Posts Tagged ‘Global Macro’

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Here’s More Proof of the Sheer Lunacy of the European Bank Stress Tests: Passed Banks are Already Trying to Collect on Defaulted Claims of European Nations

Tuesday, July 27th, 2010 by Reggie Middleton

Much of the mainstream media has carried articles that were at least somewhat skeptical of the European bank stress tests. I think being “somewhat skeptical” is about 5 leagues below where they should be, but its a start. After all, the EU actually passed a bank that is literally insolvent. I don’t want to pound on the actual insolvency of this German bank, since I already went into detail on this topic earlier, but it is imperative that my readers understand the depth and extent of the travesty (or lies) that are being promulgated in the name of “transparency”. I ridiculed the basis of these stress tests last week (European Bank Investors, Don’t Look Now – You’ve Been Hoodwinked, BamBoozled…), but now it is time to show you that these tests which assume the biggest threat to the European banking system (sovereign default or restructuring) will not occur and capriciously passes banks that not only will be hampered in the future, but are actually quite insolvent (by nearly any realistic means measurable) now, have actually proven that the risks of restructuring and/or haircuts are virtually guaranteed. This leaves the results of the stress tests a farce, at best and an insult to capitalism and common sense.

The tests assumed that there would not be a sovereign default. The tests also refused to mark “hold to maturity” inventory to market, despite the fact that said inventory may be permanently impaired. The logic? Europe will not allow a default. But how about a restructuring? And how will Europe handle more than one sovereign coming to the restructuring trough? I’ve already demonstrated the damage that can be done in A Comparison of Our Greek Bond Restructuring Analysis to that of Argentina.

Price of the bond that went under restructuring and was exchanged for the Par bond in 2005

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Price of the bond that went under restructuring and was exchanged for the Discount bond

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Continuing the Deflation/Inflation/Stagflation/Depression/Recession Rant…

Monday, July 26th, 2010 by Reggie Middleton

To continue on the topic of deflation, inflation, depression and stagflation (what joyous times we live in:-)) I bring you..

Deflation of the Great Depression vs. Stagnation of Now: Casey Mulligan

  • Current price levels have not dropped significantly, and most consumer items are still more expensive in nominal terms than they were ten years ago
  • In 1929, consumer prices fell every month for four years, compared to a few deflationary months in 2008 followed by light increases in consumer costs throughout 2009
  • While the author is a PhD (and therefore according to a Federal Reserve researcher, BoomBustBlog is not mighty enough to question him), his statement that deflation has not been as bad is based on 20/20 hindsight logic, and he should be more concerned with, “Whether or not deflation is about to take root and stay for a while.”

Where is the consumer demand to keep prices from falling?  As credit continues to contract and consumer discretionary spending is still weak, growth in consumer prices looks unlikely at best.  It would be wise not to confuse deleveraging with deflation, as consumers continue to surrender their credit cards and approach living within their means.

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All Throughout Last Year and During the Inflation/Deflation Camp Debates, I Warned of the Risks of Stagflation. Did I Have a Point? Let’s Look at the Numbers Behind the Numbers…

Monday, July 26th, 2010 by Reggie Middleton

Let’s make this quick and clean. Enter the first leg of the formula…

Wages Fail to Keep Pace with Inflation: WSJ

  • Median weekly earnings rose 0.8% in the 2nd Quarter this year, against 1.8% CPI growth in the same period
  • Excess supply in the labor market has kept wage inflation low
  • On a year over year basis, wage growth based on occupation has been barely positive, or in some cases wages are showing deflationary pressures

Which leads to a hint of the Stagflationary conclusion…

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Recent Press Coverage and Media Appearances and Awards

Sunday, July 25th, 2010 by Reggie Middleton

Recent Press Coverage and Media Appearances & Awards

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European Bank Stress Test Joke: This Insolvent Euro-Bank and Group of Central Bankers Met at a Bar and…

Friday, July 23rd, 2010 by Reggie Middleton

This post will outline the second bank stress test joke of the day with the first one detailed in ““. According to the MSM news outlets, Germany’s PostBank, along with practically every other German bank except clearly insolvent and near defunct HyPo have passed the stress tests. So have French top banks, Portuguese, Italian, Finnish and Swedish banks. What? You’re not laughing yet? You  know how we feel about the Spanish banks, so I will not go there right now (but will leave a trail of links at the bottom of this post for the uninitiated). What we are going to do now is focus on the farce that is passing Germany’s Post Bank, a clearly insolvent (1.4x over insolvent) institution whose only potential (and that’s just a potential) saving grace is the possibility of a forced takeover by a larger bank.

Let’s revisit a few pages from the professional subscriber document, file icon Deutsche Bank vs Postbank Review & Summary Analysis – Pro & Institutional (subscribers can follow along on pages 3, 4, and 5):

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European Bank Investors, Don’t Look Now – You’ve Been Hoodwinked, BamBoozled…

Friday, July 23rd, 2010 by Reggie Middleton

Personally, I consider the European bank stress tests to be a farce; an attempt to Bamboozle, Hoodwink and Dis-inform any who would be naive enough to drink the Kool-Aid – not to dissimilar from the US bank stress tests (see You’ve Been Bamboozled, Hoodwinked and Lied To! Here’s the Proof). CNBC reports that “NO” default scenarios will be played out, which I find to be rather unrealistic since the reasons why the banks are enjoying restricted access to the capital markets is the fear of default! Think long and hard about this…

You are showing signs of HIV, and nobody wants to come near you, make love to you or lend long term to you due to the symptoms of this most unpleasant and deadly disease despite the many proclamations you have made to the contrary. You decide to set the record straight by visiting a prominent doctor to diagnose your issues and placate your associates. The doctor comes up with a prognosis, but simultaneously declares that:

  • AIDS (the syndrome), and death have not and will not be considered because the doctor will not let any of his patients catch AIDS or die! Whaaatt!!!??? Does the doctor really have that much control over who catches diseases and who dies? [Analogous to refusing to even consider the potential for default on sovereign debt, as if no European country has ever defaulted before – many have, and many probably will in the future as well). This analogy actually serves us quite well for the ECB has very limited control over who gets sick and how the contagions (both financial and economic) are transmitted (see below).
  • The patient will be assumed to operate between 96% and 57.8% efficiency. This is, of course, a problem if the patient truly is terminally ill, for his health should receive significantly more of a…. Well, a haircut.
  • Only the patient’s mucous membranes and other very short-lived tissue will be considered for examination, for the patience plans on keeping other body parts for the long term, hence they should not be affected by fluctuations by any potential illness. Yes, I know this statement doesn’t make any damn sense, but then again neither does the ECB excluding hold to maturity and portfolio inventory from the stress tests either. It really doesn’t matter how long you plan on holding said items, if they are permanently impaired in value, then they are permanently impaired, Right???!!! I know, we won’t even consider a default scenario, but since countries do default.. If a default occurs, or more realistically a restructuring, then wouldn’t longer term inventory be impaired – Permanently???!!! In the post A Comparison of Our Greek Bond Restructuring Analysis to that of Argentina I demonstrated how much damage was done to the Argentinian bond holders after their restructuring. Too bad the Argentinian investors didn’t have the all-powerful ECB there to declare that restructuring and default are not part of the rules, hence not allowed. The following is the price of the bond that went under restructuring and was exchanged for the Par

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Death by a Thousand Irish Cuts: The Poster Child of Austerity Measure Success Gets Downgraded After Several Devastating Expenditure Reductions That Really, Really Hurt the Irish People!

Monday, July 19th, 2010 by Reggie Middleton

For the first two quarters of this year, we’ve been pounding the pavement on the risks inherent throughout Europe. The 50+ article (and counting) series known as the Pan-European Sovereign Debt Crisis is rife with opinion, analysis, commentary (albeit rather smart ass commentary), and data that is hard to come across from objective sources. The series also tends to accurately predict the moves of the major rating agencies approximately 3 to 5 months in advance with uncanny precision (ex. Moody’s Follows Suit Behind Our Analysis and Downgrades 4 Greek Banks). This is not a good thing for those very few, wayward souls who still may actually follow the whims and predilections of said agencies (by hook or by crook, whether through naive belief or by mandate or charter) for by the time the agencies get around to a downgrade or upgrade it is really too late from a fundamental perspective – particularly if it is your own capital you are trying to save. Just remember, those who get paid directly by you are the one’s whom you will get the most loyalty from. Those of you who have lost the most in the Pan-European Sovereign Debt Crisis, I query, “Exactly how much did you pay those ratings agencies?” Remember the old saying, “You get what you pay for”??? It appears that the shell game of free (yet highly conflicted and faulty) information pervasive on the Web was a material problem in the finance world way before the Web itself.

On that note, I bring you this CNBC article: Ireland’s Credit Rating Cut on Weak Growth, Banks:

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MSM Newsbytes on European Banks, Adjusted for Factual Analysis, This 14th Day of July, 2010

Wednesday, July 14th, 2010 by Reggie Middleton

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I have been sounding the alarm on the Spanish banking system since January of 2009, and the Italian banks since the first quarter of this year. Now, the MSM is starting to catch up. For those who have not been reading my recent European work, I offer you The Pan-European Sovereign Debt Crisis series, for all others – read on…

From CNBC: Eleven Banks Will Fail EU Stress Tests: Strategist

Eleven banks including Germany’s Commerzbank and Italy’s Banco Popolare will fail the European Union’s stress tests, Alessandro Roccati, director at Macquarie Securities, told CNBC Wednesday.

“We identify a handful of banks which would need more capital in a base case stress scenario; these are: all Greek banks, Bankinter, Postbank, Banco Popolare, BCP, Commerzbank and Sabadell,” a report from Macquarie Securities said.

If BoomBustBlog subscribers recall, we had a very similar (if not significantly more extensive) list in our 1st quarter warning of banks exposed to the sovereign debt crisis (click here to subscribe).

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IMF Chief Sees Little Risk of Double Dip, then Again He Never Saw the Crisis Coming in the First Place

Tuesday, July 13th, 2010 by Reggie Middleton

From CNBC: IMF Chief Sees Little Risk of Double-Dip


DAEJEON, South Korea (Reuters) – The International Monetary Fund’s chief reiterated on Tuesday that strong growth in Asia and Latin America made it unlikely that the global economy would suffer a double-dip recession. Last week, the IMF upgraded its 2010 global economic growth forecast to 4.6 percent from 4.2 percent due to robust expansion in Asia and renewed U.S. private demand, but kept its 2011 outlook unchanged at 4.3 percent.


“We expect 2011 to be a little lower than the level of 2010. But all this is too far from any kind of double-dip,” Managing Director Dominique Strauss-Kahn told a news conference in the central South Korean city of Daejeon. “Certainly our forecast is not the forecast of a double-dip,” Strauss-Kahn said.


I’d like to take this time to remind my readers of the accuracy of past IMF pronouncements, as excerpted from Lies, Damn Lies, and Sovereign Truths: Why the Euro is Destined to Collapse!:


I want to visually and verbally demonstrate what an absolute joke European economic estimates have been throughout this crisis, and more importantly how politicians and sovereign states are interpreting this joke in such a way that can deliver a punch line that can most assuredly end in sever global recession, or worse. This document/blog post alone should serve to sink the Euro and blow out CDS spreads for several European sovereign. Why? Because the truth hurts and the truth is not what has been coming from European sovereign states as of late.

 The IMF and the EU have been consistently and overtly optimistic from the very beginning of this crisis. Their numbers have been dramatically over the top on the super bright, this will end pretty, rosy scenario side – and that is after multiple revisions to the downside!!! We can visit the US concept of regulatory capture (see How Regulatory Capture Turns Doo Doo Deadly  and Lehman Brothers Dies While Getting Away with Murder: Regulatory Capture at its Best) for the EU, but due to time constraints we will save that topic for a later date. To make matters even worse, the sovereign states have taken these dramatically optimistic and proven unrealistic projections and have made even more optimistic and dramatically unrealistic projections on top of those in order to create the illusion of a workable “austerity” plan when in reality there is no way in hell the stated and published plans will come anywhere near reducing the debts and deficits as advertised – No Way in Hell (Hades/Tartarus/Anao/Uffern/Peklo/Niffliehem – just to cover some of the Euro states caught fudging the numbers)!  


Let’s take a visual perusal of what I am talking about, focusing on those sovereign nations that I have covered thus far.  


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

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The Efficacy of the EU/IMF Bailout is Waning Significantly, As Greek Yields Rise and Portuguese Ratings are Dropped

Tuesday, July 13th, 2010 by Reggie Middleton

The EU and the IMF have promised a combined $1 trillion dollar bailout to assist Greece and potentially other debt laden companies in financing their opertations. The goal was to produce American-style shock and awe. The problem is they failed to attach American-style propaganda to it, hence reality is showing through the crachs. CNBC reports Moody’s Cuts Portugal Rating, and as a result  ECB’s Trichet Wants End of Rating Agencies Oligopoly.

Moody’s slashed Portugal’s credit rating by two notches to A1, citing a deterioration of the country’s debt ratios and weak growth prospects.

Portugal’s debt-to-GDP and debt-to-revenue ratios have risen rapidly in the past two years, Anthony Thomas, vice president and senior analyst in Moody’s Sovereign Risk Group, said in a statement.

The euro [EUR=X  1.2573    -0.0012  (-0.1%)] fell after the announcement and the spread between Portuguese and German 10-year government bonds widened by 4 basis points to 290 points. “The bond markets response hasn’t been dramatic,” Martin van Vliet, euro-zone economist at ING Bank, told CNBC.com. The downgrade came a little before a Greek auction to sell 6-month T-bills, the first since a bailout package agreed by the European Union and the International Monetary Fund in May.

Most likely because everyone knows Portugal is messed up…

Greece sold 1.625 billion euros ($2.03 billion) of 6-month instruments at a yield of 4.65 percent, up from 4.55 percent in a similar auction on April 13, according to Reuters.

So, after a $1 trillion dollar bailout announcement to drive down the costs of Greece’s funding, they have to pay 10 basis points MORE than they did before the bailout! With friends like that, who needs enemies???

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