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 (File Icon 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

Related research…

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

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

File Icon Ireland public finances projections

File Icon Spain public finances projections_033010

File Icon UK Public Finances March 2010

File Icon Italy public finances projection

File Icon Greece Public Finances Projections

File Icon Banks exposed to Central and Eastern Europe

File Icon Greek Banking Fundamental Tear Sheet

File Icon Italian Banking Macro-Fundamental Discussion Note 
File Icon Spanish Banking Macro Discussion Note



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 

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

 

thumb_Greece_public_finances_projections1_Page_05

 

thumb_Greece_public_finances_projections1_Page_06

 

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!

Greece_Primary_balance

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 720th fortnight!

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


Slide21

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

Slide22

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 (File Icon 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:

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Published in BoomBustBlog

ZeroHedge reports: S&P Cuts Spain to BBB+, Outlook Negative :

Adding insult to Bayern Munich injury, we just got S&P which did the impossible and cut Spain to BBB+ from A (outlook negative) not on Friday after hours. Kneejerk reaction is a 30 pip drop in EURUSD. Oh, and most amusing, those witches among men, Egan Jones, downgraded Spain from BBB to BBB-.... a week ago. Crush them, destroy them... How dare they be ahead of the pack as usual: after all their NRSRO application was missing a god damn comma.

Full release:

    • We believe that the Kingdom of Spain's budget trajectory will likely deteriorate against a background of economic contraction in contrast withour previous projections.
    • At the same time, we see an increasing likelihood that Spain's government will need to provide further fiscal support to the banking sector.
    • As a consequence, we believe there are heightened risks that Spain's net general government debt could rise further.
    • We are therefore lowering our long- and short-term sovereign credit ratings on Spain to 'BBB+/A-2' from 'A/A-1'.
    • The negative outlook on the long-term rating reflects our view of the significant risks to Spain's economic growth and budgetary performance, and the impact we believe this will likely have on the sovereign's creditworthiness.

As was clearly stated last Monday and warned two years ago on BoomBustBlog...

The Spain Pain Will Not Wane: Continuing the Contagion Saga:

In the general our analysis Spain public finances projections_033010, the first four (of 12) pages basically outline the gist of the Spanish problem today, to wit here are the first two:

Spain_public_finances_projections_033010_Page_02

About those rating agencies... 

Of course, we all know how reliable and timely the rating agencies are, right? See Rating Agencies vs Reggie Middleton, Part 3 and the Interesting Documentary on the Power of Rating Agencies, with Reggie Middleton Excerpts

Reggie_VPRO_Ratings_agencies

I am having my analysts work on the Spanish and Italian default/ bailout scenario now (we have worked up a scenario two years ago, but things are much worse now). Even a Citi analyst has chimed in to that effect. Let' not forget the Portuguese Liquidity Trap: Prime from the actions of Greece. As a matter of fact, it's evident that Greece Is Trying To Convince Portugal To Make FIRE Hot, hence I answered the inevitable question, So, What's The Next Step Towards The Eurocalypse??? 

Published in BoomBustBlog

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

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

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

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

 UK_Public_Finance_Analysis_2.0_Page_01_copy

UK_Public_Finance_Analysis_2.0_Page_02

UK_Public_Finance_Analysis_2.0_Page_03

 


Published in BoomBustBlog

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

image001

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Relevant BoomBustBlog research:

File IconGreece Public Finances Projections

File IconBanks exposed to Central and Eastern Europe

File IconGreek Banking Fundamental Tear Sheet

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

image008

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

Two years ago in "Greek Crisis Is Over, Region Safe", Prodi Says - I say Liar, Liar, Pants on Fire! I compared the then Grecian situation to that of Damocles. Well, things have gotten much worse since then and I believe I was one of the most bearish (and accurate) at that time. Now, Greece resembles Icarus tumbling down from the skies, drenched in Hubris. 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.

Greece_Primary_balance

The primary balance looks at the structural issues a country may have.

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

This situation will simply get worse, considerably worse. I demonstrated in the post The Ugly Truth About The Greek Situation That'sToo Difficult Broadcast Through Mainstream Media that anyone who purchased the last set of bailout bonds from Greece will simply lose their money as well (that's right, just like those who purchased the previous set) since Greece is still running deep in structural problems and can't afford the interest nor the principal on its borrowing. It's really that simple. 

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

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

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

... That's right, a 10% loss in bunds translates into a near 50% loss in tangible equity to this insurer, which would realistically be 60% plus as the rest of the EU portfolio will compress in solidarity. Combine this with the fact that insurers operating results are facing historically unprecedented stress (see You Can Rest Assured That The Insurance Industry Is In For Guaranteed Losses!) and it's not hard to imagine marginal insurers seeing equity totally wiped out. The same situation is evident in banks and pension funds as well as real estate entities dependent on financing in the near to medium term - basically, the entire FIRE sector in both European and US markets (that's right, don't believe those who say the US banks have decoupled from Europe).

Read the entire article, The Biggest Threat To The 2012 Economy Is??? Not What Wall Street Is Telling You..., to get the full picture.

Then there's my warnings on the foolishness of believing the Dutch economy will walk through this unscathed. The MSM headlines are awash with Dutch gossip: 

Alas, the problem is that there is significant weakness driving fears throughout the Dutch government and those that can count in Dutch finance, as clearly described over a year ago. Reference We're At Step 2 Of The Global Real Estate Compression:

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

Keynote presentation

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

Q&A and discussion, part 1

Q&A and discussion, part 2

Then there's the obvious that many refuse to admit - Spain's Economy Shrank in First Quarter: Central Bank. I went through this in detail last week in the post The Spain Pain Will Not Wane: Continuing the Contagion Saga.
This is not about doom and gloom, it is simple math. Very simpe math, and it will engulf much of Europe. Again, simply scan today's headlines...
There is significant, and I do mean significant opportunity for those strategic and patient macro-fundamental investors who can sit back and wait. I plan on leading a charge for distressed Euopean assets to be divulged by these banks and their sovereign domiciles and am looking for like minded individuals, reference The EurAsian Global Distressed Asset Acquisition Initiative. I will post more on this initiative for Professional/Institutional subscribers, hopefully later on today or tomorrow.

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

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Published in BoomBustBlog

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

I have always been of the contention that the 2008 market crash was cut short by the global machinations of a cadre of central bankers intent on somehow rewriting the rules of economics, investment physics and global finance. They became the buyers of last resort, then consequently the buyers of only resort while at the same time flooding the world with liquidity and guarantees. These central bankers and the countries they allegedly strive to serve took on the debt and nigh worthless assets of the private sector who threw prudence through the window during the "Peak" phase of the circle of economic life, and engaged in rampant speculation. Click to enlarge to print quality...

The result of this "Great Global Macro Experiment" is a market crash that never completed. BoomBustBlog subscribers should reference File Icon The Inevitability of Another Bank Crisis while non-subscribers should see Is Another Banking Crisis Inevitable? as well as The True Cause Of The 2008 Market Crash Looks Like Its About To Rear Its Ugly Head Again, With A Vengeance.

All four corners of the globe are currently "hobbling along on one leg", under the pretense of a "global recovery".

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

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

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

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

 

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

The EurAsian Global Distressed Asset Acquisition Initiative

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

Elsewhere in today's news... 

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

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

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

BoomBustBlog analysis:

I also here that Italy Won't Balance Budget, which makes plenty of sense considering what I posted two days ago in As We Assured Clients Two Years Ago, Italy's Riding The Broken Promise Express To Restructuring.

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

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Published in BoomBustBlog

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

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

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

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

Banks NPAs to total loans

Source: IMF, Boombust research and analytics

Euro banks remain weak as compared to their US counterparts

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

Published in BoomBustBlog

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

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

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

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

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

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

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

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

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

 

Italy_public_finances_projections_Page_01

Italy_public_finances_projections_Page_02

Italy_public_finances_projections_Page_03

Italy_public_finances_projections_Page_04

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

Subscribers reference:

On the banking perspective:
Published in BoomBustBlog

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

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

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

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

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

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

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

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

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

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

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

  Bloomberg reports: Europe Seeks More IMF Funds on Spanish Debt

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

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

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

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

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

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

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

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

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

Spain_public_finances_projections_033010_Page_01

Spain_public_finances_projections_033010_Page_02

Spain_public_finances_projections_033010_Page_03

Spain_public_finances_projections_033010_Page_04

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

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

Subscribers reference:

On the banking perspective:

Related Spain subscriber research from BoomBustBlog:

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

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

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

 

 

 
Published in BoomBustBlog

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My latest appearance on RT's Capital Account last night brought about many topics that are making headlines today. Reference the video at the 3:20 and 16:05 markers.

 Arab influence and the worsening EU situation 

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Yesterday, I made announced that Abu Dhabi & the UAE Can Leverage PetroDollar profits to capitalize on the plight of EU nations. This is becoming more and more true day day as these quasi-"sovereign" nations become increasingly forced to part with strategic and financial assets to pare debt. I explictly stated that Greece would have to either default or restructure again, possibly immediately after the default/restructuring that took place week before last, rendering the entire exercise moot nad relative useless (it did kick the can down the road for a few quarters). See Beware The Overly Optimistic Greek Speculators Fall Like Icarus From the Sky in Flames,  then realize that after reading the BoomBustBlog piece we have the ever reliable ratings agencies following suit - reference this piece from Bloomberg: Greece May Have to Restructure Again, S&P’s Kraemer Says.

Of course, we all know how reliable and timely the rating agencies are, right? See Rating Agencies vs Reggie Middleton, Part 3 and the Interesting Documentary on the Power of Rating Agencies, with Reggie Middleton Excerpts

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I am having my analysts work on the Spanish and Italian default/ bailout scenario now (we have worked up a scenario two years ago, but things are much worse now). Even a Citi analyst has chimed in to that effect. Let' not forget the Portuguese Liquidity Trap: Prime from the actions of Greece. As a matter of fact, it's evident that Greece Is Trying To Convince Portugal To Make FIRE Hot, hence I answered the inevitable question, So, What's The Next Step Towards The Eurocalypse??? 

The continued Apple lovefest conceals key facts

The MSM is still engorged on its lovefest with Apple, comparing the latest iPad 3 to the Transformer Prime (my current workhorse tablet) favorably, despite the fact that the Transformer runs circles around it in almost every category. Notice the comments from those who have actually used the Transformer, which was consistently sold out for a reason. The fact is, at least from my own research and personal observation, Apple's iPad Is Losing Market Share As Margins Compress (Click this link for the research behind this assertion)

Again, as with the smartphones, the Android tablet tech is superior to that of iOS products and as iOS normalizes the difference, margins will suffer. Margins will drop (is dropping) faster for tablets because prices are coming down as fast as tech is increasing.

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Apple's Decision To Return Capital to shareholders is an indication that it feels the capital is put to better use in the shareholder's hands than that of management using it to actively grow. Granted, the amount is de minimus in the grand scheme of things, but the move marks a transition away from Steve Jobs' mantra immediately after his departure. 

Now, we have other analysts jumping in the BoomBustBlog bandwagon, after the fact of course...

Apple Inc. (Nasdaq: AAPL) is weak this morning and according to some this could be related to a negative research note at Wedge Partners.

According to tweets from Notable Calls, the analyst said:

"Taking the Sidelines Until March Qtr Report on Possible iPad Slide"
"We're concerned iPad sales may not be as strng as expectations, and we believe March cld disappoint."
"Full year production iPad expectations/forecasts may be pulled down as a result."
"Looking at overall demand picture, there doesn't appear to be much of a frenzy for the new iPad."

"The stock may be priced for perfection at current levels, but we feel we are seeing some scratches on the glass"

Our Apple analysis is now available to subscribers Apple Margin & Valuation Note (those who wish to subscribe should click here). This is a more comprehensive, more "scientific" update and approach to our piece from last year Apple - Competition and Cost Structure and contains extensive valuation scenarios considering several what if scenarios for Apple, including the likely events that I've been warning of for some time now. Next week (this was pushed back two weeks due to my middle east excursion), pro subscribers will see a downloadable version of the model behind this that will deliver more Apple stuff than you can ever digest in one sitting.

Published in BoomBustBlog

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I want everybody to reminisce and decide if we've heard this concerto play before - Bloomberg reports Europe Sees Debt Crisis Nearing End:

The euro area’s woes are “almost over” after a slow initial response by policy makers, Italian Prime Minister Mario Monti said in Tokyo today. German Chancellor Angela Merkel said yesterday that the crisis is ebbing and her country’s borrowing costs will probably rise as its status as a haven wanes.

Hey, I heard that song before! Exactly two years and 15 days ago - Greek Crisis Is Over, Region Safe”, Prodi Says – I say Liar, Liar, Pants on Fire! Darest anyone read this linked article and contrast its contents to recent history? Don't worry, we haven't even gotten to the punch line yet...

Bernanke, who cited “green shoots” of recovery in the U.S. in March 2009 only to see his nation’s jobless rate climb to 10 percent seven months later, said in remarks published yesterday “it’s far too early to declare victory.” The jobless rate remains too high and policy makers don’t rule out further options to boost growth, he said in a transcript of an interview with ABC News anchor Diane Sawyer provided by the network.

Remember these green shoot specials?

At least Bernanke has learned his lesson this time around...

Bernanke’s comments contrasted with a series of declarations by Monti during a visit to Japan, with the Italian leader saying a solution to Greece’s challenges is almost accomplished, Spain is employing discipline and Italian actions have helped stop deterioration in Europe’s woes.

Monti predicted a continued rally in Italian bonds. The country sold 3.82 billion euros ($5 billion) of zero-coupon and inflation-linked securities yesterday as borrowing costs fell to a four-month low.

Now, let's use some of the analytical firepower and common sense from the last few BoomBustBlog posts on the Eurocalypse topic...

  1. First of all, nothing was solved with the Grecian game earlier this month. The can was kicked down the road for a maximum of 4 years, but the economy was sentenced to an effective depression as the debt load was increased substantially while the banks shifted future losses to the public sector. Is this the progress that is being referred to? See Beware The Overly Optimistic Greek Speculators As Icarus Comes Crashing Down To Earth!
  2. Abu Dhabi & UAE Can Leverage PetroDollars To Profit From Coming Eurocalypse Style Conflagration: CRE looks to get flattened as mortage liquidity tightens in a stressed market, see Watch As Near Free Money To Banks Fails To Prevent Nuclear Winter For European CRE for more. Austerity driven asset sales produce fire sale prices that do naught to stem revenue leaks...
  3. Portuguese Liquidity Trap: When You Add Too Much Liquidity To F.I.R.E. It Burns! From a fundamental and macro perspective, Portugal is at risk of following right behind Greece. So, What's Next Step Towards The Eurocalypse?
  4. Actual growth - you know that thing that you need to produce more money to actually pay bills - is slowing even further despite a raft of parlor tricks and semantically driven stunts: Debt Swaps, Back Dated Deals Featuring Only One Party - No Matter What, Greece's Problem Is Shared By Much Of The EU & Can't Be Solved Through Parlor Tricks 

The most cogent quote from the afore-linked Bloomberg article:

“Anyone who pretends to know if we are out of the woods yet is clearly kidding themselves or misleading their audience,” said Glenn Levine, a senior economist at Moody’s Analytics in Sydney.

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Published in BoomBustBlog