Displaying items by tag: Asset Securitization Crisis

Ireland has been one of  the weakest points in the EU from a financial standpoint, and is well positioned to quickly and efficiently transmit contagion to its economic and geographic neighbors. I have been warning about Ireland for well over a year now and things are unraveling pretty much as I anticipated. Our modeling and research should have left all interested parties quite prepared. Going through the BoomBustBlog warnings in chronological order as excerpted from the Pan-European Sovereign Debt Crisis series...

1. Financial Contagion vs. Economic Contagion: Does the Market Underestimate the Effects of the Latter?
2. Lies, Damn Lies, and Sovereign Truths: Why the Euro is Destined to Collapse!
3. Ovebanked, Underfunded, and Overly Optimistic: The New Face of Sovereign Europe
4. Beware of the Potential Irish Ponzi Scheme!
5. Ireland’s Bailout Is Finalized, The Indebted Gets More Debt As A Solution But The Fine Print Is Glossed Over – Caveat Emptor!

Amsterdam's VPRO Backlight and Reggie Middleton on brutal honesty, destructive derivatives and the "overbanked" status of many European sovereign nations

[youtube kME6xuf_RKg]

As excerpted from Ovebanked, Underfunded, and Overly Optimistic: The New Face of Sovereign Europe:

Note: Tune into Bloomberg TV at 1:12 pm EST to see me discuss the ins and outs of real estate Hopium on the "Fast Forward With Lisa Murphy" segment.

Struggle is not only Good it is necessary for a healthy, functional market!   The Market Wants to Fly on its own!

Let's start this post off with a popular parable.

Once an academic and self proclaimed (albeit not necessarily mistaken) intellectual was playing outdoors and found a most exquisite caterpillar whose colors and patterns gave it a most fantastic presence. He carefully picked it up and took it home to show his colleagues and peers. Together, they studied this caterpillar and wrote papers and hyper-intellectual dissertations on it. They even went so far as to name it. They called it, "Keynesian!" and vowed to each other that they would take great care of it.

The intellectual spent the considerable resources available to him as the chairman of the most powerful hedge fund cum central bank in the world to cater to, and study this Creature called Keynesian. Every day he watched the caterpillar and brought it new plants to eat. One day the caterpillar climbed up the stick and started acting strangely. The academic worriedly called international colleagues and together they came to the understanding that the caterpillar was creating a cocoon. The academic  explained to his colleagues how the caterpillar was going to go through a metamorphosis and to become a butterfly.

With all due respect to that Nassim Taleb dude who popularized the term "Black Swasn", Black Swan events are both overrated and the term is sloppily bandied about by those who may not be putting the requisite thought into just how utilitarian the knowledge of Black Swans actually are. Since you can't accurately predict, nor back test against, nor adequately hedge against such events, exactly what good is a Black Swan discussion. Well, I can answer that question. Black Swan events do maximum damage when the economic cycle is at its weakest. In Reggie Middleton's Economic Circle of Life (think the Lion King) it is the right portion of the circle in which Black Swan events do the most damage.

Actually, it is not the Black Swan events themselves that do the damage but said event do serve as the catalyst that either bust a bubble that was waiting to pop anyway, or break a structure that was hobbling along on one leg as it was  - where we happen to be now in many places of the developed world - sans rampant propaganda, misinformation and disinformation from less than disinterested sources.

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...

Summary: I said it! Bill Gross said it (and put his money where his mouth was by selling off all US treasuries)! Common sense says it... Central Bank manipulated interest rates are too low. They will rise. What happens when they rise during a supply glut of real estate, foreclosure issues and a slow economy??? Put it this way... What made the markets crash in 2008: unemployment, slow economy, snow... Or real estate prices getting in touch with reality?

As I sit back and contemplate the content and delivery style that would be best suited for my upcoming keynote speech at the ING Real Estate Valuation Conference in Amsterdam (this is my first presentation to a large group where English is not the primary language), I am bombarded with news bits and bytes that confirm what I've been modeling, warning, fearing and preparing for - for nearly 2 years. That is almost 23 months to the date. What is it, you ask? It is the market's return to the adherence of fundamentals and global macro forces versus following the whims of the concerted efforts of central banks around the world to openly manipulate real asset, equity and bond markets on a global basis.

Really, sit back and think about it. Put some thought into figuring out how difficult it is to successfully manipulate real estate (commercial and residential), stock and bond markets in just one major country. Then give the same thought to how difficult it would be to do the same in nearly all of the developed nations who participated in this crisis. The mere attempt to do so has loaded them up with debt at a time of marginal if not negative GDP and economic upside, a disgruntled populace ripe to ripple from the causes of social unrest rising from the rife economic conditions that the aftermath of incessant bubble blowing has wrought, and last but not least - fundamentally overvalued investment markets.

For the past two years, and particularly over the last couple of months,  I have been harping on the coming interest rate volatility storm. Things are now moving in lockstep, precisely as I have forecast. In the news this morning from the mainstream media...

Moody's Downgrades Greek Sovereign Debt by 3 Notches:

Moody's rating agency downgraded Greece's sovereign debt on Monday from B1 to Ba1 and assigned it a negative outlook, citing significant risks to its fiscal restructuring program.

Moody's now has the lowest rating for Greece of all the major credit agencies and is the first to classify Greek government debt as 'highly speculative'.

"The fiscal consolidation measures and structural reforms that are needed to stabilize the country's debt metrics remain very ambitious and are subject to significant implementation risks," Moody's said in a statement. It added that it saw risks that conditions attached to continuing financial aid after 2013 will reflect solvency criteria that the country may not satisfy, and result in a restructuring of existing debt.

"At a time when the global economy is fragile and market sentiment is sensitive, unbalanced and unjustified rating decisions such as Moody's today can initiate damaging self-fulfilling prophecies and certainly strengthen the arguments for tighter regulation of the rating agencies themselves," it said.

So, the Greek officials threaten to "regulate" those who FINALLY come out with the truth. Did you guys ever see that movie called the "Adjustment Bureau"? The Greek government wants the truth "Adjusted", and will even go so far as to do it themselves - see the Lies, Damn Lies, and Sovereign Truths: Why the Euro is Destined to Collapse! excerpt below.

Check out the screen shots below from Bloomberg.com yesterday. Whoa!!! What happened? How did we get here? Let's just keep in mind that what may look like analytical/intellectual superiority on my part in comparison with to the literal army of Wall Street analysts and pundits may actually simple end up being intellectual honesty and a dearth of truth destroying conflicts of interests. Then again, it does make me feel good to say that I may be smart, doesn't it?