What could the ruler of Egypt's turmoils possible have to do with the need to takeover even more banks in western Europe and the potential default of several members of the PIIGS group? Read on, my dear friend...

I received an impressive response from my earlier description of the potential for contagion as a result of the Egyptian uprising. It is very engaging to simply fathom the practical melding of the minds of financial analysts, political analysts and global macro-economists. Unfortunately, this is not common practice. As a matter of fact, it is apparently never done in the analysis & research commonly proffered by the brokerage houses and the mainstream media. The practical applications of such has demonstrably superior predictive power over the application of any of the single approaches. For those who have not followed me over the years or somehow feel that an individual or small group cannot outperform the glorious houses for brokerage of "The Street", I urge you to look into who I am and to compare my performance to that of the street's best and brightest over the last few years . I attempted to demonstrate the predictive powers and effectiveness of looking for deeper understanding outside of one's core discipline by illustrating to my readers how our Sovereign Contagion Model predicted a roughly 40% chance of eruption in the Middle East, reference :

Published in BoomBustBlog

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

image001

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

Published in BoomBustBlog

About a week and a half ago I released a refresh of the HSBC Foensnic Analysis along with a macro rant on why China will not pull the world out of an economic slump in "Will the Emerging Markets Lead the World to New Growth?". HSBC is an interesting bank to cover since it has its hands in so many emerging markets as well as developed nations. In a nutshell, I truly don't believe a net export nation can lead a highly indebted developed world to economic nirvana when that indebted world is in the process of buying less (in terms of imports, and practically everything else) as well as paring down reliance on leverage as they wrestle with depreciating assets.

Well, this week, reality hit and the MSM news headlines say: China Says Exports Outlook 'Grim' on Europe Demand

China sounded a gloomy note on Tuesday about its export prospects, warning in particular that belt-tightening by deeply indebted European Union governments would dampen demand for the country's goods.

Calling the trade picture "still complicated and grim", the Ministry of Commerce said high growth in exports in the first half would give way to slow growth in the second half.

"The sovereign debt crisis has made many EU countries shift to fiscal austerity from fiscal expansion, which will greatly restrict consumption and investment growth in the EU," the ministry's spokesman, Yao Jian, told a news conference.

There is a great, big, 50+ article, "I told ya so!" to be had here. Reference "the Coming Pan-European Sovereign Debt Crisis" - and be aware that this malaise is guaranteed to spread. See the Sovereign Contagion model below for more on this...

Published in BoomBustBlog

From CNBC.com: Europe Double-Dip May Bring Correction: Roubini

Economic woes in Europe could spread to the U.S. and lead to a further correction in stock prices, Nouriel Roubini, chairman of Roubini Global Economics, told CNBC on Monday.

Hey, but wasn't I saying that since January of this year??!! Remember back February when the media and the sell side analysts said the Greek problems were soon to be solved and this definitely was not a "European" problem but rather a localized one?

BoomBustBlog, February 7, 2010: The Coming Pan-European Sovereign Debt Crisis – introduces the crisis and identified it as a pan-European problem, not a in localized one.

Sovereign Risk Alpha: The Banks Are Bigger Than Many of the Sovereigns

image015.png

This is just a sampling of individual banks whose assets dwarf the GDP of the nations in which they’re domiciled. To make matters even worse, leverage is rampant in Europe, even after the debacle which we are trying to get through has shown the risks of such an approach. A sudden deleveraging can wreak havoc upon these economies. Keep in mind that on an aggregate basis, these banks are even more of a force to be reckoned with. I have identified Greek banks with adjusted leverage of nearly 90x whose assets are nearly 30% of the Greek GDP, and that is without factoring the inevitable run on the bank that they are probably experiencing. Throw in the hidden NPAs that I cannot discern from my desk in NY, and you have a bank that has problems, levered into a country that has even more problems.

image009.png

Bloomberg has as a headline today: Stress Tests on European Banks Must Assess Sovereign Risks, EU Draft Shows. Duhhh! As if we should really ignore the biggest threat to the solvency of the the European banking system in a so-called "stress test". What is this, Geithner "lite"? Reference  How Greece Killed Its Banks! to see exactly how much damage those who wish to ignore sovereign risks are trying to hide...

Published in BoomBustBlog

In continuing my data intense, hardcore, uber-objective dissection of the stuff that is proffered through the mainstream media (MSM), I bring you:

Payrolls in U.S. Climb Less Than Estimated as Confidence in Recovery Wanes

June 4 (Bloomberg) -- Employers in the U.S. hired fewer workers in May than forecast and Americans dropped out of the labor force, showing a lack of confidence in the recovery that may lead to slower economic growth.

Payrolls rose by 431,000 last month, including a 411,000 jump in government hiring of temporary workers for the 2010 census, Labor Department figures in Washington showed today. Economists projected a 536,000 gain, according to the median forecast in a Bloomberg News survey. Private payrolls rose a less-than-forecast 41,000. The jobless rate fell to 9.7 percent.

This was not hard to see coming if you studied the numbers with an objective eye. If we dig up last year's BoomBustBlog article on the topic, we'll ponder... "Are the Effects of Unemployment About To Shoot Through the Roof?" as excerpted below.

A recent zero-hedge article rightly questioned the reliability of the reported unemployment figures by comparing the reported increase in the unemployment benefits paid with the reported increase in the number of insured unemployed. According to the figures reported by Department of Labor (DOL), the total number of insured unemployed in the US has risen by nearly 400% since September 2007 and has reached nearly 10.5 million as of Dec 19, 2009. However, if we look at the monthly withdrawals on the unemployment insurance account (according to the Daily Treasury Statement prepared by the Financial Management Service), the expenditure has risen by nearly 550%. The difference has been widening since April 2009 (coincidentally, right about the time the S&P 500 rocketed skywards, and the housing market made several month to month gains [see If Anybody Bothered to Take a Close Look at the Latest Housing Numbers..."]) and has increased substantially in Dec 2009.

Published in BoomBustBlog

As many of us were expecting, the EU has come together for their 54th meeting to discuss their 9th solution to the problems that were contained in just Greece, which were over two months ago, just as Greece said they didn't want and were not looking for any aid - which was good since the Germans said they would never give any aid as France said any inclusion of the IMF would be the end of the Euro - as the IMF offers aid right before this big meeting that arranges a nearly trillion dollar package of more promises that pushed the STOXX index up over 7%. Wheww!!! Even with a 4 line run-on I could barely get all of the non-functional BS in. Let me excerpt this one line from a recent Bloomberg story that sums it all up:

“It might temporarily calm nerves but questions will come back later on how they will pay for this package when all of them need fiscal consolidation,” Anantha-Nageswaran also said.

It appears that "politciians" will never be able to solve this economic problem of the state, for they are too constrained by politics (I'm giving them the benefit of the doubt in assuming they truly recognize the problem). For those that don't get it, I will try to express it simply.... You cannot cure issues of over-indebtedness and insolvency by lopping humongous amounts of debt onto the problem. All that does is exacerbated the issue, with the immediately calming, but eventually scalding realization that all you have done was kicked the can down the road (and adding lead to said can which makes it both heavier and more toxic). The ailing countries at hand need significant structural change and equity in some form or fashion. Adding more debt simply makes them more indebted.

ECB policy makers said they will counter “severe tensions” in “certain” markets by purchasing government and private debt, and the bank restarted a dollar-swap line with the Federal Reserve.

QE, right on schedule. The ECB will load up on this stuff which will eventually devalue, and then what???? The will look just like the Federal Reserve, minus the reserve currency... Don' t get me wrong, I'm all for significant action to be taken, but it must be in a logical definable form. Just spending money replicates the actions that got us here in the first place. Back to the original questions, "How will it be pad for when nearly all of the contributing states are facing some form or fashion of austerity of their own?" and "Where is equity to counterbalance all of this debt?".

“This truly is overwhelming force, and should be more than sufficient to stabilize markets in the near term, prevent panic and contain the risk of contagion,” Marco Annunziata, chief economist at UniCredit Group in London, said in an e-mailed note. “This is Shock and Awe, Part II and in 3-D.”

Yeah, okay! More like spend and borrow, the indebted edition... The US "Shock and Awe" was an EQUITY package, not a loan package!

Published in BoomBustBlog
Tuesday, 04 May 2010 20:53

The Pan-European Sovereign Debt Crisis

{jcomments on}The Asset Securitization Crisis of 2007, 2008 and 2009 led to the demise of several global banks and institutions. Central bank induced risky asset bubbles gave rise to, what was popularly considered and reported as through the popular media, a rapid recovery. The reality was that the insolvencies that marked the crisis were passed on, in part, to the sovereign nations that sponsored the Crisis, and as the chickens came home to roost the Asset Securitization Crisis has now blown into a full Sovereign debt crisis.

The Pan-European Sovereign Debt Crisis, to date (free):

  1. The Coming Pan-European Sovereign Debt Crisis – introduces the crisis and identified it as a pan-European problem, not a

    Latest Pan-European Sovereign Risk Subscription Research – The Good Stuff!!!

    Actionable Intelligence Note For All Paying Subscribers on European Bank 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


    Online Spreadsheets (professional and institutional subscribers only)

    localized one.

  2. What Country is Next in the Coming Pan-European Sovereign Debt Crisis? – illustrates the potential for the domino effect

  3. The Pan-European Sovereign Debt Crisis: If I Were to Short Any Country, What Country Would That Be.. – attempts to illustrate the highly interdependent weaknesses in Europe’s sovereign nations can effect even the perceived “stronger” nations.

  4. The Coming Pan-European Soverign Debt Crisis, Pt 4: The Spread to Western European Countries

  5. The Depression is Already Here for Some Members of Europe, and It Just Might Be Contagious!

  6. The Beginning of the Endgame is Coming???

  7. I Think It’s Confirmed, Greece Will Be the First Domino to Fall

  8. Smoking Swap Guns Are Beginning to Litter EuroLand, Sovereign Debt Buyer Beware!

  9. Financial Contagion vs. Economic Contagion: Does the Market Underestimate the Effects of the Latter?

  10. Greek Crisis Is Over, Region Safe”, Prodi Says – I say Liar, Liar, Pants on Fire!

  11. Germany Finally Comes Out and Says, “We’re Not Touching Greece” – Well, Sort of…

  12. The Greece and the Greek Banks Get the Word “First” Etched on the Side of Their Domino

  13. As I Warned Earlier, Latvian Government Collapses Exacerbating Financial Crisis

  14. Once You Catch a Few EU Countries “Stretching the Truth”, Why Should You Trust the Rest?

  15. Lies, Damn Lies, and Sovereign Truths: Why the Euro is Destined to Collapse!

  16. Ovebanked, Underfunded, and Overly Optimistic: The New Face of Sovereign Europe

  17. Moody’s Follows Suit Behind Our Analysis and Downgrades 4 Greek Banks

  18. The EU Has Rescued Greece From the Bond Vigilantes,,, April Fools!!!

  19. How BoomBustBlog Research Intersects with That of the IMF: Greece in the Spotlight

  20. Grecian News and its Relevance to My Analysis

  21. A Summary and Related Thoughts on the IMF’s “Strategies for Fiscal Consolidation in the Post-Crisis

  22. Euro-Gossip Debunked, Courtesy of Trichet and the IMF!

  23. Greek Soap Opera Update: Back to the Bailout That Was Never Needed?

  24. Many Institutions Believe Ireland To Be A Model of Austerity Implementation But the Facts Beg to Differ!

  25. As I Explicitly Forwarned, Greece Is Well On Its Way To Default, and Previously Published Numbers Were Waaaayyy Too Optimistic!

  26. LTTP (Late to the Party), Euro Style: Goldman Recommends Betting On Contagion Risk In Portuguese, Spanish And Italian Banks 3 Months After BoomBustBlog

  27. Beware of the Potential Irish Ponzi Scheme!

  28. The Daisy Chain Effect That I Anticipated Appears To Have Commenced!

  29. How Greece Killed Its Own Banks!

  30. Introducing The BoomBustBlog Sovereign Contagion Model: Thus far, it has been right on the money for 5 months straight!

  31. With Europe’s First Real Test of Contagion Quarrantine Failing, BoomBustBloggers Should Doubt the Existence of a Vaccination

  32. What We Know About the Pan European Bailout Thus Far

  33. As I Warned Yesterday, It Appears the Market Is Calling the Europeans Bluff – It’s Now Put Up Or Get Put Down

  34. How the US Has Perfected the Use of Economic Imperialism Through the European Union!

  35. The Greek Bank Tear Sheet is Now Available to the Public

  36. BoomBustBlog Irish Research Becomes Reality

  37. PIIGSlets in a Bank: Another European Banks-at-Risk Actionable Research Note

  38. Sovereign debt exposure of Insurers and Reinsurers

  39. As We Have Warned, the Fissures Are Widening in the Spanish Banking System

  40. “With the Euro Disintegrating, You Can Calculate Your Haircuts Here”

  41. What is the Most Likely Scenario in the Greek Debt Fiasco? Restructuring Via Extension of Maturity Dates

  42. The ECB and the Potential Failure of Quantitative Easing, Euro Edition – In the Spotlight!

  43. Introducing the Not So Stylish Portuguese Haircut Analysis

  44. A Comparison of Our Greek Bond Restructuring Analysis to that of Argentina

  45. Osborne Seems to Have Read the BoomBustBlog UK Finances Analysis, His U.K. Deficit Cuts May Rattle Coalition

Follow the UK and Eurozone topic list for our latest analysis of Pan-European issues.

Published in BoomBustBlog

Anybody who has been following for the last fiscal quarter or so (or has seen my Spanish bank work in 2009) knows that I believe that the EMU as it stood in 2009 would probably be non-existent by the end of 2010. All of the pundits who proclaimed that the European debt crisis was over with the mere declaration that Greece may receive some additional debt either were abjectly lying or truly didn't understand the gravity of the situation. To be honest, there are a lot (and I mean a whole lot) of data points, angles and contingencies to grasp thus it is not necessarily easy. Then again, isn't that what these market professionals get paid for.

Very early in the year, I virtually guaranteed that the Greek banks would fall, or at least have to be rescued (a 2nd time) before they fell. I practically promised it. In the news today...

Lagarde to discuss Greece support with banks: French Finance Minister Christine Lagarde will meet with bank leaders on Wednesday to discuss how its banks could participate in the Greek rescue package. Lagarde told the French parliament the country's banks will reiterate their support for the rescue process on Wednesday but she said tomorrow's meeting could lead to them taking on a more active role, along the lines of what German banks have done. French banks have so far not been asked by the government to participate directly in the Greek rescue package, two sources in France's banking sector said earlier on Tuesday. They have only been asked to maintain their exposure to Greece and have agreed to do this, the sources said. "Nothing beyond this has been requested by the government," one of the sources told Reuters. France has overall the highest exposure to Greek debt, with about $75.2 billion worth of assets in total, according to Bank of International data as at end-2009. Germany's top banks and insurers offered support on Tuesday mainly by keeping open credit lines to banks and by agreeing not to sell Greek bonds for the duration of a wider IMF-led bailout. Germany's Finance Minister Wolfgang Schaeuble said that German financial firms had agreed to buy bonds issued by state controlled bank KfW as a way to help finance the bailout. Deutsche Bank Chief Executive Josef Ackermann said it was important to extinguish the fire in Greece and pledged to help the country. Ackermann is helping to coordinate efforts by the private sector to support the Greek rescue package.

I suggest one references my post, How Greece Killed Its Own Banks!.

Published in BoomBustBlog

It would pay to review all of the relevant European bank research. The market seems to have realized the perilous linkages throughout the EU and is taking many (if not all) of the researched banks down. This research came out early enough for all subscribers to have been able to take advantage of it. Of particular note should be:

Published in BoomBustBlog
Monday, 05 April 2010 00:00

Easter Weekend News Update

Canadian Dollar Too Strong? Bloomberg.com:

  • Minority opposition in Canadian Parliament is growing over strengthening Loonie
  • Leaders fear fallout in exports from CAD nearly at parity with USD
  • CAD strength is directly tied to Chinese commodity demand (is the CAD bubblicious, too?)

Relevant BoomBustBlog content (we gave you an explicit warning of this in early January): China's Most Expensive Export: Price Inflation

Ukraine is dangerously close to the brink http://www.bloomberg.com/apps/news?pid=20601095&sid=aNw4Q7ntlMqc

  • Ukraine is about to use up the remainder of a $16.4 billion IMF loan
  • Premier Mykola Arazov has applied for another loan to "reform the economy" (what the hell did they do with the first $16.4 billion?)
  • Ukraine has needed assistance to make good with about 20 lenders

We have went through this in exquisite detail, both in the public sections of the blog and particularly in the subscriber-only content. See The Depression is Already Here for Some Members of Europe, and It Just Might Be Contagious! Professional and institutional subscribers should carefully reference "Banks Exposed to CEE & SEE" while all paying subscribers should review the "Greek Banking Industry Tear Sheet".

Published in BoomBustBlog
Page 1 of 2