Financial, Real Estate, Stock Markets Trends and Current Affairs

From Capital.gr: Moody's Downgrades Five Greek Banks

Moody’s Investors Service said Wednesday it downgraded the deposit and debt ratings of five of the nine Moody’s-rated Greek banks due to a weakening in the banks’ stand-alone financial strength and anticipated additional pressures stemming from the country’s challenging economic prospects in the foreseeable future. [Moody's is late to the party, but their logic is solid, see "Greek Crisis Is Over, Region Safe", Prodi Says - I say Liar, Liar, Pants on Fire! followed by our forecast of the weaker vs. stronger Greek banks (premium content subscribers only) - Greek Banking Fundamental Tear Sheet]

The affected banks are: National Bank of Greece (to A2 from A1), EFG Eurobank Ergasias SA (to A3/Prime-2 from A2/Prime-1), Alpha Bank AE (to A3/Prime-2 from A2/Prime-1), and Piraeus Bank (to Baa1/Prime-2 from A2/Prime-1). Moody’s has also downgraded the deposit and debt ratings of Emporiki Bank of Greece SA (to A3/Prime-2 from A2/Prime-1), but as a result of a reassessment of the credit enhancement associated with systemic support for this institution. The outlook on all five banks’ ratings remains negative. This action concludes the review of these banks initiated on 3 March 2010. [It looks as if Moody's peaked at the blog's subscription content :-)]

This site (freebuck.com) came up in a Google search this morning, and it was just full of good cheer. Enjoy! In the future (if the guy is reading this), please link back to the blog).

2010 will also be challenging for G7 Sovereigns as they TRY to rollover inconceivable sums of existing debt while borrowing NEW money to pay for the WELFARE states’ spending. Trillions of dollars of borrowing challenges lie directly ahead; let’s look at some illustrations of the rollover requirements for Germany, France, Portugal, Ireland, Italy, Spain and Greece fromwww.newyorktimes.com and Reggie Middleton’s Boom Bust blog

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BBVA

These are just the rollover requirements for the United States and do not include NEW BORROWING of $1.6 TRILLION. So, a total of OVER $3.5 Trillion is required, providing that the deficits are as projected by the CBO (are they ever accurate?). That’s almost $300 Billion a month, or $10 Billion a day (10,000 million a day). Mind numbing numbers! Inconceivable sums. Now let’s look at European rollovers from Reggie Middleton:

BBVA

Think of the US issuance and add this to it. Where will the money come from? The printing press in one form or another. That’s just the rollovers; now let’s look at NEW issuance to cover 2010 DEFICITS from www.forbes.com:

BBVA

This is called INSANITY. Only India, China and the emerging world are growing in REAL terms, the rest of the borrowers are DEADBEAT welfare states with shrinking incomes and economies, when properly adjusted for inflation. How the US and Europe are going to navigate the rest of the year without some MISHAP is inconceivable. That will be the appearance of the “when HOPE to FEAR” moment we are looking for in 2010. This DOES not include BANK and brokerage debt (totaling OVER a trillion dollars) which must roll.

Well, the reason why it seems like China is growing in real terms is because they are blowing a BIG BUBBLE! It is not sustainable, and when it pops it will actually push them back some. See

• Can China Control the “Side-Effects” of its Stimulus-Led Growth? Let's Look at the Facts
• Signs of a China Credit and Real Asset Bubble Are Now Unmistakable!
• It Doesn't Take a Genius to Figure Out How This Will End
• It Doesn't Take a Genius to Figure Out How This Will End
• Economic contractions AND rising prices, dare Reggie utter the "I" word - Enter a global phenomenon
• China Macro Update

I actually suggest you read the entire post, for although some of the charts and info are dated (the circumstances have changed somewhat) and other bits of info are anecdotal, it does give a good background of why anyone should be bearish - http://www.freebuck.com/articles/tandros/100326tandros.htm

If this article goes viral around the web, I wouldn't be surprised if the euro tanks and several European sovereign states' spreads blow out. I have busted several of them in another of a long series of "creative" economic forecasting schemes to fudge the appearance of "austerity".

Well, its official (sort of). Greece, a member of the European Union, will probably join the ranks of countries like Latvia (where policies are limited by the choice of the currency regime), Iceland (where the crisis has resulted in a very heavy external debt burden), the Ukraine (which is still affected by financial and political fragility) and a bevy of third world and emerging market countries in distress from the (not very) esteemed club of IMF financial aid recipients. What does this portend for the Euro? Well, I have blogged earlier in the year that the Euro's credibility is now highly suspect and those pundits who dared contemplate the Euro potentially replacing the dollar as the global reserve currency now see the folly of their ways. The chances of a break-up are significantly higher and quite realistic. Credit Agricole's currency strategist puts it succinctly:

“If Greece goes with the IMF, that says something terrible about the political process within Europe,” said Stuart Bennett, a senior foreign-exchange strategist at Credit Agricole Corporate and Investment Bank in London. “This undermines any confidence in the currency."

Greece will probably end up defaulting on their debt, with or without the aid of the IMF, and they will probably have good company with several other EU members. I say so, and so does UBS Economist Donovan.

“I think it’s in an impossible situation,” said Donovan, who is based in London, in an interview with Bloomberg Radio today. “Europe has failed to clear its first serious hurdle. If Europe can’t solve a small problem like this, how on earth is it going to solve the larger problem, which is the euro doesn’t work. It’s a bad idea.”

How dare I make such a proclamation? Well, because I am telling the truth based upon facts and the many forecasts from the various sovereign nations are basically based upon lies, fiction and farce! As it is look at how the market is viewing the Greek tragedy:

European governments have yet to agree on how to fund any rescue for Greece, which says it will struggle to pay its debts at current market interest rates. While Prime MinisterGeorge Papandreouannounced a 4.8 billion euro ($6.4 billion) austerity package on March 3, the extrayieldthat investors demand to hold Greek debt over German counterparts has since risen.

The spread was at 324 basis points today compared with 316 points at the start of the month. The euro fell 1 percent today to $1.3358, extending its decline this year to 6.7 percent.

I am willing to bet the "market" has not taken a strong, hard, objective look at those proposed austerity measures and uncovered the secrets that I am about to reveal. If they have, these spreads would have been blown out much wider.

A German finance official said yesterday that both countries may agree to involve the IMF. Papandreou said March 19 that Greece, which needs to sell about 10 billion euros ($13.4 billion) of bonds in coming weeks, is a step away from not being able to borrow and may need to turn to the IMF if European aid isn’t forthcoming.

Europe’s fiscal crisis shows the need for the euro region to create a common fiscal policy, former U.K. Chancellor of the ExchequerNorman Lamontsaid in an interview in London today.

“That would be the logical step,” Lamont said. “I don’t think they are prepared to do that, and without doing that I think the euro is a contradiction, a currency without a state.”

Bingo! The man hit the point right on the head. There are too many chiefs and not enough Indians.

I want to visually and verbally demonstrate what an absolute joke European economic estimates have been throughout this crisis, and more importantly how politicians and sovereign states are interpreting this joke in such a way that can deliver a punch line that can most assuredly end in sever global recession, or worse. 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.

I will start posting more news topics of interest and welcome readers to forward research and investment ideas at will. Here is the crop from last week. I will post topics from the weekend later on today, and as usual will randomly comment on daily news events.

From Alliance Bernstein:

• Core Intermediate Producer Prices have taken 6 months to rise 5.2% annualized, recession of 2002 took 2 years to reach same level
• Operating Rate hit low of 65.4% last year and has only risen to 69.4%, still short of historical threshold causing rise in raw material prices (74%)
• Increases in foreign operating rates have started to indicate US may now be a price follower instead of price leader
• The Fed cited lack of resource utilization as reasoning for maintaining record low rates, as these concerns begin to wane Alliance Bernstein sees easing of emergency Fed policy

Bloomberg.com:

• Christina Romer, Peter Orszag, and Tim Geithner have predicted unemployment will settle in 2010 at around 9.7%, citing poor job conditions
• Federal deficit projections for 2011 & 2015 are $1.5 trillion & $751 billion respectively, White House officials cite Bush's medicare and income tax cuts for allowing deficit insanity

Comments on global news from the weekend past...

Bloomberg.com:

• $7.88 billion of slices underwritten by Deutsche Bank under downgrade review since underlying CMBS have been downgraded (CDOs are MAX CMBS I Ltd. Series 2007-1 and Series 2008-1), S&P has already downgraded 2007-1 to BB+
• A BlackRock presentation stated that Deutsche Bank's CDO portfolio does not forecast for tranche losses
• The MAX CDOs are among the Federal Reserve's holdings in Maiden Lane III
• AIG provided Deutsche Bank with $5.61 billion in collateral before the Maiden Lane III transfer

FT Article: Merkel v. Greece Round 239,084.67 (Ding, ding) @ http://www.ft.com

• Merkel insists Greece has not asked for money, and Greece does not need any [Let's permanently attached this to Merkel's credibility rating]
  
• European Commission and IMF officials are far from same page as Merkel
• The article wasn't dense with info, which is not unusual considering the subject matter, but what is clear is that the bazooka everyone was talking about has no trigger, and probably loaded with more baby powder than gunpowder!
• That is going to be a big issue with Greek debt maturing in April if they have no revenue to pay it off

FT Article @ http://www.ft.com

• British Airway strikes did nothing to dampen travel plans over the weekend
• Examples like this are calling the union's bluff, they are not stopping society, potentially leaving room for union break ups by private companies, sovereigns and municipalities if they choose so, this could be a blip on the radar or an emerging trend, so something to continue to watch

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 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:

The Greek Tragedy is unfolding pretty much as I expected. Readers, at least (if not Greek citizens) should be comforted to hear that things are going as anticipated. From CNBC: Greek Bank Shares Fall on EU Support Worries

Greek bank shares fell more than 4.0 percent on Thursday, underperforming the broader Greek market, on worries Greece may be forced to turn to the IMF to deal with its debt crisis for want of EU aid.

"There are concerns over the lack of concrete EU support and because Greece seems to be dragged towards the last resort, which is the International Monetary Fund," Cyclos Securities analyst Constantinos Vergos said.

Shares in National Bank, which reports full-year results after the market's close, were down 3.8 percent to 15.03 euros, withAlpha Bank shedding 4.1 percent.

"The IMF scenario was off the table but now seems to be coming back, raising question marks as to what this would entail," said analyst Nikos Koskoletos at EFG Eurobank Securiries.

For those subscribers who didn't get to act on my Greek bank warning a while back (see Banks exposed to Central and Eastern Europe and Greek Banking Fundamental Tear Sheet), don't fret. If I continue to be correct, this is but the tip of the iceberg, subscribers see Greece Public Finances Projections). The Greek PM is implicitly backing my analysis: Papandreou Urges EU Emergency Plan After German Officials Suggest IMF Aid

From Bloomberg: Germany Seeks IMF Role for Greece in Reversal, CDU Lawmaker Meister Says

March 17 (Bloomberg) -- Greece should turn to the International Monetary Fund if it needs aid, the chief finance spokesman for German Chancellor Angela Merkel’s party said, in a reversal that signals a rift with European leadersJean-Claude Trichet, Jean-Claude Juncker and Nicolas Sarkozy.

“We have to think about who has the instruments to push for Greece to restore its capital-markets access” if ultimately needed, Michael Meister, a lawmaker with Merkel’s Christian Democratic Union, said today in an interview in Berlin. “Nobody apart from the IMF has these instruments.” Attempting a Greek rescue “without the IMF would be a very daring experiment.”

Daring indeed! As my subscribers know, there has been a lot of creativity in coming up with those "austerity" plans (subscribers, see Greece Public Finances Projections). I wouldn't bet the farm on their ability to accomplish their stated goals. For those that don't have a paid subscription, reference my Greek Tragedy in prose: "Greek Crisis Is Over, Region Safe", Prodi Says - I say Liar, Liar, Pants on Fire! Don't forget to notice the optimism...

There is an ancient Greek legend describing the education of the common man Damocles. You see, Damocles exclaimed that, as a great man of power and authority, Dionysius (the current ruler) was truly fortunate. Thus, Dionysius offered to switch places with him for a day, so Damocles could taste first hand that fortune which he savored so fervently. Later that night during a lavish banquet Damocles indeed

Earlier installments of the Reggie Middleton's Pan-European Sovereign Debt Crisis The Coming Pan-European Sovereign Debt Crisis - introduces the crisis and identified it as a pan-European problem, not a localized one. What Country is Next in the Coming Pan-European Sovereign Debt Crisis? - illustrates the potential for the domino effect The Pan-European Sovereign Debt Crisis: If I Were to Short Any Country, What Country Would That Be.. - attempts to illustrate the highly interdependent weaknesses in Europe's sovereign nations can effect even the perceived "stronger" nations. The Coming Pan-European Soverign Debt Crisis, Pt 4: The Spread to Western European Countries The Depression is Already Here for Some Members of Europe, and It Just Might Be Contagious! The Beginning of the Endgame is Coming??? I Think It's Confirmed, Greece Will Be the First Domino to Fall Smoking Swap Guns Are Beginning to Litter EuroLand, Sovereign Debt Buyer Beware! Financial Contagion vs. Economic Contagion: Does the Market Underestimate the Effects of the Latter?

did savor being waited upon like a king. Only at the end of the meal did he look up and notice a hand sharpened sword hanging directly above his head by a single strand of horse-hair. Damocles immediately lost all taste for the amenities of royalty, pomp and circumstance and asked leave of the tyrant, saying he no longer wanted to be so "fortunate" [adapted from Wikipedia].^[1][4]

^{Little did Damocles realize that what he experienced was of value, significant value. He simply failed to recognize the value as we has blinded by the fair maidens who served him hand and foot. The moral to this BoomBustBlog telling of the Sword of Damocles is that: "When one sits on the Throne, the true value of the sword is not that it falls, but rather, that it hangs." Recent history has given weight to this moral as Greece has fed high on the hog for nearly a decade, while being totally oblivious to the value held within that single strand of horse hair, protecting it. Till this day, that strand, although dwindling, has yet to snap.}

"The worst of Greece’s financial crisis is over and other European nations won’t follow in its path, said former European Commission President Romano Prodi.

“For Greece, the problem is completely over,” said Prodi, who was also Italian prime minister, in an interview in Shanghai today. “I don’t see any other case now in Europe. I don’t think there is any reason to think the euro system will collapse or will suffer greatly because of Greece.”"

Reggie says "Liar, Liar, Pants on Fire". In all seriousness, while I don't truly believe Mr. Prodi is lying, he is also obviously ignoring the facts as they currently exist, whether purposefully or in error. Let's walk through a few excerpts from the most recent addition to the Pan-European Sovereign debt crisis. BoomBustBlog subscribers can download the full15 page analysis here, which contains more than enought evidence to throw serious doubt on the ability of Greece to come anywhere near their stated goals: Greece Public Finances Projections 2010-03-15 11:33:27 694.35 Kb/.The report also makes clear why Germany is so hesitant to contribute funds to a Greek bailout.

The Austerity Package, in a Nutshell

The revenue measures include increasing tax rates, reducing tax evasion and some one-off measures while the expenditure measures consist of salary reduction, freezes in hiring and salary hikes as well as cutting other public sector expenditures. According to the Stabilityand Growth Program, January 2010, the government is aiming to reduce its fiscal deficit from 12.7% of GDP in 2009 to 8.7% in 2010. However, if the impact of the additional measures that were estimated at 2.5% of GDP is also added, the fiscal deficit is expected to come down to 6.2% of GDP in 2010, based on government's estimates. The government further envisages additional proceeds from the sale of stakes in some of the government-owned entities as well as proceeds from the payback of financial assistance provided to the Greek banks, which will be used to reduce the massive government debt of around 113% of GDP in 2009. However, there is strong evidence to support the assertion that the budgeted impact of these measures is grossly overstated, since a) The Greek government's base casescenario for the economy is overly optimistic when compared with analystexpectations, and b) the dynamics of the announced measures shall lower the total projectedimpact.