Financial, Real Estate, Stock Markets Trends and Current Affairs

One of the most apparent side-effects of the turmoil resulting from what I have coined as the Coming (now arrived) Pan-European (soon to be global) Sovereign (soon to be private as well) Debt Crisis is the spread of the awareness the markets have drastically undercharged for risk over the last 7 years or so. This, of course, is just a long winded method of saying bubble. Many companies, and some entire industries (ex. residential and commercial real estate [Commercial Delinquencies], banking, etc.) as well as entire nations (namely Greece [Calculate Your Haircuts Here] and Spain whose underestimated debt woes I just posted on yesterday[Spreads are Blowing Out]) have grown so used to this under-charging of risk that to wean them off of this cheap capital would be devastating. This means, in essences, the bankruptcies and restructurings are coming, and its not a matter of if, but when. This will probably portend a return to the 2008 lows, close to it, or worse, because in this global economic ecosystem you cannot have one part of the developed world's  import/export component do that bad without infecting the other components. This was explained in explicit detail in "Financial Contagion vs. Economic Contagion: Does the Market Underestimate the Effects of the Latter?" and modeled out to show which direction the chain reaction may push the dominoes, as well as which countries were at risk from whom in the BoomBustBlog Sovereign Contagion Model.

We can see the effects of contagion driving market rates higher already, even as central bankers set negative rate policies. Reference Spain T-Bill Yields Jump; Doubts Emerge over Rating and the (still 3 months too tardy) dropping of Greece's debt rating which exposes how politically exposed and potentially manipulable ratings agencies are even when they pussy foot around with should have been explicit downgrades months ago - reference EU Commissioner Attacks Moodys on Greek Downgrade.

It is only a matter of time (and I doubt it will be much time) before the popping rates of sovereign debt and the incessant demand from the market (or bailout vehicles to be funded in the market) start crowding out private debt consumers, and drive those rates higher. Those companies with weak balance sheet, minuscule margins and play-dough business models will crack like Easter eggs. The BoomBustBlog Bankruptcy Search Series will attempt to identify those companies before the market recognizes them and either warn our subscribers of the peril of holding said companies or allow them to potentially profit from their downfall. Let's start with the banks, which are a special case. You see, explicit bankruptcy (actually, regulatory receivership candidates) are often priced accordingly, but if you move one or two notches up the food chain, you can find a bevy of overpriced candidates that may not be ready to collapse immediately, but are priced as if they will continue forever. Add in a little sovereign malaise as a catalyst and boom, there goes the chemistry set!