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Merkel Points to `Serious’ Bailout Risk as Spanish Bonds Drop, Reggie Middleton says “Ya Damn Skippy” – Here’s How We Called It
I have been warning of this potential in Spain for nearly two years (January of 2009, reference Reggie Middleton on the New Global Macro – the Forensic Analysis of a Spanish Bank after a trip to the Costa del Sol by way of Málaga).
I will spend the Thanksgiving holidays working on the Irish and Spanish
haircut updates and fine tuning the contagion model for subscribers and
I will attempt to publish the analysis in a very rich format (with dynamic models, graphics, video, etc. on BoomBustBlog, Barnes and Noble Nook/Kindle via ebook format, and through YouTube) On that note, Bloomberg reports: German Chancellor Angela Merkel said the prospect of serial European bailouts was “exceptionally serious,” sending the euro to a three-month low as officials estimated saving Ireland will cost 85 billion euros ($114 billion).
Irish bonds dropped and the premium
that investors demand to hold Spanish debt over German counterparts
jumped to a euro- era record as the relief rallies triggered by
Ireland’s Nov. 21 aid request evaporated. Traders are now betting the
turmoil that started in Greece a year ago will spread to Portugal and Spain.
“The markets currently have virtually zero confidence that the bailout in Ireland will solve the European crisis,” Charles Diebeland David Page,
fixed-income strategists at Lloyds TSB Corporate Markets in London,
said in a note today. “With markets effectively in a position to dictate
policy, the risk is that the credibility crisis shifts to more sizeable
European Union countries and thereby poses a greater risk to the system
as a whole.”
Contagion is spreading through the
euro region as Ireland hammers out an aid package with the EU and the
International Monetary Fund to save its banking system. The European
Commission estimates Ireland may need 85 billion euros, according to two
officials who were on a Nov. 21 conference call of finance ministers.
Of the total, 35 billion euros would go to banks and 50 billion euros to
help finance the government.
The euro dropped 1.8 percent to
$1.338 as of 4:55 p.m. in London. The yield on Ireland’s 10-year bond
rose 35 basis points to 8.65 percent. The spread on Spanish 10-year
bonds over bunds rose 28 basis points to 236 basis points.
Merkel Risks
Merkel today chose to highlight the
risks facing the euro even as bailout talks destabilize Ireland’s
government. Speaking in Berlin, she said while she didn’t want to “paint
a dramatic picture,” it would have been hard a year ago to “imagine the
debate” now taking place in Europe. The German leader is stressing the
threat to the euro posed by indebted member countries and is pushing
German plans to make investors help pay for any future crisis in the
currency area.
“I won’t let up on this because
otherwise that primacy of politics over finance can’t be enforced,”
Merkel said. “It remains our task to keep calling for tough measures and
tough conditions, but also to express clear support for the euro.”
Merkel’s stance has drawn opposition from European Central Bank President Jean-Claude Trichet and leaders in Spain and Greece, who say it risks derailing euro-area nations’ deficit- cutting efforts.
In other words, Merkel is being too damn honest and forthright in her
public pronouncements. So be it. This is an excerpt of what we used to
prep and warn paying subscribers regarding Spain since the beginning of the year (excerpted from 
Spain public finances projections_033010):
In short, not only is Spain’s domino about to drop, but it will drop for practical fundamental reasons. Subscriber’s see:
A Review of the Spanish Banks from a Sovereign Risk Perspective – retail.pdf
A Review of the Spanish Banks from a Sovereign Risk Perspective – professional
Ireland public finances projections
- Sovereign Contagion Model – Retail (961.43 kB 2010-05-04 12:32:46)
- Sovereign Contagion Model – Pro & Institutional
The BoomBustBlog Sovereign Contagion Model
Nearly every MSM analysts roundup attempts to speculate on who may be
next in the contagion. We believe we can provide the road map, and to
date we have been quite accurate. Most analysis looks at gross claims
between countries, which of course can be very illuminating, but also
tends to leave out many salient points and important risks/exposures.
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 -
reggie...why me...why?
Skippy...I saw some new grass and jumped the fence....gut ache ever since.
“I won’t let up on this because otherwise that primacy of politics over finance can’t be enforced,” Merkel said It is not about primacy of politics or finance. It has all to do with capitalism and risk management. It is about moral hazard. It is about ensuring the society is not about "Privatizing profits, Socializing losses". It is about ensuring risk takers do not pass on their failures to society. IT IS TO ENSURE THAT CAPITALISM IS NOT DESTOYED. This is what Bernanke & other cental bankers across the world are doing.
Mind ya...da bloody cental planners control the darn , armed to the teeth, U.S> Armed Forces, in case you failed to notice.
Sorry mate, but in this case, reality shoots back, and with bigger guns!
double entry, sorry!
Daddy's flown across the ocean
Leaving just a memory
Snapshot in the family album
Daddy what else did you leave for me?
Daddy, what'd'ja leave behind for me?!?
All in all it was just a brick in the wall.
All in all it was all just bricks in the wall.
PIIGS on PIIGS debt can't be good...
Must have subpoena power to reconcile total checks issued to Stern vs. total checks deposited to Sterns account. BIG MISMATCH, subpoena Check Copies (front& back) from banks, see who deposited them and where. Look for David J. Stern's endorsement. Shut down BANKS. Good luck, nobody listens to me, same prob you got.
Hi Reggie, you're good but, you're too far ahead of everybody so we don't remember when the shit hits the fan, that you already painted the fan brown. You are awesome.
Florida AG looking for kickbacks from David Stern: Here's how it works- Banks issue checks to Stern, Stern cashes checks at a check cashing store, returns cash to Bank.
Can't be done with a corporate check? Bullshit, we do everything in Broward!
http://picasaweb.google.com/baywood3/2002RoofCheckCopies#5194440664528546306
Larryokarski@gmail.com
Ya, that's nuthin', how 'bout the foreclosure attorney in Broward Florida who hasn't paid his mortgage in 4 years?
http://www.sun-sentinel.com/business/fl-ticktin-foreclosure-1120-20101119,0,88487.story
Love the sight, been following it for some time. However, most of theposters have a propensity for pointing out problems, their root causes and then pose unrealistic solutions. The first two are okay but I agree with Americanspirit. Do something constructive. Compile the list, share it with the world and let the masses confront their oppressors. Funny how people reacted differently when confronted face to face.
OK ... Both of you get started! We're waiting ... and waiting ... and waiting..............
The real solution to the problems caused by central planning is to dismantle the central planners (US Federal Government, EU, UN, IMF).
If anyone is going to do any serious work on the perps first there has to be a list. You know - home addresses, route to work, when and where they play golf/tennis, license # of their primary vehicle - that kind of stuff. Just so people who want to can actually get to these guys and talk nicely with them and ask them politely to stop screwing up the world. Nothing violent, of course. I think the combined resources of ZH could put together a fat cats list, but it hasn't been done yet and until it is, all that will happen is that meaningless targets of opportunity (small town bank managers etc) will get targeted for one-on-one conversations and the real villians will skate. So - who is going to put the list together and post it? Talk's cheap.
1. Warren Duffett.
2. The list of gazillionaires who want to raise taxes.
I lived in Spain from 1970-1972. What a beautiful country and people. Leave it up to GOVERNMENTS/BANSTAS/CORPORATION CEO'S/POLITICIANS across the globe to truely fuck everything up. My question is basically, since NO one is EVER charged with any of these crimes, why in the hell aren't we killing more of these son-of-a-bitching crooks on the street? Stalk-em & kill em. just sayin...................
... from 1970-1972... Wow! 2+ years in paradise?
Great Law & Order, too. See any garrotings?
Big Franco love you? What Franco, you ask? What's France have to do with Spain, you ask?
And did you notice how everyone was so friendly and delighted with their gentle, loving gov't?
They were such satisfied citizens that the Gardia Civil went weeks at a time without receiving a single complaint.
+1000, their blatant arrogance offends me, as do the paid politicians. the system as it now stands is just organized crime, but its right in your face.
Very good analysis, Spain and Portugal are fast coming into this mess. They have been trying to obfuscate and deny for 2 years now and the lynch pin turned out to be Ireland. We still don't know if any deal will be in the works, because t he govt. may not be the same one that asked for a deal.
Arghhhhh......So where do I visit friends?
With two U.S. and one French Aircraft Carrier off their coast, I was sure an Iran State Visit with President Amindajalibabbadada was in order....and who knows what might transpire.
Now, I don't know where to "head" to.....that's a pun too.
Sarajevo is so old hat.....how about the Korea's, Tokyo or Bejing?
hmmmmmmm, maybe Washington or Wall Street?
hrh ADF
Why would parking a French aircraft carrier off their coast be threatening? More like laughter and derision. This is after all, the same French aircraft carrier that had its propeller fall off on her maiden voyage, and was so far over budget that they sent her to sea without an air defense system or modern combat aircraft.
Reggie,
Either you don't sleep, or you've been cloned.
No, it must be both.
In any case, many thanks for your sterling analyses.
__________
The state can kiss my ass.
Producer
The man who called the market bottom back in March ‘09 reveals two market surprises for 2011.
And one's a whopper.
It’s no secret that Kass tends to be a tad bearish, so you won’t be surprised to hear that he’s a little concerned about the market next year – and his predictions reflect that concern.
SURPRISE #1
Kass tells Fast Money to prepare for a rough ride in the financials
[XLF 14.41 -0.23 (-1.57%) ]
.
”I think most notably the SEC comes down in a frontal assault on mutual fund expenses by restricting or eliminating 12b1 fees,” he says.
This prediction isn’t the whopper - in fact it's not terribly dramatic at all. SEC Chair Mary L. Schapiro has already said she favors making changes in this area.
However Kass isn't shy about telling us which asset managers he thinks will get hit the hardest. He’s bearish T Row Price
[TROW 57.18 -1.36 (-2.32%) ]
, and Franklin Resources
[BEN 112.74 -3.11 (-2.68%) ]
which he predicts could be "some of the worst performing stocks in 2011.”
(In case you're wondering, 12b1 fees allow funds to charge investors with marketing costs. The mutual fund industry collected about $9.5 billion through 12b-1 fees last year.)
SURPRISE #2
This one's the jaw-dropper.
Kass thinks terrorists send investors scrambling – not with guns or bombs but using the Internet as a weapon. He tells the desk “I believe cyber crime is going to explode exponentially next year as the web is invaded by hackers.”
And he thinks they target the foundation of capitalism.
”I think we see a specific attack on the NYSE,” he says. “The aftermath will have a profound impact and cause a week-long hiatus in trading as well as a slowdown in travel.” Yup, you read that right – a week long hiatus in trading.
How do you prepare for something like that?
”I’d make sure to have a large amount of cash in my portfolio,” he says.
We know that's a rather startling prediction, and in all fairness Kass divides his predictions into 2 categories possible and probable. Although he didn't say, we're guessing this one lies squarely in the possible (but not probable) category and investors should take it with a grain of salt.
However, when Kass speaks we listen - largely because he’s had an uncanny track record for being right.
Less than a week before the S&P 500 hit a generational low of 676 on March 9, 2009, Kass went on CNBC and predicted the bottom. Also, on July 6, 2010, he said the market had made its lows for the year and so far, that has also proved to be true.
"And he thinks they target the foundation of capitalism."
Savings? Nope...already scourged.
Education? Nope...already redefined from "lead-out of traps" to "lead-into traps".
Justice system? Nope...already mooted by immunity for elites.
Freedom from tyranny? Nope...already gone; every keystroke recorded.
Level playing fields? Nope...already overrun by insiders.
Middle class? Nope...already leaving.
Oligarchy-Royalty? Nope...only their drones are visible. Oh, wait a minute...
You have to be fucking kidding, right? D Kass is an asshole with a capital fucking A.
Kass and Cramer - 2 of the 3 stooges.
Let me put it another way; Kass and ZH have about as much in common as shit on a stick and caviar.
If you are reading Kass I can understand why you have chosen to be known as Gloomy........if I were reading Kass I would be totally fucking depressed and asking for electric shock treatments........let me re-phrase that to begging to be put out of the shallow misery.
Doug Kass' Predictions for 2010 (Dec 28, 2009):
http://wallstreetpit.com/13213-doug-kass-predictions-for-2010
The only one he got right was "housing and jobs fail to revive". Didn't need a crystal ball for that one!
Kass is re-writing the 1966 Batman TV Episode:
The Minstrel, a medieval lute-playing electronics genius, sends the stock market into an uproar when he alters the computerized stock quotations; he later airs a televised ultimatum, demanding $1000 a week from each exchange member, or else stock quotations wil be further disrupted, causing the market to crash! The Caped Crusader and The Boy Wonder try to capture the musical maniac later that night when he tries to realter his crooked circuitry, but Minstrel blinds The Dynamic Duo with one of his devilish devices and beats a rhythmic retreat.
Adjust for 2010 inflation http://batman.wikia.com/wiki/The_Minstrel
DYNAMIC DUO: Bertwinkie & The Elf
I saw it this morning too. He pretty much did not want to indicate a crash, but he surely gave enough hints.