So, Spain finally gets a bailout, as I pretty much guaranteed in The Economic Bloodstain From Spain's Pain Will Cause European Tears To Rain and The Spain Pain Will Not Wane: Continuing the Contagion Saga. I'd like to draw attention to an excerpt from the aforelinked article:

Subscribers, be ready. When/if Spain cracks, these two short positions will explode:

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

Bank Haircuts, Derivative Risks and Valuation10/20/2011

Of course, in today's environ of mega banks, mega marketing, mega investment returns, white hot IPOs, it may be hard for many to appreciate the words of an entrepreneurial investor and blogger. Then again, just remember that this also coming from the same man that called Bear Stearns, Lehman, GGP, CRE, RIM, housing, the entire Pan-European Debt crisis, etc. See Who is Reggie Middleton for more. 

So, I have set up the play, now let's take a look at how its rolling out, as excerpted from ZeroHedge's morning posts via Market News:

Any aid that might come from the European Stability Mechanism, which is expected to start work next month, would enjoy a preferred creditor status second-only to the IMF, the spokesman confirmed.

Whoa! Of course, we've broached this topic in the past, over two years ago actually- How the US Has Perfected the Use of Economic Imperialism Through the European Union! Long story, short - there is no free lunch. Bailout's of indebted nations using more debt is NOT a NET POSITIVE! Anyway, back to the bailout that subordinates existing senior bondholders, guess who some of those largest bondholders are? Here's a hint, F.I.R.E.!!!. As duly predicted in BoomBustBlog published research dated 12/11...

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As you can see below, Spain and Greece have already taken big shots. Greece has already defaulted and is about to default again - exactly as we predicted...

• Beware The Overly Optimistic Greek Speculators As Icarus Comes Crashing Down To Earth!
• Greece Gets "Corzined" In Its Fruitless Pursuit of Euro Unity, Sans Its Own Sovereignty As Simple Arithmetic Sets In Again
• Greece Sneezes, The Euro Dies of Pneumonia! Yeah, Sounds Bombastic, Yet True

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Subscriber downloads:

 Insurer Preliminary Observations (498.08 kB 2011-12-08 10:05:24)

 Insurer Report_122511 - Professional/Institutional edition (975.49 kB 2011-12-27 11:05:59)

 Insurer Report_122511 -Retail edition (876.11 kB 2011-12-27 11:04:09)

 Insurance cos. EU exposure 11-2011 (10.72 kB 2011-11-28 16:20:21)

 Insurance Cos. Operational Stress (11.92 kB 2011-11-29 10:11:51)

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Go to 1:45 in this video and listen carefully for at least 5 minutes (you'd probably want to watch more if you have an interest in truth in reporting, competent analysis, or simply the truth). Keep in mind that this interview was done in February, no crystal balls, just spreadsheets and common sense. Independent news has truly come into its own.

Remember, I warned readers to Beware The Overly Optimistic Greek Speculators As Icarus Comes Crashing Down To Earth! I gave subscribers (click here to subscribe) explicit proof that another Greek default was right around the corner. That's right! Direcly after the Greek default in March of this year!!!! Subscribers, see Greek debt restructuring maturity extension blog - March 2012 (Global Macro, Trades & Strategy). And in today's MSM fare: Greece Warns of Going Broke as Tax Proceeds Dry Up

As European leaders grapple with how to preserve their monetary union, Greece is rapidly running out of money. 

Nikos Lekkas, a government official, said banks had hindered his efforts to collect back taxes. 
Government coffers could be empty as soon as July, shortly after this month’s pivotal elections. In the worst case, Athens might have to temporarily stop paying for salaries and pensions, along with imports of fuel, food and pharmaceuticals.

Officials, scrambling for solutions, have considered dipping into funds that are supposed to be for Greece’s troubled banks. Some are even suggesting doling out i.o.u.’s.

Greek leaders said that despite their latest bailout of 130 billion euros, or $161.7 billion, they face a shortfall of 1.7 billion euros because tax revenue and other sources of potential income are drying up. A wrenching recession and harsh budget cuts have left businesses and individuals with less and less to give for taxes — and growing incentive to avoid paying what they owe.''

But...but... but didn't I warn everybody of this as far back as 2010 and as recently as last February?

Government expenditures have outstripped revenues ever since 2007 and have gotten worse nearly every year since, despite 3 bailouts a restructuring, austerity and a default!

Greece_Primary_deficit_copy

The budget gap is widening as the so-called troika of lenders — the International Monetary Fund, the European Central Bank and the European Commission — withholds 1 billion euros in bailout money earmarked for government financing while it waits to see whether new leaders elected June 17 will honor Greece’s commitments.

Even if the troika delivers that money, Greece will struggle to cover its obligations. It underscored a harsh reality that is playing out in other troubled euro zone economies. Prolonged austerity is making it harder, not easier, for governments like Greece to become self-reliant again.

Go figure! As excerpted from Beware The Overly Optimistic Greek Speculators As Icarus Comes Crashing Down To Earth!

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.

Greece_Primary_balance

The primary balance looks at the structural issues a country may have. The best analogy I’ve heard for the Grecian situation is the highly indebted family that has binged on credit cards creating huge interest and debt service payments. They then lose the earning power of one of the parents at the same time that a spike in medical bills and household repairs (ex. Murphy’s law) dig deeper into family finances. The family is then forced to continue spending via credit cards to meet these unforeseen expenses.

In short, the main reason for Greece requiring additional funding is its primary deficit but the main reason why this latest (as well as the two rounds before this latest) round of bailout funding won’t work is Greece’s primary deficit.

A top Spanish official acknowledged on Tuesday that Spain could not readily return to the markets to raise money because investors are demanding such high rates, highlighting how the debt crisis is spreading to larger economies in Europe.

Again, BoomBustBlog made this clear early in 2010. Surprise you should be not! Be sure to note the date on the articles below...

1. The Coming Pan-European Sovereign Debt Crisis – introduces the crisis and identified it as a pan-European problem, not a localized one... As a matter of fact, I directly and explicitly compared the plights of Greece vs Spain 2 years and 4 months ago, yes before anyone even publicly admitted Greece would have to default, not to mention Spain!!!

2. spain_vs_greece.pngspain_vs_greece.pngspain_vs_gre

3. The Coming Pan-European Soverign Debt Crisis, Pt 4: The Spread to Western European Countries
4. The Depression is Already Here for Some Members of Europe, and It Just Might Be Contagious!

Fast forward to years, and as luck will have it - The Economic Bloodstain From Spain's Pain Will Cause European Tears To Rain. 

Oh, and here comes that Grecian Circular Argument again. What circular argument you query? Well simply read How Greece Killed Its Own Banks! and remember that this article was written in the beginning of 2010, when the bonds were trading for much more then they were right before they defaulted! then reference Greece Reports: "Circular Reasoning Works Because Circular Reasoning Works" - Or - Here Comes That Default!!!

, 

That has left a caretaker government scrambling for a Plan B. One thought is to take billions of euros reserved for recapitalizing Greek banks, which have suffered from a flight of deposits amid political uncertainty and fears that Greece may abandon the euro for its own currency.

But using that money would require the troika’s approval. Other notions, like i.o.u.’s and scrip, so far are only that — ideas.

Next up I will consider releasing my research on what wil probably be the most profitable (US) CRE short of the year - GGP part 2!

Follow me:

A few months ago, I warned all to Watch As Near Free Money To Banks Fails To Prevent Nuclear Winter For European CRE. This warning was an offshoot of the extensive research that I did on the European banking sector, sovereign debt and CRE. In a nutshell, I said It appears as if there were a few who failed to heed said sage warning. Bloomberg reports Commercial Landlords Fail to Pay Loans Amid Crisis, Moody’s Says

Landlords of commercial properties in Europe are struggling to repay mortgages as banks pull back from refinancing the loans, according to Moody’s Investors Service.

And the reason they are pulling back has been well documented on BoomBustBlog for some time. See Is Another Banking Crisis Inevitable? 04 February 2011

Seventy-nine percent of the loans packaged into commercial mortgage-backed securities rated by Moody’s that came due in the first quarter weren’t repaid on time, Frankfurt-based analyst Oliver Moldenhauer wrote in a report. The non-payment rate more than doubled from 35 percent in 2009 and reflects “the current weak state of the lending market,” Moldenhauer wrote.

Whoa!!!! And to think everyone is worried about sovereign debt in Europe. Once all of that rapidly depreciated real estate collapses mortgages that have been leveraged 30x, you'll really see the meaning of AUSTERITY! I'm trying to make it very clear to you people, you ain't seen nothing yet!!!

The economic slowdown is hurting landlords of properties from office blocks to car parks and shopping malls across Europe. A total of 38 billion euros ($47 billion) of commercial real estate loans come due this year and next, Moody’s said.

“As banks need to deleverage due to regulatory requirements, commercial real estate financing will remain constrained,” Moldenhauer wrote. “Most loans will not be repaid.”
...“Not only can underwater loans not be refinanced, borrowers also face difficulties refinancing moderately leveraged loans that are simply too large in the current lending market,” said Christian Aufsatz, an analyst at Barclays Plc in London. “For CMBS, the situation will become worse.”

Real estate with mortgages that match or exceed the value of the property -- a so-called loan-to-value ratio of 100 percent or higher -- suffered defaults in “nearly all” cases in the first quarter, Moody’s said. About a third of borrowers with LTV ratios of up to 80 percent didn't pay up on time, according to the report.

Keep in mind that the LTV of these properties are safe in the 50-60 LTV range. We're now discussing 80 to 100+ LTVs. Think about it? Whose going to cough up the missing equity? Quick answer - bank equity investors! More thought out answer - Taxpayers the world over as their hardheaded ass government officials rush in once against to try to bailout banking systems that are too big to be bailed out, leaving what few decent sovereign nation economies left insolvent - once again!!!!

Most of the loans that were repaid were for less than 25 million euros, while just one of the 15 mortgages worth 75 million euros or more was paid on time, Moldenhauer wrote.

As queried many times on this blog, "What do you think, pray tell, happens when the liquidity starved, capital deprived, over leveraged banks fail to roll over all of that underwater EU mortgage debt?" Excerpted from Watch As Near Free Money To Banks Fails To Prevent Nuclear Winter For European CRE:

So, what is the net effect on real estate as thousands of underwater mortgages come up for rollover on depreciating real property?

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So are there any concrete examples of all of this Reggie style pontification? If course there is. Do you see that chart above where the tiny country of the Netherlands is one of the largest per capita contributors to these bailouts? Well, you don't think all of the expenditure (to be) is free do you? Here are some screenshots of a prominent Dutch property company, on its way down the tubes - subscribers reference (click here to subscribe):

•   Debt Analysis, Blog Subscriber Edition
•  Preliminary Download

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 My next posts on this topic will delve into US REITS, global (but EU based) insurers and banks who have the exposure to make ideal shorts considering "The astonishing number this time is the number of banks participating, which signals that a lot more small banks looked for the money and it is likely they will pass it on to the economy,” said Laurent Fransolet, head of fixed income strategy Barclays Capital in London, who estimates about 300 billion euros of the total is new lending. “So the impact may be bigger than with the first one.”

Stay tuned!

My next post on CRE will show how this is not just a European phenomena. Yes, US REITS will come crashing back to reality as well. Subscribers should pay attention as I ladder puts and shorts into this REIT which we have calculated to fall roughtly 95% in value if math comes to the forefront. To date, the price has not broken out of a relatively narrow range, which means the opportunity is still there. I am considering making the research public after it is clear all long terms subscribers have attained positions.

 Cashflows and Debt Preliminary Analysis (493.89 kB 2012-01-19 09:19:16) - compete cash flow analysis showing this REIT coming up short in every possible practical scenario.

 Fire Sale Scenario Analysis (303.76 kB 2012-02-10 09:17:04) - illustrates the situation if a fire sale was pursued to raise cash.

 Foreclosure Scenario Analysis (414.15 kB 2012-02-09 10:16:12) - illustrates the situation if properties were allowed to go into foreclosure to ease debt service.

 Sample Property Valuation (360.45 kB 2012-01-26 09:03:33) - one of over 40 property valuations performed by hand, with on the ground inputs using our proprietary valuation models.

I will go over this opportunity in more detail over the next 72 hours as well as reviewing the path taken by European real estate to show what can be expected here in the US and the FIRE sector.

Please note that we independently value REIT portfolios - property by property - with independently sourced rents and expenses to ascertain a truly accurate valuation picture. This is how we called the short on General Growith Properties in 2007, a year before they were downgraded from investment grade status and still buys on them from all the major sell side houses that followed them. I rode GGP down from the $60s to about $8, the shares eventually fell to $1 and change or so. The General Growth Properties short generated returns deep into the three digits... Deep enough to come close to registering a four digit return.

Follow me on Twitter: http://twitter.com/#!/reggiemiddleton. Click here to subscribe to BoomBustBlog research!

Last week I penned Sophisticated Ignorance Part 2: Pressuring Germany To Do The Wrong Thing Is A Short Seller's Dream, wherein I continued the argument that serial bailouts of banks whose assets dwarf domicile GDPs has never, ever worked. Part and parcel to said argument was Germany's resistance to such profligate spending and the perception that Germany was somehow immune to the economic maladies that afflicted its European trading partners - reference The Biggest Threat To The 2012 Economy Is??? Not What Wall Street Is Telling You... An astute reader commented on these postings as follows:

Reggie, all well argued, but the scramble for German Bunds is still on and even if it were to stop there won't be many who sell. (or COULD sell). Even if, you have the ECB who could easily buy up German bunds as well and keep rates down. At the end of the day it's a complete fiasco, no doubt, but that day could last a lot longer than you (or me) currently assume...

I have broached the argument in the past that the ECB is not god, or even close to it, and that it can only play the bond buying ponzi for but so long before negative consequences occur. Reference: 

• ECB As European Lender Of Last Resort = Institutional Purveryor Of A Pan-European Ponzi Scheme 

Those that regularly follow me know that although I'm quite the mediocre short term trader, I have uncommon strengths that lie in the realm of medium to long term strategy and macro-fundamental valuation. Unfortunately, with the advent of free money and perpetually whirring inkjets splashing that Frankiln hue of green all over the place, the value of longer term strategy and analysis has taken a back seat to buy it today and flip it tomorrow wannabe mo-mo enthusiasts who do nothing more than chase leveraged beta with a 2/20 toll to those foolish enough to part with their lesser educated funds. It's downright disheartening to hear so many lament that fundamental analysis doesn't work. My dear friends, if fundamental analysis doesn't work, then math doesn't work! If math doesn't work, exactly how is it you can measure whatever gains you have made while trading? Oh yeah, that's right! Fundamental analysis doesn't work until its time to positively value your operation, then all of a sudden math is the new sexy, right?

Listen up, math never, ever went out of style. The Fed and its cartel of global central planners, AKA central bankers, did an unprecedented job of pushing capitalism to the side for the benefit of the financial oligarchy, but truly implemented capitalism is like unto a force of nature that constantly fights to reassert itself, and like the actual forces of nature - it never gives up and ultimately, never loses.

So, all of you mo-mo trading, fair weather arithmeticians, I'm bringing sexy back!

Back in January of 2009, I warned on Spanish banks. Take note that that was nearly 3 years ago...

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BBVA's valuation at... Register (for free) and download the full report  Banco Bilbao Vizcaya Argentaria SA (BBVA) Professional Forensic Analysis 2009-01-28 16:04:04 439.80 Kb

I also warned on the entire country a year later, which was still 2 years before the sell side truly got serious about the departure port of the Santa Maria, reference The Spain Pain Will Not Wane: Continuing the Contagion Saga.

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

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

Spain_public_finances_projections_033010_Page_01Spain_public_finances_projections_033010_Page_01

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The stress caused by Spain breaking the central bank will bring to full fruition the theory behind our European Banking and Insurance research from the last few quarters.

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

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

On that note, this entire week the MSM has been on Spanish kick - Spain Is Crying for Help; Is Berlin Really Listening?

Crisis is the watchword in Madrid. Take your pick - liquidity crisis, debt crisis, banking crisis, economic crisis, confidence crisis, investor crisis, jobless crisis.

Spain, the ailing euro zone's latest problem child, has them all. As the problems pile up, Prime Minister Mariano Rajoy's five-month-old conservative administration feels like a government under siege.

Nervy top officials are reluctant to speak on the record for fear of slipping up. Policymakers contradict one another. Plans keep changing. Financial markets reel amid the uncertainty. The gloom in ministry corridors is palpable.

The latest gaffe: after weeks insisting that one of the country's biggest banks, Bankia, did not need fresh funds, ministers dropped the bombshell last Friday that there was a 23-billion-euro hole in the accounts.

Damn! That's one helluva rounding error, eh???

They have yet to explain clearly how they will find the money when they are already struggling to finance a spiralling national debt.

The effect of the Bankia news on fragile financial markets was devastating.

Spanish shares dived to 9-year lows, the euro sank and investors fled Spanish government debt, pushing the yield towards the 7 per cent level at which fellow eurozone members Ireland and Portugal were forced to seek national bailouts from Brussels.

To hear the government tell it, outsiders have got it all wrong: Spain has lived beyond its means for too long and is now going through a painful but necessary period of adjustment to shrink its state sector, cut spending and boost competitiveness.

All the right things are being done.

Rajoy's government is serious, committed and enjoys a comfortable parliamentary majority.

Officials say foreigners don't understand that Spain has boosted its exports more than any other European country in the past three years, that it has reformed its labour markets, cut its costs of production and come clean about the problems in its banks, which lent too enthusiastically to finance a huge property bubble that has now burst.

Now, ministers say, Madrid just needs time and some help and support from its European partners to get through the most acute phase of the crisis and give the reforms time to work.

As I said yesterday, there's no way in hell the EU will be able to bail out its banking system -The Eurocalypse Has Arrived...

Subscribers, be ready. When/if Spain cracks, these two short positions will explode:

Subscribers reference:

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

Bank Haircuts, Derivative Risks and Valuation10/20/2011

Of course, in today's environ of mega banks, mega marketing, mega investment returns, white hot IPOs, it may be hard for many to appreciate the words of an entrepreneurial investor and blogger. Then again, just remember that this also coming from the same man that called Bear Stearns, Lehman, GGP, CRE, RIM, housing, the entire Pan-European Debt crisis, etc. See Who is Reggie Middleton for more. 

Today's top MSM headline - European Commission Recommends Euro Banking Union:

The euro zone should move toward a banking union and consider recapitalizing its banks using its permanent bailout fund, the European Stability Mechanism, the European Commission said on Wednesday, in remarks that briefly boosted stocksand the euro. 

The European Union's executive arm said in documents laying out recommendations for theeuro [EUR=X  1.2422 (-0.51%)]area that the crisis had slowed the financial integration process and "ambitious steps to accelerate and deepen financial integration may be needed."

"More specifically, a closer integration among the euro area countries in supervisory structures and practices, in cross-border crisis management and burden sharing, towards a 'banking union' would be an important complement to the current structure of [the Economic and Monetary Union]," the European Commission said in the documents.

"In the same vein, to sever the link between banks and the sovereigns, direct recapitalization by the ESM might be envisaged," it added.

Hmmmm... BoomBustBloggers crossed this intellectual Rubicon over 2 years ago. I was explicit in explaining that the bulk of the sovereign nations' debt woes stem from thier feeble and failed attempts to prop up their banking systems. I posted a refresher to this thesis a few weeks ago in So, Can Europe Nationalize All Of Its Troubled Banks? 

In a discussion that I had over at ZeroHedge there came the topic of whether bank runs are possible in Europe. Well, I believe we've already had some devastating one's (ex. Northern Rock) but if one takes the continent only or the EZ in particular, we still have a significant systemic threat. The gist behind the argument is that if the true economic capital is weakened to the point that depositors/creditors/counterparties make a run for it, the sovereign nation in which it is domiciled will simply nationalize it. Hmmm... Let's take a look at how that might work out, as excerpted from Overbanked, Underfunded, and Overly Optimistic: The New Face of Sovereign Europe March 2010

Literally years later, the sell side is now chiming in: Banks No Longer 'Float Above Their Countries': Deutsche

Banks' countries of origin have become important again. 

No shit, Sherlock!!!

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 Most of the developed EU nations don't stand frozen raindrop's chance in hell of bailing out banking systems that are literally multiples of the GDP of the domiciles themselves. 

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The problems is getting worse over time, not better, as risk, leverage and unrecognized NPAs continue to pack the banking system. 

I warned heavily last year about the connection between overleveraged, garbage laden banks and over-indebteded sovereigns...

Just as in the case of my call on the fall of Bear Stearns (again, I believe I was the only to make such a call so far in advance), this situation consists of something you NEVER hear in the media or investment circles. This is not merely a liquidity crisis of even a solvency crisis. For the first time in recent history, it is BOTH!!! As a matter of fact, it's not just both. There is a another problem that came into play, and it is the direct result of tomfoolery at the hands of the sovereings themselves. The games that they played to assist the banks in hiding thier problems has materially weakened the entire financial system by sowing rampant mistrust. Plain and simple, government endorsed lying has made the entire system afraid to do business with itself. Let's walk through this step by step.

The Liquidity Issue 

From The BoomBustBlog BNP Paribas "Run On The Bank" series...  "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!

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The solvency issues

From the research note to subscribers,  The Inevitability of Another Bank Crisis followed by the free blog posts on the same, see Is Another Banking Crisis Inevitable?

Impact of bank’s banking books on haircuts

EU banking book sovereign exposures are about five times larger than trading book. The table below gives sovereign exposure of major European countries for both trading and banking book. The EU trading book has €335bn of exposure while banking book has €1.7t exposure towards sovereign defaults. EU stress test estimated total write-down’s of €26bn as it only considered banks trading portfolio. This equated to implied haircut of 7.9% on trading portfolio with losses equating to 2.4% of Tier 1 capital. However, if the same haircuts (7.9% weighted average haircut) are applied to banking book then the loss would amount to €153bn equating to 13.8% of Tier 1 capital.

And last but not least...

The credibility crisis, whose sole responsibility lies dead center on the sovereigns themselves...

 BNP_Paribus_First_Thoughts_4_Page_01

You see, as you bend the rules to reporting, you resuce the banks for a day, but doom them for a decade (or in the case of Japan, 2.4 decades!!!). Now, the counterparties simply CANNOT trust each other!

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... and why should the counterparties trust each other when all are privvy to the games that they are playing on each other! 

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Before government officials start crying innocent, remember the tricks that you youreselves have played to bring use where we are now. In case your memory is failing, simply review Lies, Damn Lies, and Sovereign Truths: Why the Euro is Destined to Collapse! 

Now, I ask all... How in the world will grouping all of these increasingly unmanageable individual soveriegn problems cure the overall problem. By gathering all of the roaches into a big pile, you don't get less roaches - you just get a big pile of roaches! The bank failures will increase in both speed and intensity as time progresses and the drag will simply engulf the EU as a whole versus engulfing the states individually. At least individually, the better run states will recieve less pressure, and suffer through crossborder and financial contagion and counterparty risk rather than through this pooled method wherein direct pipes of contagion are being engineered to transmit the problems deep within each country. Does it sound like a good idea to you? I have my own ideas, of course....

How To Prevent Bailouts, Bank Runs & Other Fun Things To Do With Your Hard Earned Dollars

Subscribers, see 

BNP Exposures - Professional Subscriber Download Version

BNP Exposures - Retail Subscriber Download Version

BNP Exposures - Free Public Download Version

 French Bank Run Forensic Thoughts - Addendum and Update 

In today's MSM front pages:

EU Seen Agreeing on Project Bonds—Not Eurobonds - of course not! 17 different nations, 17 different cultures, 17 different sets of federal laws (not to mention local municipality legislation), 17 different economies, 17 different banking systems... It's this lack of homogeneity that brought the Euro concept to its knees in the first place. Why throw good money (what would have went into Eurobonds) after bad (what went into a flawed Euro concept) to justify flushing it with awful (the multiple bailout mechanisms/default losses, ECB balance sheet bloat)? Reference A Summary and Related Thoughts on the IMF’s “Strategies for Fiscal Consolidation in the Post-Crisis 

Germany Sells 2-Year, 0% Bonds Amid Greek Anxiety - Bubble, bubble, toil and trouble! It's as simple as that. Why lend money at risk for no return? Reference The Biggest Threat To The 2012 Economy Is??? Not What Wall Street Is Telling You... where I explained in explicit detail the risk this view of Germany causes the entire European continent and the UK! As a matter of fact, a follow up opinion of the subscription research illustrated subject company (an insurer) in this write-up will be the topic of my next post. After all, we can't let GS and JPM blow up the world by themselves, can we?

Roubini Strategist: High Yields Are Europe's New Normal This is a no brainer. How about high rate volatility as well as all of the financial entity fun that that will ensue? Here's a better question. What happens to real estate values as interest rates increase? Yep! You heard it here first... Watch As Near Free Money To Banks Fails To Prevent Nuclear Winter In European Real Estate. As a matter of fact, We're At Step 2 Of The Global Real Estate Compression!

Of course, after pondering that query, must become more investigatory - What happens to bank mortgages as CRE values plunge? So, Can Europe Nationalize All Of Its Troubled Banks? 

CNBC reports Banks No Longer 'Float Above Their Countries': Deutsche - Banks' countries of origin have become important again. No shit, Sherlock!!!

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I warned heavily last year about the connection between higher interest rates and falling real estate in Europe...

Reggie Middleton as the Keynote Speaker at the ING Real Estate Valuation Seminar in Amsterdam

Bank of England to Print Money if Economy Worsens - Well, you know I've always said The UK Can't Be In A Double Dip Recession If It Never Truly Left The First Recession, Can It?

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

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UK Retail Sales Slide at Fastest Pace in 2 Years in April - Well of course. Don't these guys read the BoomBust??? The Greatest Risk To Retail Commercial Real Estate Is? Sovereign Debt! Macro Headwinds! Popping Bubbles! Busted Banks! No, It's The Internet! and Prepare For CRE Crash And Burn Marks At A Shopping Mall Near You

'Nuff said! Subscribers, as (not if, but as) this breaks, these are the companies trading at the valuations that are most shortable/profitable in my opinion... Relevant downloads for subscribers only! Click here to subscribe...

US CRE

• US REIT Fire Sale Scenario Analysis
   US REIT Foreclosure Scenario Analysis
•  US REIT Sample Property Valuation
•  US REIT Cashflows and Debt Preliminary Analysis

European Insurance

•  Insurer Report_122511 - Professional/Institutional edition
•  Insurer Report_122511 -Retail edition

European CRE (this one is a bit dated)

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European banking

Haircuts, Derivative Risks and Valuation

And the cat that was already let out of the bag...

BNP Exposures - Professional Subscriber Download Version

BNP Exposures - Retail Subscriber Download Version

BNP Exposures - Free Public Download Version

 French Bank Run Forensic Thoughts - Addendum and Update

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On Monday, 23 April 2012 I posted "It's Official & As I Foretold Years Ago, Greece Is Now In A True Depression As Reality Hits Greek Banks", roughly 2 years after penning 

How Greece Killed Its Own Banks!. Well, guess what!? The Wall Street Journal’s report, “Greek Depositors Withdrew $898 Million From Banks Monday”:

Greek depositors withdrew €700 million ($898 million) from the country's banks on Monday, fueling fears of a bank run amid the growing political disarray.

With deposits falling, Greek banks become even more dependent on the European Central Bank to meet their funding needs, exposing the central bank to potentially huge losses if Greece leaves the euro area.

Greek President Karolos Papoulias told the country's political leaders that bank withdrawals plus buy orders received by Greek banks for German bunds totaled some €800 million on Monday, a transcript of his comments said. A central bank official confirmed the figures.

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 bankinsg 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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Thursday, 28 July 2011  The Mechanics Behind Setting Up A Potential European Bank Run Trade and European Bank Run Trading Supplement

I identify specific bank run candidates and offer illustrative trade setups to capture alpha from such an event. The options quoted were unfortunately unavailable to American investors, and enjoyed a literal explosion in gamma and implied volatility. Not to fear, fruits of those juicy premiums were able to be tasted elsewhere as plain vanilla shorts and even single stock futures threw off insane profits.

Wednesday, 03 August 2011 France, As Most Susceptble To Contagion, Will See Its Banks Suffer

In case the hint was strong enough, I explicitly state that although the sell side and the media are looking at Greece sparking Italy, it is France and french banks in particular that risk bringing the Franco-Italia make-believe capitalism session, aka the French leveraged Italian sector of the Euro ponzi scheme down, on its head.

I then provide a deep dive of the French bank we feel is most at risk. Let it be known that every banked remotely referenced by this research has been halved (at a mininal) in share price! Most are down ~10% of more today, alone!

•  French Bank Run Forensic Thoughts - Retail Valuation Note - For retail subscribers
•  Bank Run Liquidity Candidate Forensic Opinion - A full forensic note for professional and institutional subscribers

I also provided a very informative document for public consumption which clearly detailed exactly how this French bank collapse thing is likely to go down:  French Bank Run Forensic Thoughts - pubic preview for Blog - A freebie, to illustrate what all of you non-subscribers are missing!

So, What's the Next Shoe To Drop? Read on...

For those who claim I may be Euro bashing, rest assured - I am not. Just a week or two later, I released research on a big US bank that will quite possibly catch Franco-Italiano Ponzi Collapse fever, with the pro document containing all types of juicy details. This is the next big thing, for when (not if, but when) European banks blow up, it WILL affect us stateside! Subscribers, be sure to be prepared. Puts are already quite costly, but there are other methods if you haven't taken your positions when the research was first released. For those who wish to subscribe, click here.

•  Contagion Forensic Review - Retail
•  Contagion Forensic Review - Professional

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And now that BoomBustBlog foretold reality comes to bite UK ass, as reported by Reuters/CNBC: Inflation-Wary Bank of England to Halt Money-Printing Press

The Bank of England looks set to call a halt to its asset-buying program, despite the economy having slipped into recession and renewed risks rising from the euro zone debt crisis, as UK inflation remains stubbornly high. 

Uh Oh!!! In case the gravity of this situation is not weighing on any of you blokes yet, the UK has to step back into a gun fight but cannot fire any more shots due to the fact that it has already hit too many innocent bystanders...

Ending its program of quantitative easing, or QE, may make life more difficult for Britain's Conservative-led ruling coalition, which was battered in local elections last week and relies on loose monetary policy to soften the pain of austerity measures aimed at cutting the country's huge public borrowing.

Therein lies the problem, no? Did they truly try to stimulate the eonomy or did they attempt to overdose on cheap, irresponsible liquidity to save the extant oligarchy?

But after buying 325 billion pounds of government debt with newly created money, 50 billion pounds of which has been purchased in the last three months, the bank is likely to judge that its policy stance is already supportive enough.

You don't need to be an economist to understand the utter foolishness, the circular logic supported folly of the aforementioned statement - "But after buying 325 billion pounds of government debt with newly created money, 50 billion pounds of which has been purchased in the last three months".  So, an allegedly fiscally responsible regime leading one of the most powerful countries in the world lends money to itself in order to get some money (What the f@ck!!!), but must print fresh new money in order to afford to buy the money that it just lent itself in order to use the money it just let itself to pay some important bills, you know the thing that it needed the money for in the first place.

Well, what the hell are you staring at your screen for?  Don't you get it? Apparently, you must either be a politician or a economist to get it, actually. The UK obviously have the best suited guys for the job leading the way!

Policymakers, most prominently deputy BoE governor Paul Tucker, have also indicated that inflation may not fall as fast as forecast below the bank's 2 percent target after it rose for the first time in six months in March, touching 3.5 percent, the highest rate in the Group of Seven major advanced economies.

Only five of the 58 economists polled by Reuters expect the central bank to announce further asset buying when it publishes its decision at 11:00 a.m. GMT.

The minutes of the Monetary Policy Committee's (MPC) April meeting showed that inflation worries had become more dominant, and that long-standing quantitative easing advocate Adam Posen had dropped his vote for more QE.

Bank of England Governor Mervyn King has also said that the economy looks set to recover slowly and steadily later this year while inflation is too high.

 As clearly stated in the BoomBustBlog susbscriber document:  UK Public Finances March 2010

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Vulture_Fights_Jackle_in_bubbleBelieve it or not, we actually have a mini-bubble within this bubble crash as vulture investors fight for the scraps disgorged by indebted sovereigns and over-leveraged banks. The time is not ripe just yet and I plan to allow the carrion feeders to price destruct amongst themselves as I await the coming interest rate storm which will truly bring about a once in a lifetime wealth creation opportunity.

Arguably, more millionaire money was made during the Great Depression than at any time in history. Well, if that's true then it looks as if history may be poised to repeat itself. The question is, who will be ready? I will discuss this live on RT's Capital Account show today at 4:30. 

Executive Summary

Asset sales by European sovereign nations, central and private banks have made global investors and speculators scour for cheap assets that have the potential to yield higher than average risk adjusted. However, the search process is not that easy, as sellers are adopting a ‘wait and see’ policy assisted by the European Central Bank’s facilitation of (extremely) cheap financing and liquidity measures. The market now witnesses by too many buyers chasing too few distressed assets. Hence the speculation about future returns has actually caused a mini-bubble in distressed asset prices. Professional subscribers should download the full version 

Asset sale by sovereigns is can be seen in the sale of stakes in government owned infrastructure assets and corporations. However, the approach adopted to dispose of these assets is to make partial sales in tranches in order to participate in any benefits of valuation recovery.

Professional and institutional subscribers should download the full version of this document ( The BoomBustBlog Pan-European Distressed Asset Acquisition Initiative) which outlines investment opportunities in the following nation/banks: UK, Portugal, Italy, Cyprus, Greece, Ireland and Spain.  Our initiative runs the gamut from whole companies and equities, to real estate, infrastructure assets, rare earth and hard tangible assets to IP.

Dispositions by Europeans banks have consisted mostly of foreign assets outside of Europe. Most of these assets had the potential for high returns but are being offered at prices reflecting the perception that future investment performance would be robust. This is why there is so much interest in the private equity and asset management space in scanning for strong deals among those assets. However, the competition among these entities to buy quality assets at reasonable valuations has created a micro bubble of sorts, the type that make profitable vulture investing a very difficult proposition.

Sale of Sovereign Assets

Faced with mounting debt burdens, many European nations are under tremendous pressure to cut fiscal deficits

by establishing and expanding austerity measures and reducing interest expenses. These nations include not only those faced with accelerating debt repayment obligations such as Greece, Italy, Spain, etc., but also some of the relatively better positioned countries – namely the United Kingdom and France.

In a bid to reduce accelerating debt burdens, many of these nations are selling their sovereign assets. We will probably see an even greater pool of sovereign asset sales as the futility of serially forced austerity drives the EU into a deep recession.

Even the Greek situation is just getting started, contrary to popular belief and the upcoming distress is not just CRE and RE assets that are available via fire sale, as clearly outlined two years ago in our subscriber (click here to subscribe) report 

 Greece Public Finances Projections see pages 5 and 6 following... (click to enlarge)

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As a matter of fact, I warn those who do not subscribe to the BoomBust, this song is far, far from over... Beware The Overly Optimistic Greek Speculators As Icarus Comes Crashing Down To Earth!

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Greece is virtually guaranteed to re-default, with a structural imbalance that literally forbids the country from being able to service its debt, thereby chasing investors and bondholders with even remote access to a spreadsheet or calculator into the hills… Ne’er to return before the 720^th fortnight!

It’s not just in the periphery either. The core states have some stress coming their way.

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

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Interest rate volatility, at a bare minimum, is a given – with the potential for stagflation being the base case scenario…

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.

Interestingly, Chinese corporations are increasingly interested in European assets. There have already been a number of indicators to prove that while China is not as attracted to European sovereign bonds, there’s material interest in buying infrastructure assets; and interest in perceived attractively valued corporations has increased over the recent past. Seeing profitable investment opportunities, private equity firms and global leading funds have also joined in. This has created a kind of rush to search for attractively valued assets that could yield attractive returns in the years ahead. The current scenarios, as such, have been of  a kind wherein too many buyers are chasing too few assets up for sale, particularly in view of the fact that countries like Italy, the United Kingdom and to a lesser extent Spain, can bargain with time - unlike Greece, to wait for fair valuation of assets before their disposal. This has created a market of buyers and sellers wherein prices for distressed assets are not being determined by fundamental valuation, but are influenced by speculation and demand-supply gap. In essence, what we have amidst this bursting of the sovereign credit bubble is a mini-distressed asset bubble.

Professional and institutional subscibers should download the full version of this document ( The BoomBustBlog Pan-European Distressed Asset Acquisition Initiative) which outlines investment opportunities in the following nation/banks: UK, Portigal, Italy, Cyprus, Greece, Ireland and Spain.  Our initiative runs the gamut from whole companies and eqiuities, to real estate, infrastructure assets, rare earth and hard tangible assets to IP.

Any who are interested in hearing more about this initiative can reach me via email or phone. All others are urged to follow me through my various social media assets: