This page has been archived and commenting is disabled.
Greece Starts to Restructure in Real Time, Exactly As We Predicted - Rendering EU Stress Tests As Credible As Platinum Laced Frog Farts
On Wednesday, May 26th, 2010 I released “A
Comparison of Our Greek Bond Restructuring Analysis to that of
Argentina” in which I explicitly outlined the restructuring
of Greek debt using the Argentina experience as a template (I suggested
that mixture of zero coupon bonds and explicit haircuts would be
utilized to re-wrap debt). During that time, many analysts and
government officials at the time (and even now) said that I was totally
unrealistic in expecting a Greek default or explicit restructuring
(reference Greek
Crisis Is Over, Region Safe”, Prodi Says – I say Liar, Liar, Pants on
Fire!). Well, fast forward about 60 days, and voila, guess what the
hell is going on??? Zero coupon bonds! Haircuts! Where have we heard
this before??? Thanks and hat tip to BoomBustBlogger Shaunsnoll,
“It’s no secret: Greece is restructuring debt” (via
FT.com)
…consider the cost of sending lawyers
and consultants – you could call them spies – to hang around Brussels
and Frankfurt to assess the risk of a Greek default.
Yet simply by looking “on internet”,
you could find out that Greece has already started to restructure its
state debts. Look at the site for the Hellenic Association of
Pharmaceutical Companies (www.sfee.gr),
and you will find a link to a joint press release by the Greek
Ministry of Health and Social Welfare and the Ministry of Finance. On
June 9, unnoticed by most in the financial world, they stated: “The
[Greek state hospital system] debts of 2007, 2008, 2009 amounting to
€5.36bn [£4.4bn, $6.7bn] will be settled with zero coupon bonds.” The
hospital debts lingering from 2007 will be paid with two-year zeros,
2008 with three-year zeros, and 2009 with four-year zeros.
There is some, actually a lot, of
detail missing from the one page release, which presumably will be
filled in by the legislation that will be introduced, and probably
passed, to implement the restructuring. The release does say: “It is
certain that the banks co-operating with the suppliers will show
interest in prepaying these bonds, transforming the corporate risk
undertaken on behalf of their customers – hospital suppliers – in
credit risk against the Greek state, in the form of a bond which can be
financed through ECB.” And, according to the release: “In case
suppliers settle these bonds by January 2, 2011 . . . the above
‘discounts’ corresponds to a total percentage of about 19 per cent.”
Get that? That 19 per cent haircut
is based on the Greek state’s own calculation of the present value of
these obligations of its hospital system. Others would probably use a
higher discount rate. This kind of reduction in principal value, which
paid for a critical import, is not, I believe, incorporated in the much
touted “stress test” for European banks. The bank regulators and the
European Central Bank seem to think any more than a small haircut in
euro area state debt would be just too politically sensitive to
consider. Yet here is the Greek state telling you their old paper isn’t
worth what it was when they incurred the obligation.
...
Even before the new bonds are issued,
some of the hospital debts are already said to be trading around
Athens, supposedly at much lower prices than the release suggests would
be appropriate.
And while the release says the debts
“will be settled”, major suppliers have not yet agreed to the hospital
debt bloodletting. According to a London dealer in edgier emerging
market paper, some of the suppliers have already been around to get a
bid. Unsuccessfully, sad to say, even though the suppliers’ banks have
that promise of “ECB” repo availability. He sniffs: “You won’t get a
bid at 50 [per cent of face]. My guessing is that it is more like 30.
We were appalled at the very low quality of the documentation.”
As you see, we are deep into emerging
market frontier-land, even though EU citizens can walk through the
fast track at Greek customs and immigration. Before emerging market
trade claims would wind up at that London dealer, they would be
presented to an even edgier specialist, the sort who is familiar with
central African landing strips and Cypriot “spare parts” traders. The
one I spoke to a few days ago isn’t interested . . . yet.
This pretty much ridicules the stress tests currently set to be
revealed by the EU, which are not even bothering to model a default (or
the avoidance of a technical default through restructuring, which is an
economic default, nonetheless), as commented on by ZeroHedge:
- Latest
Rumor Sees 16-17% Greek Bond Haircut, Sending European Stocks Soaring
- JP
Morgan Pours More Cold Water On Stress Test Credibility, Sees Anything
Less Than 25% Haircut On Greek Bonds As A Joke
Well, the damage to the Greek banks, even if partially offset to the
ECB is tangible (as stated in
How Greece Killed Its Own Banks!) and the probable haircuts that
will actual be taken by Greece in the final countdown has been
explicitly modeled and stated under several scenarios to my subscribers. For those that
don’t subscribe, let me tell you – It ain’t 19%! Let’s look at it from a
historical perspective, in “A
Comparison of Our Greek Bond Restructuring Analysis to that of
Argentina“:
I am quite confident that the thesis
behind the Pan-European Sovereign Debt Crisis research
is still quite valid and has a very long run ahead of it. Let’s look
at one of the main Greek bank shorts that we went bearish on in
January:
Now, referencing the bond price
charts below as well as the spreadsheet data containing sovereign debt
restructuring in Argentina, we get…
Price of the bond that went under
restructuring and was exchanged for the Par bond in 2005
Price of the bond that went under
restructuring and was exchanged for the Discount bond
Subscribers should reference the following as well…
Irish Bank Strategy Note- Euro Bank Soveregn Debt Exposure Final
-Retail - Euro Bank Soveregn Debt Exposure Final –
Pro & Institutional - Sovereign Debt Exposure of European Insurers and
Reinsurers 2010-05-19 01:56:52)
- Sovereign Contagion Model – Retail (961.43 kB
2010-05-04 12:32:46) - Sovereign Contagion Model – Pro &
Institutional
In order to derive more meaningful conclusions about the risk
emanating from the cross border exposures, it is essential to closely
scrutinize the geographical break down of the total exposure as well as
the level of risk surrounding each component. We have therefore
developed a Sovereign Contagion model which aims to quantify the amount
of risk weighted foreign claims and contingent exposure for major
developed countries including major European countries, the US, Japan
and Asia major.
I. Summary of the methodology
- We have followed a bottom-up approach wherein we have first
identified the countries/regions with high financial risk either owing
to rising sovereign risk (ballooning government debt and fiscal
deficit) or structural issues including remnants from the asset bubble
collapse, declining GDP, rising unemployment, current account
deficits, etc. For the purpose of our analysis, we have selected
PIIGS, CEE, Middle East (UAE and Kuwait), China and closely related
countries (Korea and Malaysia), the US and UK as the trigger points of
the financial risk dissemination across the analysed developed
countries. - In order to quantify the financial risk emanating in the selected
regions (trigger points), we looked into the probability of the risk
event happening due to three factors – a) government default b) private
sector default c) social unrest. The probabilities for each factor
were arrived on the basis of a number of variables determining the
relative weakness of the country. The aggregate risk event probability
for each country (trigger point) is the average of the risk event
probability due to the three factors. - Foreign claims of the developed countries against the trigger point
countries were taken as the relevant exposure. The
exposures of each developed country were expressed as % of its
respective GDP in order to build a relative scale for inter-country
comparison. - The risk event probability of the trigger point countries was
multiplied by the respective exposure of the developed countries to
arrive at the total risk weighted exposure of each developed country.
- advertisements -
Ε?μαι ευτυχ?ς που δεν ε?μαι ελληνικ?.
Check is in the mail. Everyone gets paid! *wink*wink*
Hehe, great post title.
In Hungary they say:
"a béka segge allatt"
when they're totally broke, or having a shitty time.
It means, "under a frog's ass", about as low as you can get. Though I would imagine it to be as good a place as any to search for platinum laced frog farts.
Regards
Parts of the EU are "emerging markts"? Gee, I didn't know that. And here we were told they are modern, post industrial nations. Uh, on that last point maybe they just leaped from medieval to post industrial without ever bothering having to produce anything to support their existence - other than bonds.
What can not be paid, will not be paid. Guard your money!
Wonder the price of the crimex paper ponzi electronic bullion markets will be; when? A coast to roast electronic trading blackout occurs from east coast heat!! Real coast to roast coming to paper ponzi trading all over the world in extended banking holidays!! Maybe this time the power that be will leave a genuine copper penny in the dimmest of sheeples dumpster safety deposit boxes in control of bankster gangsters!! Simply saying when you find them looted by loony dead head fed goons in conjunction with wall street banksters? They won't leave you broke as we enter deep depression II; the ameriCON'd way!!!!
Emerging ponzi. South america is working on emerging plastic surgery. Africa is working on emerging sports franchising. What else we got?