Reggie Middleton's blog

I told you it probably wouldn't work. Now, you really have speculators lining up to put on the short trade of the a lifetime. Methinks those lines may start to get pretty long as well as I spy the Asian markets as well as the US and European futures drop like rocks in desalinated pond water. Asking 2 trillion euro, can I get a bid for 2 trillion euro, going... going... gone!

I would like to make clear how dangerous this bailout game is for those in the confines of the EMU. Suppose…. Just suppose, as with the Greek Bailout(s) announced just weeks ago, the markets call the bailers’ bluff? Exactly what ammunition will be left to move forward? The ECB/EU had better hope that this rally will hold up (and recent history shows that it will probably have an ever decreasing half-life), for if it doesn’t the member countries are in a world of hurt.

As Greece, and Portugal, and recently even Spain bask in the spotlight of the bond vigilantes, I want to remind my subscribers to be prepared for Italy’s turn to dance. Being prepared before the party starts can be most profitable. The Greek and Spanish trades are pushing 400% plus, and the run is not nearly over yet, at least in my opinion.

The chances of the Euro contagion being contained are quite slim, and the Spanish government is saying it is "madness" that they will be needing a bailout. While they may not be needing a bailout now, it is far from "madness" to speculate on such matters. After all, it is the Spanish government itself that set itself up for such speculation by using pie in the sky numbers to justify their claims of having things under control. Once their projections are seen for what they really are, we shall see what "madness" truly entails...

So everybody is asking if "Greece will make it through the Pan-European Sovereign debt crisis and if not, then who's next?" Well, we have spent at least 3 man-months answering this very question, and I am finally getting around to publishing these answers in a formal report. It is the calculations behind this very same report that has allowed me to call this Pan-European Debt thing quite accurately for the last 4 or 5 months - calls that were in direct contravention to practically every quoted political leader and most Wall Street banks may I add. Let's walk through recent history...

Another look under the hood of what is driving consumer expenditures...

As long as you believe what you are told, all is well in consumer spending and retail land... But you've got to believe!

Remember, practically everybody poo-poohed my research and opinion in 2008 when I said Goldman was drastically overvalued. Those 600% to 1,000% gains on put options proved otherwise. Speaking of which, look at those July 150 puts… Can you smell what old school, fundamental analysis (you know counting profit and discounting for risk) is cookin’???

Ponzi's are not just of Italian origin!

Goldman employees have incriminated the company in the quest for compensation, but I have the solution...

Notice how many central bankers, analysts, pundits, banks and politicians said the debt problem was not only contained to Greece, but was also solved and all should move on. Uh huh...
I believe what we are seeing is just the beginning, and what the world saw with the collapse of Lehman was simply a microcosm of what happens when actual sovereign states threaten to fail!

Help those most in need
Yes, you read that correctly! Greece killed its own banks. You see, many knew as far back as January (if not last year) that Greece would have a significant problem floating its debt. As a safeguard, they had their banks purchase a large amount of their debt offerings which gave the perception of much stronger demand than what I believe was actually in the market. So, what happens when these relatively small banks gobble up all of this debt that is summarily downgraded 15 ways from Idaho.

For those who have forgotten the implications of the highly leveraged and opaque financial holdings (the true value of which rests at the mercy of market sentiment) and can turn blind eye to the highly volatile nature of the trading revenues combined with a literal tsunami of regulatory pressure and potential litigious onslaught (all issues which we have repetitively brought up in the past as what appears to be the sole voice of contrarian reason), Goldman Sachs holds a strong investment proposition. However, if fundamental considerations such as the company’s solvency, true economic profit (not the accounting earnings you hear preached from your brokerage’s sell side marketing propaganda cum research reports) and the sustainability of income are to be considered, GS should NOT appear among the preferred lot.

Here's a list of companies whose share prices have shot up at the same time that their fundamental and macro outlooks have collapsed - at least in our opinion. I present some (retail) food for thought.

Will someone explain to me why the world is so enamored with Goldman. It appears that their research department is now recommending clients to bet on European bank contagion risk. LTTP (Late to the Party), we first warned on European bank risk in Spain with BBVA in January of last year (The Spanish Inquisition is About to Begin…).