This is done as a preview for our subscription only Ireland, Spain and Greece default scenarios. These scenarios, while still denied by most, are actually just the tip of the iceberg, for they will do much more damage together than they could ever do separately. As a group, they will make the Argentina event look like a bull rally. That is where the contagion models come into play (see Introducing The BoomBustBlog Sovereign Contagion Model: Thus far, it has been right on the money for 5 months straight!). Any institutions or professional investors who are interested in accessing our research should subscribe here. To my knowledge, I believe BoomBustBlog is the only source on the publicly available web for such information.
This is what the Argentinian referenced in the article above did to investors...
Price of the bond that went under restructuring and was exchanged for the Discount bond
That’s right! Ouch! Imagine this times 10! That is what we are looking forward to. Let's jump straight into Portugal's situation, and remember that many of these countries have deliberately mislead and misrepresented their fiscal situations for years (see Once You Catch a Few EU Countries “Stretching the Truth”, Why Should You Trust the Rest? and Lies, Damn Lies, and Sovereign Truths: Why the Euro is Destined to Collapse!).
This is the carnage that would occur if the same restructuring were to be applied to Portugal today.
Yes, it will be nasty. That 35% decline in cash flows will be levered at least 10x, for that is how much of the investors in these bonds purchased them. A 35% drop is nasty enough, 35% x 10 starts to hurt the piggy bank! As a matter of fact, no matter which way you look at it, Portugal is destined to default/restructure. Its just a matter of time, and that time will probably not extend past 2013. Here are a plethora of scenarios to choose from...
This is Portugal's path as of today.
Even if we add in EU/IMF emergency funding, the inevitability of restructuring is not altered. As a matter of fact, the scenario gets worse because the debt is piled on.
Let it be known that there are larger sovereign states that are worse off. There are other states that are not in as bad a shape but are poised to do much more damage, and then there are a plethora of states that will get dragged down through contagion. Yet, the natural manner of pricing risk in the equity markets does not transmit these facts because of the unprecedented amount of liquidity stemming from central bankers around the world doing the Bernanke/Japanse QE thing.
Anyone interested in seeing the entire scenario analysis for Portugal should look here, you will find it nowhere else: The Truth Behind Portugal’s Inevitable Default – Arithmetic Evidence Available Only Through BoomBustBlog
Anyone wishing to see even more advanced analysis for the larger and strategically more important nations should subscribe here. Those who are just interested in reading more can go through my entire Pan-European Sovereign Debt Crisis series. I have been writing much about the Irish situation as of late as well.
Tuesday, November 30th, 2010
Let’s take a look at the cumulated funding requirement of Ireland over the next 15 years.
Monday, November 29th, 2010
Friday, November 26th, 2010
Tuesday, November 23rd, 2010
Monday, November 22nd, 2010
Wednesday, November 17th, 2010
Monday, November 15th, 2010
Thursday, October 7th, 2010