between 2010 and 2025 reduces to 155.2% of GDP from cumulative funding requirements of 177.7% of GDP if there is no restructuring. The cumulative new debt raised will decline to 78.6% of GDP from 80.7% of GDP if there is no restructuring
  • Under restructuring 2, where the doubling of maturity is also accompanied by halving the coupon rate, the decline in present value of cash flows is 26.3% and the cumulative funding requirements between 2010 and 2025 reduces to 116.9% of GDP. The cumulative new debt raised will decline to 40.3% of GDP
  • Under restructuring 3, the decline in present value of cash flows is 18.0% and the cumulative funding requirements between 2010 and 2025 reduce to 131.5% of GDP. The cumulative new debt raised will decline to 69.0% of GDP.

We have also built in the impact of EU/IMF assistance to demonstrate the impact on funding requirements over the period 2010-2025. We assume that IMF/EU will disburse the entire assistance of EUR 110 billion by 2013. The IMF loans will have to be repaid after 3 years from the disbursement date and the payment will be distributed over the next two years. The EU loans will have to be repaid after 3 years from the disbursement date and the payment will be distributed over the next five years. It is observed that IMF – EU assistance will be just a short term relief and Greece will face the pressure when it will be forced to turn to the market to not only fund its maturing debt but also repay EU-IMF loans.

Conclusion – It is seen that the restructuring by maturity extension will marginally moderate liquidity concerns. But the primary and the more fundamental concerns about the high level of debt and the related refinancing and interest rate risks, the huge interest burden, the poor primary balance will be left unresolved by this form of restructuring. The revenues are weak and expenditures are high resulting in huge primary deficit and the government need to first fill this huge gap before it earns a primary surplus to cover the interest expense and reduce debt levels.

The government debt currently stands at 124.5% of GDP and is expected to balloon to 156.1% of GDP owing to lack of funds from primary balance to cover the interest expenditure which continues to add to the government debt levels. The three scenarios built for maturity extension show that maturity extension will not substantially help this issue to contain the ballooning government debt. Under restructuring 1, 2 and 3, the government debt is expected to stand at 154.4%, 123.7% and 147.0% of GDP at the end of 2025.

Published in BoomBustBlog

Those that follow me know that I've been saying Greece was a guaranteed default as far back as the 1st quarter of 2010 (February 8 2010 to be exact). That was actually quite contrarian call back then. Well, fastforward exactly two years later and you get headlines such as Fitch (& S&P) Says Greece Will Default By March 20 Bond PaymentGreece Running Out of Time as Debt Talks Stumble and Europe ’Plays With Fire’ as Greek Rescue Hits Barrier, to wit:

Greece said that Europe’s wealthier countries are “playing with fire” by toying with the idea of expelling it from the 17-nation euro area as talks over a second aid program ran into new obstacles.

Finance Minister Evangelos Venizelos leveled the accusation after a decision slated for tonight on aid totaling 130 billion euros ($171 billion) was postponed until at least Feb. 20 and possibly until after a full-time Greek government emerges from elections later in the year.

“We are continually faced with new terms,” Venizelos told reporters in Athens today. “In the euro area, there are plenty who don’t want us anymore. There are some playing with fire, domestically and abroad. Some are playing with torches and some are playing with matches. But the risk is equally great.”

Two years after pledging to pull Greece back from the brink, European leaders are torn between pouring more aid into the struggling economy or risking an unprecedented national bankruptcy that might force the country out of the euro and prompt renewed market tumult.

I agree that the EU crew is playing with fire, and I have shown how badly said fire can burn over two years ago, yet ratings agencies and bank analysts still aren't sounding the alarm loud enough. As a matter of fact, even today, I doubt many understand that these REALLY are playing with F.I.R.E...

thumb_Reggie_Middleton_on_Street_Signs_Fire

Reggie Middleton Sets CNBC on F.I.R.E.!!! - Reggie Middleton preaching the travails of commercial real estate in 2012/13 on CNBC

Even two years later after I have been proven right beyond a shadow of a doubt regarding the prospects of a Greek default, investors, analysts and pundits still do not seem to fully appreciate the gravity of the situation. If one peruses the BoomBustBlog archives, you will find the post What Country is Next in the Comingsa Pan-European Sovereign Debt Crisis? dated February 9th, 2010, and no I don't have a time machine...

Now, let's put this into perspective.

    1. The amount of debt offered in the past will pail in quantity and scope with the amount of debt that needs to be offered now, amid historically record high deficits and dwindling revenues, high unemployment and global uncertainty.

Let's examine exactly how much debt we are talking about and when...
image014.png

The weaker Eurozone countries will start flooding the market with sovereign debt rollovers starting THIS MONTH. It remains to be seen whether Germany will backstop Greece, but if they do how can they avoid backstopping Spain, Portugal and Italy. The Spanish and Italian backstops will be particularly tricky since there are bank NPAs hidden in their whose extent has been purposely kept a big mystery. Reference the NPA as a percetn of GDP chart above. If Germany doesn't backstop these countries then it's left up to the IMF and their goes the credibility of the Euro. If Germany does backstop the countries, then their goes those Bund rates! An interesting conundrum, indeed.

Yes, there are massive amounts of debt coming on to the market, and if Greece defaults, there is no way contagion can be prevented from spreading to Spain, Italy and Portugal, then to France. Why not? Because these countries have essentially the same problem that Greece has, and that is massive amounts of highly leveraged capital that has been destroyed, leaving debt service in its wake supported by weak and weakening economies - All made worse by austerity measures which are anti-stimulative, the actual antithesis of economic stimulative measures which will be the only thing that will stimulate said economies. As the excerpt above mentions, "The Spanish and Italian backstops will be particularly tricky since there are bank NPAs hidden in their whose extent has been purposely kept a big mystery." Here are some links and charts to clue you in on said mystery....

image009.png

From the post Smoking Swap Guns Are Beginning to Litter EuroLand, Sovereign Debt Buyer Beware

There are broad indications hinting that Italy and Greece are not the only countries that have used SWAP agreements to manipulate its budget and deficit figures. France and Portugal may be two other European economies which have resorted to similar manipulations in the past in order to qualify as part of single currency member nations (Euro Zone). Below is a small subset of the research that I have been gathering as I construct a global sovereign default model. This model is very comprehensive and thus far has indicated that quite a few (as in more than two or three) nations of significance have an 90% probability of defaulting on their debt in the near to medium term. More on this later, now let's dig into what we have found that looks like gross
manipulation of the numbers in order to hide debt in several European countries. Here's a quick quiz. What well known (in name only) Italian American has a significant chunk of the European Union Sovereign nations apparently modeled their financial engineering from?

Charles Ponzi (March 3, 1882 - January 18, 1949) was an Italian swindler, who is considered one of the greatest swindlers in American history. His aliases include Charles PoneiCharles P. BianchiCarl and Carlo. The term "Ponzi scheme"....

Click the link above to read more on Pan-European Sovereign Ponzis, then go on to reference Once You Catch a Few EU Countries “Stretching the Truth”, Why Should You Trust the Rest? and Lies, Damn Lies, and Sovereign Truths: Why the Euro is Destined to Collapse!, to wit and as excerpted:

... We have finished our review of the Italian "Austerity" plans to whip its debt load into shape. As with Greece (see "Greek Crisis Is Over, Region Safe", Prodi Says - I say Liar, Liar, Pants on Fire!), we have found it wanting. Believe it or not, the biggest issue is the credibility of the government. They stretch the facts, assumptions and gray areas to the point where you tend to doubt everything else. It is almost as if they believe no one will actually read what they have written, which very well may have been partially true in the past. Alas, that was the past and this is the present. Information, and to a lesser extent, knowledge travels through the web at the speed of atomic particles. On that note, I release to my subscribers the Italy public finances projection Italy public finances projection 2010-03-22 10:47:41 588.19 Kb.

For those that don't subscribe, I would like to make clear that my assertions of flagrant and unsubstantiated optimism on the part of European governments stem from how quicly they feel their economies will grow despite the fact that they failed to see this maelstrom coming in the first place.

This is Italy's presumption of economic growth used in their fiscal projections:

italian_real_gdp_growth.png

 Hey, there's more where that came from..

image042.png

 

So, you ask, "What in the hell does this have to do with the French?" Well, as I stated in my previous analysis of the big French banks, the French are heavily levered into Italy. How goes Italy, so goes many of the big French banks. Reference: 

So, does BNP have a funding problem, or is it at risk of the same?

BoomBustBlog subscribers know full well the answer to this question. I'm also going to be unusually generous this morning being that our prime French bank run candidate has approached my "crisis" scenario valuation band. So, as to answer the question as to BNP, let's reference File Icon Bank Run Liquidity Candidate Forensic Opinion - A full forensic note for professional and institutional subscribers, and otherwise known as BNP Paribas, First Thoughts...

The WSJ article excerpted above quotes BNP management as saying: "The bank has €135 billion in "unencumbered assets after haircuts" that are eligible to central banks."

OK, I'll bite. Excactly how did BNP get to this €135 billion figure? Was it by using Lehman math? Methinks so, as clearly delineated in my resarch report on the very first page:

BNP_Paribus_First_Thoughts_4_Page_01

The following two pages of this report go on to reveal the games being played to potentially come up with a figure such as the 135 billion quoted above. Boys and girls, I fear those may be Lehman bucks! 

So, let's assume that the Italians can be infected by the Greeks, and then can in turn infect the French. France has not pulled the finnacial engineering gimmicks that Greece did, so they shoul be able to whether storm after bailing out their top 3 overleveraged global banks with asset bases that are multiples of France's GDP, right???

Answers are in the links...

Ovebanked, Underfunded, and Overly Optimistic: The New Face of Sovereign Europe

image015.png

Hey, despite the banking sector 5x the size of the bailing socialist country, and liquidity problems (oh yeah, forgot about that one - check out the Anatomy of a Bank Run), the French can still handle their business better than the French because they didn't cheat with Financial Engineering Parlor Tricks to get into the EU like the Greeks did, right??? Sure. Just read Smoking Swap Guns Are Beginning to Litter EuroLand, Sovereign Debt Buyer Beware again...

The French

In 1997, the French government received an upfront payment of £4.7 billion ($7.1 billion) for assuming the pension liabilities for France Telecom workers in return. This quick cash injection helped bring down France's deficit, helping the country to meet the pre-condition to join the Euro zone. You may reference the pdf Laurent_Paul_and Christophe_Schalck_study for a background on the deal. I don't necessarily concur with their conclusions, but it does provide some info

    • france_telecomm_transaction.png

 

You're probably saying to yourself, "Wow, those guys over in Europe are Fuc2ed. Yeah, well basically... But no need to worry, because Germany, the next export nation who's major export/trading partners are either going into recession, depression, economic hard landing or have struggling economies and whose mortgage banking sector is about to have its ass handed to it is about to save the day by rescuing all of these profligate nations by flushing the all with cash, so it can continue trading with them. You see, you silly pessimistic speculator you... It all over and everything is find.  

Hey, on that note I can probably run for POTUS now, eh? Except for one thing...

The Biggest Threat To The 2012 Economy Is??? Not What Wall Street Is Telling You...

I will continue this train of thought as I go over actual defaults and paths of contagion in my next post on this topic. As is usual, you can reach me via BoomBustBlog or by the following means...

  • Follow us on Blogger
  • Follow us on Facebook
  • Follow us on LinkedIn
  • Follow us on Twitter
  • Follow us on Youtube
Published in BoomBustBlog
Tuesday, 14 February 2012 03:44

Rating Agencies vs Reggie Middleton, Part 3

UK Public Finance Analysis 2.0 Page 01UK Public Finance Analysis 2.0 Page 01 copyUK Public Finance Analysis 2.0 Page 02UK Public Finance Analysis 2.0 Page 03UK Public Finance Analysis 2.0 Page 04UK Public Finance Analysis 2.0 Page 05UK Public Finance Analysis 2.0 Page 06On Wednesday, 30 November 2011 I asked queried the blogoshpere, "Where Are The Ratings Agencies For UK & German Banks Before They Go Boom? How About Those Euro REITs? Agencies Anybody?", quickly followed by So, Now The Rating Agencies Want To Acknowledge The Existence Of The FrankenFinance Monster??? You see, the problems of these countries should have been known and evident for sometime know. At least it's safe to say that BoomBustBloggers knew about them. All of sudden, Moody's appears in the headlines, as per Bloomberg: Italy, Spain Cut by Moody’s; U.K. Top Rank at Risk

Moody’s Investors Service cut the debt ratings of six European countries including Italy, Spain and Portugal and said it may strip France and the U.K. of their top Aaa ratings, citing Europe’s debt crisis.

Reference the subscriber document posted TWO years ago on the UK: UK Public Finances March 2010. For the more stingy amongst you who don't subscribe, reference the first three pages of said 710 day old document, then let me know if the rating agencies are showing up to pile of smoldering ashes with a fire hose again....


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

I have also warned extensively on the other nations that Moody's is just now getting to stripping, and will address them in detail in a separate post. In the meantime, this is a good time to bring up that Interesting Documentary on the Power of Rating Agencies, with Reggie Middleton Excerpts.

Continuing my rant on the effectiveness (not) of the ratings agencies, I bring to you an interesting documentary on the rating agencies' effect on the sovereign debt crisis in Europe, produced by VPRO Tegenlicht out of Amsterdam. You can see the full video here, but only about half of it is in English. I appear in the following spots: 4:00, 22:30, 40:00...  Reggie Middleton Discussing the Rating Agencies effect on Sovereign Europe

Published in BoomBustBlog
Wednesday, 08 February 2012 07:29

The Swiss Real Estate Bubble?!

I recieved this email from a reader and thought I would toss it out to the community for comment...

Hi Reggie,

I'm curious to know your thoughts on the Swiss Real Estate Market and current bubble occurring (as the disparity between income growth and rental growth continues to widen for commercial and residential property).

Residential is protected by the Lex-Koller law, meaning that (with the exception of a few mountian resort towns) foreigner cannot buy and own residential real estate. However, commercial RE is open to foreign investment.

This growth in income vs. rent disparity has continued for quite some time and I'm curious to hear your thoughts on why you think Switzerland's economic environment has been able to sustain a bubble like this for so  long compared to other bubbles in other countries.

It has come to my attention that rents in the prime areas of Geneva and Zurich are just now beginning to trend downward (despite what Wuest & Partner, Colliers and the lot of them publish in their reports).

However there has also been an interesting "flight to quality", as I like to call it, by various REITs caused by EU fears. Yields (on NOI) in downtown Geneva and Zurich are between 3% and 4% at the moment.

Foreign govt pressure on banking secrecy is causing banks to leave, but trading companies are flowing into Switzerland to take advantage of 0% capital gains on shares.

I find it interesting to look at Switzerland because when economic indicators signal the nearing of a CRE bubble burst, other economic factors suggest such a burst might be unlikely to happen.

I'd love to read your thoughts on this apparent economic anomaly of a country.

Published in BoomBustBlog

 reggie_speaks

A 7 minute video of my opinions on Greek haircuts, US and Manhattan real estate overvaluation, China bubble busting and hard landings, Case Shiller shortcomings and Germany's penthouse suite in the EU roach motel.

 Below I have aggregated hours worth of related content via video, blog postings and subscriber research...

 Related Videos

The First Major Real Estate Collapse In Europe? I've Found The EU Equivalent Of GGP, The Largest Real Estate Failure In US History Monday, 19 December 2011

What many do not understand is that the real estate crash of the previous decade is far from over, because The True Cause Of The 2008 Market Crash Looks Like Its About To Rear Its Ugly Head Again, With A Vengeance. This is true for not only the US, but the EU countries as well. Unlike our European and Asian counterparts, many US investors are much too detached to what occurs overseas, quite possibly from a hubristic, apathetic or even ignorant stance that what happens over there has little effect on us stateside. Unfortunately, that is not the case. What do you think, pray tell, happens when the liquidity starved, capital deprived, overleveraged banks fail to roll over all of that underwater Eu mortgage debt?

Slide21

Investors seeking safety in Germany, the UK and France may truly be in for a rude awakening!

Slide22

 

Interesting Documentary on the Power of Rating Agencies, Reggie Middleton Excerpts

Reggie_VPRO_Ratings_agencies

Continuing my rant on the effectiveness (not) of the ratings agencies, I bring to you an interesting documentary on the rating agencies' effect on the sovereign debt crisis in Europe, produced by VPRO Tegenlicht out of Amsterdam. You can see the full video here, but only about half of it is in English. I appear in the following spots: 4:00, 22:30, 40:00...  Reggie Middleton Discussing the Rating Agencies effect on Sovereign Europe

 Subscriber Research

Published in BoomBustBlog

VPRO_Rating_agency_documentary_billboard

In continuing with my rant against the ratings agencies (see Interesting Documentary on the Power of the Agencies) I bring you additional evidence that their seemingly incompetent behavior leading up to the 2008 market crash is nothing compared to what is going on today... And many think the agencies have reformed!!! Subscribers, a B-L-O-C-K-B-U-S-T-E-R forensic report update based upon the banking situation described herein is currently in the works and will probably follow this post (tomorrow). Stay tuned, for I found a company that is trading at roughly 10x its intrinsic value, and that's putting it conservatively. I will release the research on this company to lenders and then the public a few weeks after I have released the details to subscribers, so be sure to download and absorb as much information as you can. As you read the following, keep in mind how many warnings you've heard from the rating agencies about those real estate concerns...

As reported this morning by FT.com:

Eurozone crisis triggers credit squeeze

The eurozone debt crisis has triggered a severe credit squeeze across the region with banks imposing significantly harsher loan terms and demand for credit tumbling, a European Central Bank survey has shown. Banks’ weakened finances and worries about the eurozone’s future led to an aggressive tightening of credit standards faced by businesses and households at the end of last year and early 2012. Demand for mortgages and loans to fund corporate investment also fell sharply, the survey showed. 

I have been warning of this since very early 2010, to wit:

Overbanked, Underfunded, and Overly Optimistic: The New Face of Sovereign Europe March 2010

Sovereign Risk Alpha: The Banks Are Bigger Than Many of the Sovereigns

image015.png

 

I also warned about a year later in Is Another Banking Crisis Inevitable? 04 February 2011

and even last month in...

The First Major Real Estate Collapse In Europe? I've Found The EU Equivalent Of GGP, The Largest Real Estate Failure In US History Monday, 19 December 2011

What many do not understand is that the real estate crash of the previous decade is far from over, because The True Cause Of The 2008 Market Crash Looks Like Its About To Rear Its Ugly Head Again, With A Vengeance. This is true for not only the US, but the EU countries as well. Unlike our European and Asian counterparts, many US investors are much too detached to what occurs overseas, quite possibly from a hubristic, apathetic or even ignorant stance that what happens over there has littel effect on us stateside. Unfortunately, that is not the case. What do you think, pray tell, happens when the liquidity starved, capital deprived, overleveraged banks fail to roll over all of that underwater Eu mortgage debt?

Slide21Slide21Slide21

Investors seeking safety in Germany, the UK and France may truly be in for a rude awakening!

Slide22

Do you really think they will rollover the US debt anyway? How about the result  of the guaranteed losses that both bank and investor will take as said debt either fails to get rolled over or is forced to do equity cramdowns? Then think about EU banks going down and American banks being called to pay CDS!

Okay, back to the FT.com excerpts...

Germany, however, remained immune.

Do you remember when I warned about GroupThink creating lopsided risks in the market? Reference The Biggest Threat To The 2012 Economy Is??? Not What Wall Street Is Telling You...

The results suggested December’s unprecedented injection into the financial system by the ECB of €489bn in cheap three-year loans had failed to prevent a retrenchment by banks that could hamper the region’s economic recovery. The effects of the central bank’s actions are still feeding through, however, and the ECB will be relieved that the tightening of credit conditions is not yet as severe as after the collapse of Lehman Brothers investment bank in September 2008.

Well, that' because a European bank hasn't collapsed yet. It's not as if they haven't tried, though.

Reference The Anatomy Of A European Bank Run: Look At The Banking Situation BEFORE The Run Occurs!...

Below is a chart excerpted from our most recent work showing the asset/liability funding mismatch of a bank detailed within the report. The actual name of the bank is not at issue here. What is at issue is what situation this bank has found itself in and why it is in said situation after both Lehman and Bear Stearns collapsed from the EXACT SAME PROBLEM!

Note: These charts are derived from the subscriber download posted yesterday, Exposure Producing Bank Risk (788.3 kB 2011-07-21 11:00:20).

image015

The problem then is the same as the European problem now, leveraging up to buy assets that have dropped precipitously in value and then lying about it until you cannot lie anymore. You see, the lies work on everybody but your counterparties - who actually want to see cash!

image012

Using this European bank as a proxy for Bear Stearns in January of 2008, the tall stalk represents the liabilities behind Bear's illiquid level 2 and level 3 assets (including the ill fated mortgage products). Equity is destroyed as the assets leveraged through the use of these liabilities are nearly halved in value, leaving mostly liabilities. The maroon stalk represents the extreme risk displayed in the first chart in this missive, and that is the excessive reliance on very short term liabilities to fund very long term and illiquid assets that have depreciated in price. Wait, there's more!

The green represents the unseen canary in the coal mine, and the reason why Bear Stearns and Lehman ultimately collapsed. As excerpted from "The Fuel Behind Institutional “Runs on the Bank" Burns Through Europe, Lehman-Style"...

And back to the FT excerpts again...

The ECB’s bank lending survey - conducted between December 19 and January 9 - followed Friday’s weak December lending data that showed the sharpest monthly fall in outstanding corporate loans since records started in 2003. The ECB said participants had “explained the surge in the net tightening of credit standards by the adverse combination of a weakening economic outlook and the euro area sovereign debt crisis, which continued to undermine the banking sector’s financial position”.

It added: “The prevalence of tightening appeared to be widespread across larger euro area countries, with the notable exception of Germany.”

... For mortgage loans to households, the balance reporting a tightening of credit standards rose from 18 per cent to 29 per cent – the highest since January 2009. Demand for mortgages slipped further, with the balance reporting a decline over those reporting increases rising from 24 per cent to 27 per cent.

Hmmmm! Mortgages? Methinks Reggie's admonitions on European CRE has come to pass, eh? Also from The First Major Real Estate Collapse In Europe? I've Found The EU Equivalent Of GGP, The Largest Real Estate Failure In US History Monday, 19 December 2011

Then think about those sovereign states that truly cannot afford to bail out their banks.

image009.png 

 Click the following pages to englarge...

PEU11-MA04-012-INGACADEMY-v2_Page_1

PEU11-MA04-012-INGACADEMY-v2_Page_2

PEU11-MA04-012-INGACADEMY-v2_Page_3

 Those who wish to download the full article in PDF format can do so here: Reggie Middleton on Stagflation, Sovereign Debt and the Potential for bank Failure at the ING ACADEMY-v2.

I have actually discussed the Dutch market in depth at the ING conference...

Keynote presentation

Yes, "The Real Estate Recession/Depression is Here, Eurocalypse Style". We have already identified a Dutch real estate short candidate - subscribers (click here to subscribe), please download Northern Europe CRE short candidate #1. This company is suffering from a variety of maladies that, on an individual basis, may not seem that bad but once aggregated put it on the same path that GGP was on. The difference? This is after the so-called economic recovery, in the conservative EU state of the Netherlands, and right before the massive rate storm that will bethe Pan-European Sovereign Debt Crisis that I have warned about since 2009. The result, many properties that will either be difficult or impossible to refinance or roll over. Again, subscribers, reference Dutch REIT Debt Analysis, Blog Subscriber Edition. This is a succinct illustration of how this company will not be able to rollover much of its debt, and the absolute lack of recognition of such by the markets. Of interest is the fact that the number 3 short candidate on our short list is over 50% owned by this company  (which came in as #!). With friends such as that, who needs enemies!

Q&A and discussion, part 1

Q&A and discussion, part 2

As usual, I can be reached via the following (or directly via email), and urge all who rely on the perennially wrong sell side to subscribe to BoomBustBlog:

  • Follow us on Blogger
  • Follow us on Facebook
  • Follow us on LinkedIn
  • Follow us on Twitter
  • Follow us on Youtube
Published in BoomBustBlog