As per Bloomberg: IMF says Greece will miss bailout target

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

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

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

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

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

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

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

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


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

And back to our snippet of the day...

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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


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

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


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

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

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

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

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

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

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

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

20130406 FBC371

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

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

Click to enlarge, and study carefully...

Reggie Middleton Canadian Condo Bubble

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

All paying subscribers, feel free to download.

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

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

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Last year I wrote "The "Believe In Germany Bailing The EU" Trade: Go Long Magic Wand Raw Materials & Harry Potter Paraphernalia" wherein I warned of both the risk in Germany as a save all, and the risks posed to European FIRE sector companies (and insurers in particular) as a result of this believe in magic over math. 

Well, now Bloomberg reports that Poland has literally confiscated private pension manager's bonds with essentially no compensation, ex., they stole them, as per Bloomgerg - Poland to Cancel Bonds From Pension Funds in System Revamp:

Poland will take over and cancel government bonds held by its privately managed pension funds, stopping short of fully “nationalizing” the system as it seeks to curb public debt, Prime Minister Donald Tusk said.

Whaaaat!!!??? Cancel bonds? Outright theft! Listem carefully here. It's not as if I didn't tell you so. Now, what happens to those insurers whose pension funds under management were robbed? Again, revisit "The "Believe In Germany Bailing The EU" Trade: Go Long Magic Wand Raw Materials & Harry Potter Paraphernalia". This plain as day and easy to see coming, and there's a lot more coming!

Remember my many warnings this year on the Irish and EU banking system:

Transparency In The European Banking? Madness, I say! Sheer, Utter Madness!!!

If I Provide Proof That The Entire Irish Banking System Is A Sham, Does It Set Up A Much Needed System Reboot? Let's Go For It...), the chances of there being any recovery is somewhere between zilch and nil, give or take a euro or two - reference LGD 100+: What's the Possibility of Certain European Banks Having a Loss Given Default Approaching 100%? and The Anatomy of a Serial European Banking Collapse to realize that once a counter party driven bank run starts, there may be less than nothing to divy up in the end. Lehman Brothers' US creditors received roughly 10 to 40 cents on the dollar, but after 5 years of wrangling, the European International arm was full repaid. Hey, do you feel lucky with your life savings? Even if you do feel lucky, you'll still need 5 years to spare and a ton of cash for legal fees.

However, some member states have not ruled out the possibility that insured deposits, i.e. deposits under €100,000, would be forced to bear losses in the event of a bank collapse even though these deposits would be likely to be protected by the deposit guarantee scheme.

As stated earlier, this ain't AAA coverage!

This year Jeroen Dijsselbloem, head of the group of 17 euro zone finance ministers, said that losses on bondholders and depositors could form part of future bank bailouts as euro zone officials seek to move the burden of bailouts away from taxpayers – as was the case in the Irish bailout – and on to private investors.

The European Commission argues that this switch from so-called “bailouts” to “bail-ins” would result in an allocation of losses that would not be worse than the losses that shareholders and creditors would have suffered in regular insolvency proceedings that apply to other private companies.

Ahem, that non-sense only works on the uneducated and/or the unassuming. The major difference is that creditors that would be subject to regular dissolution proceedings AND that are unsecured, would demand considerably higher rates of return. A borderline solvent bank whose officers AND regulators admit publicly is in need of additional capital infusions after receiving three thus far, and 96% losses in its publicly traded equity, would have to borrow money at 18%, not 2% - and that's being generous. See the bank deposit rate calculator below.

While the inclusion of large savers in future bank bailouts is now widely accepted, significant differences still remain between member states.

While the new rules governing bank resolution were first intended to come into place in 2018, since the Cypriot bailout there have been calls from senior EU figures such as European Central Bank president Mario Draghi and EU economics affairs commissioner Olli Rehn to introduce the new regime as early as 2015.

The Irish presidency of the European Council is hoping to reach a common position by the end of next month.

The little app below calculates what return you should expect to receive to take on the risk of a potential 40% haircut. The second tab offers what recent Cyprus bank rates were. Do you see a disparity???

Side note: 

The video below was the result of a collaborative effort to bring Mr.Middleton to Ireland through a crowdfunded campaign. While the effort fell through, we have recycled some of the material to ascertain interest in his visiting Ireland on an independent basis.  If you're Irish, from Ireland or simply find this financial/ethical malarkey disagreeable and would be interested in seeing Reggie Middleton visit Ireland to disseminate his research, create new resarch, hold town hall style discussions on how to "occupy the banks" or simply have a good, old-fashioned breaking of the bread, let us know of your willingness to contribute to a crowdfunded project on Indiegogo. If there is enough interest to make this happen, we will create a project to fund Reggie's trip and create saleable research. Let Reggie know directly by contacting him via email: reggie at boombustblog dot com

Other hard hitting pieces on the resurgent EU banking crisis

"Till default do us part, A half-hearted banking union raises more risks than it solves". To wit:

Almost a year ago, as the euro crisis raged, Europe’s leaders boldly pledged a union to break the dangerous link between indebted governments and ailing banking systems, where the troubles of one threatened to pull down the other. Yet the agreement that seems likely to emerge from a summit later this month will be one that does little to weaken this vicious link. If anything it may increase risks to stability instead of reducing them.

Almost everyone involved agrees that in theory a banking union ought to have three legs. The first is a single supervisor to write common rules and to enforce them uniformly. Next are the powers to “resolve” failed banks, which is a polite term for deciding who takes a hit; these powers also require a pot of money (or at least a promise to pay) to clean up the mess left by bust lenders and to inject capital into those that can get back on their feet. The third leg is a credible euro-wide guarantee on deposits to reassure savers that a euro in an Italian or Spanish bank is just as safe as one in a German or Dutch bank. National insurance schemes offer scant reassurance to savers when sovereigns are wobbly and insured deposits make up a big chunk of annual GDP (see chart).

 

Allegations of Fraud, 20% Drop In Stock Price, Market Manipulations, Internal Investigations: Nothing To See Here, Move On...

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intel-haswell
The Intel Haswell processor has killed Microsoft's Windows RT before it even grew legs. The only reason to ever opt for a device that runs a slimmed down OS such as Windows RT was the moribund decision between higher performance/larger form factor or longer battery life/smaller form factor. Well, Intel's Haswell chips promise (and deliver, I'm typing on a 2 pound, .68 inch carbon fiber, touch screen notebook right now) to offer full blown i5 and i7 desktop performance in tablets and ultrabooks for 7 to 10 hours at a clip. That promise has been kept. Say goodbye to Windows RT and its ARM architecture. It may have been good to know you, but we will never really find out, will we?

Now, I know the more swift among you are problably saying, "Hey, wait a minute!!!" "If Haswell kills off the ARM powered RT devices, what about all of the other popular ARM devices?

Three years ago, I warned everybodey - Remember, the iPad and Android tablets run on on ARM. As a matter of fact, imagine having an i5 Haswell on a 6 inch smartphone that runs FULL BLOWN windows on a HD+ screen that lasts 9-15 hours on a charge.

I'm writing this on an i5 Haswell Sony Vaio that is lighter, and also as thin, as an iPad. It has my full quite of apps along with a very usable touch screen. To be frank, the iPad now seems like a collosal waster of money.
Of course, the discussion doesn't stop there. Just as Intel was forced to step up its game due to natural market pressures, other companies had to do so as well - only some companies are the aggressive and their market pressures stem from the need to usurp new markets rather than defend old cash cows. Enter, Qualcomm and their new Snapdragon 800 chipset clocked over 2.2 Ghz. This chip finally brings the abilities of desktop computing to a handheld, and does so with promises of 12-15 hour battery lives. Sound familiar? Damn skippy!
It's a fight ladies and gentleman. Which would you choose, a desktop light and long lasting enough to act like a tablet, or a tablet strong and powerful enough to act like a desktop? What do you think happens when Android 5.0 Keylime Pie is loaded on a tablet running a 3.0 Ghz Haswell i7? Yeah, I had the same reaction.

Subscribers, download the Q3 2013 valuation reports (click here to subscribe).

The update from two months ago is also of value for those who haven't read it. It turns out that it was quite prescienct!

See also:

What Sell Side Wall Street Doesn't Understand About Apple - It's Not The Leader Of The Post PC World!!!

 The short call - October 2012, the month of Apple's all-time high and my call to subscribers to short the stock:  Deconstructing The Most Accurate Apple Analysis Ever Made - Share Price, Market Share, Strategy and All

See also:

Microsoft Finally Bought Nokia As I Susp…

Microsoft Finally Bought Nokia As I Suspected, Now Will They Do The Right Thing?

On Tuesday, 15 February 2011 I penned The Nokia/Microsoft Alliance & Android's Commoditization Of The Mobile Computing Platform... In said missive, I apparently foretold the future, to wit: The Nokia/Microsoft Marriage via Force of Android team up is definitely a plus for Nokia despite the appearance that Microsoft ex-management is moving heavily into company. Nokia probably makes some of the best hardware around, but...

Google's Rumored To Bid For NFL Sunday T…

Google's Rumored To Bid For NFL Sunday Ticket Package, Extant Biz Models Beware!

All Things Digital ran a story today concerning Google bidding for the NFL Sunday Ticket package. CNBC hosts discussed the topic as well. James Cramer asserts that Google may charge for the NFL content if it is successfully acquired. My first thought when hearing this was... Not so fast. The AllthingsD article put it interestingly: Here’s a fun combination to ponder: The...

Have We Reached "Peak Premium Smartphone…

Have We Reached

Quartz.com has an interesting set of articles on the topic of the peaking of the smartphone market. Let's start with thier commentary on Samsung, "Yes, Samsung is acutely aware that we’ve reached “peak trophy smartphone” - as excerpted: South Korean electronics giant Samsung reported soaring profits on Friday, but despite the company’s attempts to manage expectations, the results undershot estimates and its stock dropped almost...

iPad Shipments Decline As BoomBustBlog T…

iPad Shipments Decline As BoomBustBlog Time Machine Disrupts The Apple Reality Distortion Field Once Again

Let's keep this short and simple. Up to two years ago, I claimed that Apple's tablet market share will be subsumed by that of Android's, and it's margins will follow suit. If one were to Google this topic, this would be the result: Apple's iPad Is Losing Market Share And Profit ...  Mar 16, 2012 - Apple's iPad Is Losing Market Share And Profit Margin As Apple Hits All...   Call The End Of The Fat Margin...

Read more

Was The Google Purchase of Motorola A Ha…

Was The Google Purchase of Motorola A Hardware Disaster With Overpriced Patents?

I have yet to release my review of Google's most recent quarter earnings results, but thus far I've seen nothing that would materially sway me from the conclusions drawn from the last set of forensic valuations released to subscribers (Google Q2 2013 Update: Valuing Possibly The Most Powerful Co. In The World?). One question that I am getting is "Did...

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Following up on my timely post "Here Come Those Municipal Defaults That Everyone Said Couldn't Happen, Pt 2", I comment on Meredith Whitney's OpEd in the Financial Times. If you remember, she - like I - warned of municipal defaults years ago and was ridiculed for such. Ms. Whitney is quoted as saying:

"As jarring as the reality may be to accept, Detroit's decision last week to declare bankruptcy should not be regarded as a one-off in the U.S. municipal market." she said.

"There are five more towns like Detroit in Michigan alone. There are many more municipalities across the country in similar positions."

"The bill for promises past is now so large for some cities and towns that it is crowding out money for the most basic of services – in the case of Detroit, it could not even afford to run its traffic lights," she said.

"Will [lawmakers] side with taxpayers, unions or the municipal bondholders? If they back residents, money will be directed to underfunded public services at the expense of pensions and bondholders. If they side with the unions, social services will continue to be cut and the risk to bondholders will increase considerably. If they side with bondholders, social services and pensions are at risk."

In the case of Detroit, elected officials, for the first time in a very long time, are siding with residents, Whitney said. This is a new precedent that boils down to the straightforward reality of the survival and sustainability of a town or city, she said.

"After decades of near-third-world conditions in the richest country in the world, the city finally stood up and said enough was enough,"

Well, this is the problem. Defaulting on revenue bonds where the underlying asset (ex. a housing project, utility, or infrastructure project) is not generating the sufficient cash flows is part and parcel of the risk of investing in said class of bonds. This is widely accepted and understood, which is likely why those bonds have a slightly higher yield.

For some obscene reason, defaulting on the general obligation bonds which purportedly carry the "full faith and credit' of the municipality as a back stop is deemed as wholly different affair. The reason? Who the hell knows? This is a point I tried to drive home in the original  Here Come Those Municipal Defaults That Everyone Said Couldn't Happen article in 2011. Backing by the full faith and credit of a public entity does not make an investment risk free. To the contrary, if said entity is fundamentally insolvent, the investment is actually "riskful"as opposed to risk free.

Treating these bonds as unsecured in the bankruptcy is essentially the way to go. If you don't want to do that, well you can still consider them backed by the full faith and credit of the insolvent municipality, which is essentially unsecured - and move on anyway - particularly as many potential collateral assets of value would have likely been encumbered by agreements with a little more prejudicial foresight.

A GO default from a city the size of Detroit will dramatically change the face of GO bonds going forward. Now that the hoi polloi and tax free investing masses have been awakened, a true accounting of the risks involved will cause a much more realistic risk premium to be placed on GO bonds everywhere.  This wll be in addition to the natural increase of rates coming from the end of a 28 year natural bull market in bonds, in addition to the economic and market snapback borne from the end of the artificial eztension of said bull makret through ZIRP and direct credit market maniputlation by the Fed.

Yes, a triple whammy coming to a bankrupt (or soon to be) state, city, town, or political subdivsion near you!

The good news? Those pension funds that hold municipal assets (due to the uneccesary tax shielding from muni's in a qualified account, not many) will get a higher yield on their bonds. The bad news? That yeild likey will not get paid!

This may push rates higher in general, after all they're artificially low to begin with. ZIRP has done it's fair share of damage, and a snap back to market rates will hurt all the more...

And then there's those monolines who're just working out that 90x leverage problem from the housing crisis (reference A Super Scary Halloween Tale of 104 Basis Points Pt I & II, by Reggie Middleton)...

And then...

Of course, we can't leave out those rating agencies who warned us all about the impending doom...

And from the must read post, Banks, Monolines, and Ratings Agencies As The Three Card Monte (Wall)Street Hustlers! Its a Sucker's Bet, Who's Going to Fall for it in QE2?

Three Card Monte is a scam designed to separate a fool from his/her money. It is quite efficient, particularly when fools are involved!

The Boogie Down Bronx

The big secret to the Morgan Monte Scam is that it is 10% sleight of hand and 90% teamwork. Even if you are not deft enough to capture the sleight of hand, the key in avoiding it is to recognize the team players, whose key player is often YOU - The Mark!

The retail/typical qualified fund investor = "The Mark"

Monolines/FIRE sector= The Operator/Hustler!

Sell Side analysts = "Jess"

Rating agencies = "Paul"

How its done in the UK

Reenactment of 2009's entire year of Wall Street earnings

How its done on Wall Street, see outset...

Next, up we let the late Biggie school you on how Wall Street banks follow the Ten Crack Commandments!

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Bloomberg reports: Bernanke Seeks to Divorce QE Tapering From Interest Rates

Federal Reserve Chairman Ben S. Bernanke will have a chance to use testimony to Congress today to drive home his message that winding down asset purchases won’t presage an increase in the Fed’s benchmark interest rate.

Bernanke has said the Fed may start reducing $85 billion in monthly bond purchases later this year, assuming economic growth meets the Fed’s predictions. At the same time, policy makers’ forecasts have indicated the federal funds rate won’t rise until 2015, long after Bernanke’s second term ends Jan. 31.

... Treasury 10-year note yields were little changed at 2.53 percent as of 8:38 a.m. London time. They touched 2.51 percent yesterday, the lowest since July 5, in anticipation of Bernanke’s testimony, even as economic reports showed that U.S. industrial production rose by the most in four months in June and inflation picked up toward the Fed’s goal, supporting the case for a reduction in quantitative easing.

“He’ll say a slowing in the pace of asset purchases isn’t a tightening of policy, and it’s actually still an easing of policy just at a slower pace,” said Josh Feinman, the New York-based global chief economist for Deutsche Asset & Wealth Management, which oversees $400 billion, and a former Fed senior economist. “It doesn’t imply that they’re going to be tightening policy any time soon. They’re not.”

Global stocks and bonds retreated after Bernanke on June 19 outlined the conditions that would prompt the Federal Open Market Committee to reduce and eventually end asset purchases. His remarks pushed the yield on the benchmark 10-year Treasury to a 22-month high and erased $3 trillion in value from global equity market value over five days.

Technically, Bernanke can say that he can taper bond purchases without raising the Fed Benchmark interest rate, for he can. He is in complete control of said rate. Reality dictates something a little different though. The Fed benchmark interest rate doesn't equal market rates. Ask Dr. Greenspan how difficult it is to get mother market rate to bend to your will by simply manipulating the Fed benchmark rate. He lost control (as if he ever had it) of market rates during his term as he tried to play economic god. Expect the same efforts and the same results from Bernanke.

I urge readers to keep in mind what I expoused in Apple Bonds Proven To Have A Nasty Taste wherein Apple bonds lose 9% in six weeks:

We Clearly & Obviously Ending A 3 Decade Bull Market, Likely At The Tail End Of The Largest Global ZIRP Experiment Ever!

And this final aspect is the kicker. We are likely culminating the end of a three decade secular bull market in bonds. Why in the world would anyone want to buy debt now, in a good, bad or mediocore company? Reference a chart of ten year rates over time, and you will see that once you get this close to zero (and the applied end to excessive ZIRP), there's no way to go but up. As excerpted from theMarket Realist site:

 

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This is a guest post from Marcus Holland. I don't endorse nor necessarily agree with the opinion and research expressed herein, and it is supplied as an OpEd piece only.

_______________________________________

Apple Stock (NYSE:AAPL) is trading slightly lower despite news that the company colluded with five major U.S. publishers to drive up the prices of e-books in the months ahead of the technology company entering the market in 2010.  Option volatility in the wake of this news, has declined slightly and sentiment surrounding the company has remained strong.

In a civil antitrust lawsuit, the Department of Justice claimed that Apple agreed with the 5 publishers in January 2010 to allow them to increase prices for best sellers and new releases in response to publisher Amazon.com $9.99 price point for those books on Amazon.com Inc.

The judge will likely schedule a hearing on a request by the Justice Department for injunctive relief, which could include requirements that Apple not enter into another agency agreement to sell e-books for a two-year period.

aapl stock range

Despite the blow to Apple the stock technically remains sound after recently testing support near 390 per share.  Resistance on the stock is seen near the 50-day moving average near 433.  Momentum on the stock is gaining traction as the MACD has recently generated a buy signal.  This occurs when the spread (the 12-day moving average minus the 26-day moving average) crosses above the 9-day moving average of the spread.  The RSI (relative strength index) is printing in the middle of the neutral range near 50, well below the overbought levels of 70 and and above the oversold levels of 30.

aapl stock volatility

Implied volatility on AAPL edged higher, prior to the release of the decision and ahead of earnings in the coming weeks.  The recent lows near 25% represent an excellent opportunity to purchase volatility, while levels near 45% reflect a robust place to sell volatility.  At the current levels near 30%, options traders who are bullish on the stock could use a risk reversal and use the skew on the puts to benefit from the structure.  The structure mitigates the effect of implied volatility on a directional play.

In a risk reversal the investor will purchase a call and use the proceeds of a sold put to finance the trade.  A trade that would allow an investor to earn theta is an August 450-390 risk reversal in which the investor collect 10s cents by purchasing the 450 call for $5.20 and selling the 390 put for $5.30.  By using recent support at $390, and investor has a good spot to purchase the stock if Apple’s stock turns lower.

Comments from Reggie on the fundamental side...

The Apple Profit Engine Has Stalled & Is Rolling Downhill

Apple is facing a shart decline in the margins of its top two value drivers. May I also add that these two value drivers are 83% of Apple's revenues and an even greater portion of its profits. Such a drastic concentration in only two products who have reached their zenith is not a good thing!

Click the graphic once to view, twice to enlarge to printer quality...

Reggie Middletonss Ultimate Apple Value Infographic

Apple's Competition Is The Greatest It Has EVER Been!

Apple's competition is the greatest it has ever been, and features companies who are literally at the top of their game. We are talking a lot of companies, and at the top of a very difficiult game as well. Reference What Sell Side Wall Street Doesn't Understand About Apple - It's Not The Leader Of The Post PC World!!!

Apple is Materially & Quickly Losing Global Market Share! Clear Indicators Of Permanent Downward Moves In Its Peer Group

Apple is rapidly losing global market share over and the trend is worsening. This has ALWAYS signaled the beginning of the end for its peers. Reference Is Tim Cook Cooked? Market Share vs Profit Margin, part 2 - Follow What I Do, Not What I Say!

For those who don't subscribe and/or haven't already seen it, here is the video that tells (nearly) all about Apple, from beginning (Q3 2010) to end.

Of course, there is a point at which Apple is a good buy. After all, they have a lot going for them. The question du jour is, exactly what is that point? I refer my subscribers to the research documents below for the answers... 

Subscribers, download the Q3 2013 valuation reports (click here to subscribe).

The update from two months ago is also of value for those who haven't read it. It turns out that it was quite prescient!

  1. File Icon Apple 1Q2013 update - Pro & Institutional
    (Technology)
  2. File Icon Apple 1Q2013 update - Retail
    (Technology)

 

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On Wednesday, 17 April 2013 I queried "What Should The US Do If One Of The Biggest Banks In Ireland Blatantly Defrauded US Investors?" In such query, I levied some heavy accusations at the Bank of Ireland. Its worth a read if you haven't done so already. Well, two months later, I read in the Irish Independent the following: Internal probe at Bank of Ireland

AN inquiry is under way within Bank of Ireland's private banking division, as the bank's internal auditors investigate what have been described as "possible irregularities".

The Sunday Independent has learned that Bank of Ireland's auditors have been inside the division, which counts many of Ireland's most wealthy and powerful individuals among its clients, at various stages over the past six weeks, conducting what one source described as a "thorough examination" of its activities.

Hmmmm. Now, that's interesting. Six weeks ago would have been about two weeks after I dropped my bomb of a scorching missive on sheeple who are to this day, much too trusting of the banking system. That two weeks is just about the amount of time it would have taken a big corporation to act on the information that I levied (if it was in a rush). Wholly a coincidence, I'm sure!

The bank's audit team is seeking to establish if any of its private banking clients' affairs have been handled in any way improperly.

The bank's management is understood to be treating the matter "very seriously". Commenting on this, one well-placed source said: "The investigation isn't complete yet. It's difficult to say when it will be complete. We are obliged to follow due process before we come to any conclusions."

Asked if Bank of Ireland had brought in any third parties to assist with the investigation or if it had made contact with gardai even on a preliminary basis, the source said: "No, the matter is being dealt with internally and all appropriate procedures are being followed.

... The source stressed that clients of the division that is under investigation would be notified immediately in the event that the bank uncovered any evidence to show that their affairs had been inappropriately managed.

I have to be honest, I hate it when people ask me for free advice. After all, if my advice/opinion/knowledge was thought to be worth something, then people ought to act like it, no? Well, methinks one should make an exception to the rule this one time and offer some free advice to the "internal audit team" at the Bank of Ireland. I know, I know... Nobody asked me, but since they haven't bothered to bring in any third parties yet, why not invite myself and crash the party?

Let's, once again, reference my post from two months ago - What Should The US Do If One Of The Biggest Banks In Ireland Blatantly Defrauded US Investors? wherein I will update the ADR performance chart for the bank if Ireland.

image003

As you can see, there was a significant and material loss taken by ADR holders during the time in question at BoI. But, following the auspices of this story in the Independent, yet using our BoomBustBlog investigative resources, there's much more here than meets the eye. A document that I made available to professional/institutional subscribers details how the Bank of Ireland sought and received an exemption from SEC rule 102 of Regulation M (click here to brush up on your US securities law). In short, this exemption allowed the bank to literally trade in its own securities, provided it wouldn't abuse the privilege. See an excerpt below...

bank-of-ireland-060711-1-4 Page 01bank-of-ireland-060711-1-4 Page 02


This letter worked literal wonders for the Bank of Ireland stock within days of being issued. Even more miraculous is the fact that it wasn't public information at the time yet the public somehow knew to bid the shares up by nearly 100%. Hmmmm! Coincidence, eh?

image007

Even more damning is the fact that the alleged historical trading volume in the shares in question (a pertinent fact used as an argument to get the Reg M exemption in the first place) spiked by nearly 5X!!!

image009 

...Bank of Ireland Private Banking is, according to its website, "Ireland's largest and oldest private bank. The country's leading entrepreneurs, business leaders, professionals and families trust us to manage their wealth with discretion and integrity."

 If the private banking client's capital was used to churn these shares, then.... Oh Boy~~~

Per WikipediaMarket manipulation is a deliberate attempt to interfere with the free and fair operation of the market and create artificial, false or misleading appearances with respect to the price of, or market for a securitycommodity or currency. Market manipulation is prohibited in the United States under Section 9(a)(2)[1] of the Securities Exchange Act of 1934, and in Australia under Section s 1041A of the Corporations Act 2001. The Act defines market manipulation as transactions which create an artificial price or maintain an artificial price for a tradable security.

Examples

  • Churning: "When a trader places both buy and sell orders at about the same price. The increase in activity is intended to attract additional investors, and increase the price."

If the stock was churned, the price would have increased temporarily until the performance numbers of the loss making bank would have came to fore. But then again, what would management have to gain by manipulating the stock in such fashion. After all, bankers aren't incentivized or measured by share prices, bonuses, year and reviews, etc., right???

I have released information that has apparently caused quite a bit of high level C-suite types to head for the hills, reference BoomBustBlog Hard Hitting, Bleeding Edge Research Results In 2nd High Level Ouster/Resignation In The UK & Euroland

If you believe that the information above actually identifies a gross misrepresentation of fact, omission or outright fraud, simply contact the SEC and let them know that Reggie Middleton suggested they look into it. You can actually use this form to convey my message


fraud

Those of you in Ireland who may not want to get "Cyprus'd", ie. have your bank accounts fund another bailout, should contact the Office of the Director of Corporate Enforcement. Click this link, and tell them Reggie from NYC sent 'ya. Seriously! The reason why Irish banks haven't been reformed was because not enough light has been shown on the activities. See a valid attempt at such here. This is the time, for the tea leaves foretell the next bank collapse & bailout will be funded directly out of your bank accounts, reference Ireland, You May Very Well Be Bust & I Make No Apologies For What I'm About To Show You for those who don't believe me. See Global Banking Crisis - How & Why YOU Will Get "Cyprus'd" for an example of a bank statement of a Cypriot who didn't take the regulation of his bank seriously!!!

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For the past two months I have been releasing heretofore unseen documentation, proof-backed allegations and logical assertions throwing light on what I view to be gross misrepresentations, attempts at financial reporting prestidigitation and what I consider to be outright fraud in the Irish and UK banking system. BoomBustBlog has been the only source of such information and except for a few outliers, the MSM has literally refused to run stories on this. 

Alas, even though mainstream editors, producers and reporters are trying to ignore what the BoomBust has done, massive shock waves have shaken loose those at the very top of the power structure. Unfortunately, much of what is going down is beyond the ken of the hoi polloi due to the taboo nature of the most important message that I convey. 

Remember what happened when I initially dropped the Irish bomb on the unsuspecting Irish public? The head of the Irish Central Bank Regulatory Authority unexpectantly resigned...

reggie middleton on irish banks

So, what happens when you bring the Fiery Sword of Economic Truth to the UK and Ireland???

Here's the answer to that question in the form of another surprise (not) to all BoomBustBloggers. After my multiple expose's on RBS...

  1. I Illustrate How The Irish Banking Cancer Spreads To The UK Taxpayer And Metastasizes Through US Markets!
  2. Who is RBS? Royal BS... or the Royal Bank of Scotland
  3. Taxation Without Representation: UK Taxpayers Schooled on What US Students Are Taught In 3rd Grade

We see Reuters reporting: RBS shares slump after shock ousting of CEO Hester. Surprise! Surprise!

 Royal Bank of Scotland shares fell seven percent on Thursday after the surprise ousting of CEO Stephen Hester left investors questioning who would steer the part-nationalized bank through to an eventual privatization.

Isn't this just one helluva string of coincidences that as I uncover dirt and grime, we get these "unexpected" and "unforeseen" ousters and resignations days and weeks afterward. If I didn't know better, I'd think someone busted these guys doing something naughty... Nahh! Couldn't be!

I know more than a couple of UK taxpayers who'd much not rather pay Irish bad debts. I decided to rub a little salt in the UK wound by throwing some arithmetic illumination on the situation via an embedded Irish bad bank tax calculator...

The app below allows the UK Taxpayer to calculate for themselves exactly what their individual contribution (pro rata) is to the government bailout of RBS.

I've taken the liberty of pre-populating the input fields for you, but if you don't agree with the numbers then by all means insert your own!

Then there's still that Cyprus'd thingy... 

While the inclusion of large savers in future bank bailouts is now widely accepted, significant differences still remain between member states.

While the new rules governing bank resolution were first intended to come into place in 2018, since the Cypriot bailout there have been calls from senior EU figures such as European Central Bank president Mario Draghi and EU economics affairs commissioner Olli Rehn to introduce the new regime as early as 2015.

The Irish presidency of the European Council is hoping to reach a common position by the end of next month.

The little app below calculates what return you should expect to receive to take on the risk of a potential 40% haircut. The second tab offers what recent Cyprus bank rates were. Do you see a disparity???

Other hard hitting pieces on the resurgent EU banking crisis

 

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Wednesday, 12 June 2013 04:35

Apple Bonds Proven To Have A Nasty Taste

bite money

The Financial Times reports Apple bonds lose 9% in six weeks:

Investors are nursing losses of up to 9 per cent on Apple’s record-breaking $17bn bond offering, less than six weeks after the securities landed in their portfolios.

The technology giant tapped the white-hot bond market for the largest debt fundraising to date on April 30, but a sharp turn in interest rates has caused a sell-off in corporate bonds and wiped hundreds of millions of dollars off the value of the offering.

Apple sold $3bn of bonds maturing in 2043, locking in a low interest rate of 3.9 per cent for the next 30 years, but the market price of these bonds had fallen to 90.36 per cent of face value in late trading on Monday, according to Trace data.

Investors in the offering paid 99.418 per cent of face value for the new bonds, but institutional and retail demand was so high that they traded as high as 101.97 in the secondary market.

 

The debt sale was one of the most frenzied on Wall Street for many years and there were three times as many orders as there were bonds available. Issues by companies with high credit ratings have been among the hottest fixed-income investments because the interest they provide outstrips the meagre yield available on government securities.

Hmmm.. So-called "investors" need to look to the future, not the present, when deploying their capital. These so-called "investors" are definitely not subscribers to BoomBustBlogLast month I posed the query, "Is It Time To Buy Apple As A Valuation Play? The Contrarian That Called The Top In Apple Weighs In". After all, it had fallen over 40% from its recent all time high, a fall which I clearly told subscribers would come. This question is quite pertinent, both for Apple's long term viability and its short to medium term investors. Case in point, Apple's (rather astute) management saw it fit to lock in 3.9% 30 year funding rates. Kudos! A very smart move... For them! The buyers of these bonds (an offering that was 3x oversubscribed, may I add) obviously did not subscribe to BoomBustBlog. Let's count the reasons why such an offering was both ill timed, and ill priced.

The Apple Profit Engine Has Stalled & Is Rolling Downhill

Apple is facing a shart decline in the margins of its top two value drivers. May I also add that these two value drivers are 83% of Apple's revenues and an even greater portion of its profits. Such a drastic concentration in only two products who have reached their zenith is not a good thing!

Click the graphic once to view, twice to enlarge to printer quality...

Reggie Middletonss Ultimate Apple Value Infographic

Apple's Competition Is The Greatest It Has EVER Been!

Apple's competition is the greatest it has ever been, and features companies who are literally at the top of their game. We are talking a lot of companies, and at the top of a very difficiult game as well. Reference What Sell Side Wall Street Doesn't Understand About Apple - It's Not The Leader Of The Post PC World!!!

Apple is Materially & Quickly Losing Global Market Share! Clear Indicators Of Permanent Downward Moves In Its Peer Group

Apple is rapidly losing global market share over and the trend is worsening. This has ALWAYS signaled the beginning of the end for its peers. Reference Is Tim Cook Cooked? Market Share vs Profit Margin, part 2 - Follow What I Do, Not What I Say!

We Clearly & Obviously Ending A 3 Decade Bull Market, Likely At The Tail End Of The Largest Global ZIRP Experiment Ever!

And this final aspect is the kicker. We are likely culminating the end of a three decade secular bull market in bonds. Why in the world would anyone want to buy debt now, in a good, bad or mediocore company? Reference a chart of ten year rates over time, and you will see that once you get this close to zero (and the applied end to excessive ZIRP), there's no way to go but up. As excerpted from the Market Realist site:

For those who don't subscribe and/or haven't already seen it, here is the video that tells (nearly) all about Apple, from beginning (Q3 2010) to end.

Of course, there is a point at which Apple is a good buy. After all, they have a lot going for them. The question du jour is, exactly what is that point? I refer my subscribers to the research documents below for the answers... 

Subscribers, download the Q3 2013 valuation reports (click here to subscribe).

The update from two months ago is also of value for those who haven't read it. It turns out that it was quite prescient!

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