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Portuguese Liquidity Trap: When You Add Too Much Liquidity To F.I.R.E. It Burns!
In this followup to Greece Is Trying To Convince Portugal To Make F.I.R.E. Hot I think we should get straight to the point - Anyone who doesn't believe that Portugal is clearly set up to for a bond route, and that it is seriously considering a default is either lying to themselves, believe human nature has changed, and/or really hasn't bothered to review the math. Here's proof of a Portuguese default presented with logic, numbers and pretty colorful graphs. The full spreadsheet behind all of the calculations, scenarios, bond holdings and calculations can be viewed online here (click this link) by professional level subscribers. Click here to subscribe or upgrade.
For one, we are on up to the 3rd Greek Bailout (Portugal has only received one hence it could be getting envious:-)). Portugal has had extreme austerity measures inflicted upon it. So extreme that it has materially and significantly depressed the economy. Portugal's GDP growth contracted even further by 1.3% q/q in Q4. Its HICP Moderated to 3.4% y/y in January. Very high unemployment (currently at 14% and rising), weakening wages, and a total dearth of credit to businesses and households (do you really think bond-busted banks are lending to and within Portugal like the good 'ole days) will lead to a downward spiraling self-fulfilling prophecy that is the antithesis of what appears to be driving all of those rosy estimates behind reports that Portugal won't default. I do mean rosy, see Lies, Damn Lies, and Sovereign Truths: Why the Euro is Destined to Collapse! for examples. Let it be known that instead of growing the economy out of the doldrums, Portugal's austerity measures will push it down the drain.It's gotten so bad that even the rating agencies are on board the truth train (Rating Agencies vs Reggie Middleton, Part 3). After Moody's downgraded Portugal, all three major agencies have it at junk, of course a year later than said information would have been useful. The massive liquidity injections by the ECB have prevent the market from imploding, but has also failed to rectify the problem, rather they simply feed the appetite of an addicted pig in the form of banks and sovereigns that rely on cheap/free money without the requisite market disciplines of risk wieghting and respect for the cost of capital.
Due to total reliance on funny munny from the ECB, required due to the lack of external financing avialable from the markets (unless Portugal defaults/restructures and starts from scratch, which is inevitable anyway) the Portuguese machine will still be in arrears accumulation mode - a mode which is essentially unsustainable.
Despite what I see as practically unassailable facts, the MSM is still steadfastly and unrealistically bullish, as per Bloomberg, Portugal Bond Rout Overstates Greek Likeness. Well, the Portugal Bond Yield is at 13% Despite Greek Deal - that's right, the 3rd Greek deal and one that include 74% haircut!!! Portugal will default/restructure and there's a very, very strong chance that right behind them will be Spain and then Greece again. That's right, Greece, again!
Who was right about the Greek default, running against the consensus two years ago? See 2010 posts - Greek Crisis Is Over, Region Safe”, Prodi Says – I say Liar, Liar, Pants on Fire! and then A Comparison of Our Greek Bond Restructuring Analysis to that of Argentina. InThe Anatomy of a Portugal Default: A GraphicalStep by Step Guide ... I walked through the financial tangle that is Portugal about two years ago, as excerpted.
This is the carnage that would occur in the OPTIMISTIC 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.
Well, I took said model and updated it with recent historical GDP results as well as projections which incorporated the most recent developments. Do you think things look better or worse?
This is what Portugal's situation looks like today...
The Portuguese bond yield has spiked since the Greek deal. Methinks Mr. Credit market (who is much wiser than Mr. Eqiuity market, probably due to the increased difficulty in manipulating Mr. Credit's demeanor) seems to agree with Reggie...
These are the Portuguese bonds used in the calculations. Professional subscribers can access the full model and all of the stuff that went into it via the link at the bottom of this article - Introducing the Not So Stylish Portuguese Haircut Analysis.
| Issuer | Issue date | Maturity | Amt Out(M) | Interest Due(M) | Years to maturity | Coupon rate |
| Portugal Treasury Bill | 07/17/09 | 7/23/2010 | 4.50 | 0.00 | -1.64 | 0.000% |
| Portugal Treasury Bill | 09/18/09 | 9/17/2010 | 2.75 | 0.00 | -1.49 | 0.000% |
| Portugal Treasury Bill | 11/20/09 | 11/19/2010 | 3.10 | 0.00 | -1.31 | 0.000% |
| Parpublica - Participacoes Publicas SGPS | 12/16/05 | 12/16/2010 | 0.51 | 0.01 | -1.24 | 2.690% |
| Portugal Treasury Bill | 01/22/10 | 1/21/2011 | 2.05 | 0.00 | -1.14 | 0.000% |
| Portugal Treasury Bill | 02/19/10 | 2/18/2011 | 2.35 | 0.00 | -1.06 | 0.000% |
| Portugal Treasury Bill | 03/19/10 | 3/18/2011 | 2.03 | 0.00 | -0.99 | 0.000% |
| Portugal Obrigacoes do Tesouro OT | 11/16/05 | 4/15/2011 | 4.67 | 0.15 | -0.91 | 3.200% |
| Portugal Obrigacoes do Tesouro OT | 03/13/01 | 6/15/2011 | 4.96 | 0.26 | -0.74 | 5.150% |
| CP - Comboios de Portugal EPE | 02/26/02 | 2/26/2012 | 0.25 | 0.00 | -0.04 | 0.990% |
| Portugal Obrigacoes do Tesouro OT | 02/13/02 | 6/15/2012 | 7.64 | 0.38 | 0.26 | 5.000% |
| Portugal Government International Bond | 08/28/09 | 8/28/2012 | 0.41 | 0.00 | 0.46 | 2.400% |
| Parpublica - Participacoes Publicas SGPS | 07/08/09 | 7/8/2013 | 0.80 | 0.03 | 1.32 | 3.500% |
| Polo III-CP Finance Ltd | 07/29/03 | 7/29/2013 | 0.10 | 0.00 | 1.38 | 4.500% |
| Ana-Aeroportos de Portugal SA | 08/28/09 | 8/28/2013 | 0.10 | 0.00 | 1.46 | 4.050% |
| Portugal Obrigacoes do Tesouro OT | 05/22/98 | 9/23/2013 | 7.16 | 0.39 | 1.53 | 5.450% |
| Portugal Obrigacoes do Tesouro OT | 10/29/03 | 6/16/2014 | 6.00 | 0.26 | 2.26 | 4.375% |
| Polo Securities II Ltd | 06/26/02 | 6/26/2014 | 0.31 | 0.00 | 2.29 | 2.880% |
| ANAM - Aeroportos da Madeira SA | 07/29/04 | 7/29/2014 | 0.05 | 0.00 | 2.38 | 5.340% |
| Parpublica - Participacoes Publicas SGPS | 10/15/04 | 10/15/2014 | 0.50 | 0.02 | 2.59 | 4.191% |
| Portugal Obrigacoes do Tesouro OT | 06/03/09 | 10/15/2014 | 5.32 | 0.19 | 2.59 | 3.600% |
| Portugal Government International Bond | 11/17/09 | 11/17/2014 | 0.08 | 0.00 | 2.68 | 3.064% |
| Parpublica - Participacoes Publicas SGPS | 12/18/07 | 12/18/2014 | 1.02 | 0.03 | 2.77 | 3.250% |
| Refer-Rede Ferroviaria Nacional SA | 03/16/05 | 3/16/2015 | 0.60 | 0.02 | 3.01 | 4.000% |
| Portugal Government International Bond | 03/25/10 | 3/25/2015 | 1.02 | 0.04 | 3.03 | 3.500% |
| Polo III-CP Finance Ltd | 07/29/03 | 7/29/2015 | 0.30 | 0.01 | 3.38 | 4.700% |
| Portugal Obrigacoes do Tesouro OT | 07/13/05 | 10/15/2015 | 7.64 | 0.26 | 3.59 | 3.350% |
| Portugal Government International Bond | 10/24/86 | 5/20/2016 | 0.18 | 0.02 | 4.19 | 9.000% |
| Portugal Government International Bond | 05/20/86 | 5/20/2016 | 0.18 | 0.02 | 4.19 | 9.000% |
| Portugal Obrigacoes do Tesouro OT | 07/17/06 | 10/15/2016 | 5.00 | 0.21 | 4.60 | 4.200% |
| Portugal Obrigacoes do Tesouro OT | 05/03/07 | 10/16/2017 | 6.08 | 0.26 | 5.60 | 4.350% |
| Portugal Obrigacoes do Tesouro OT | 03/04/08 | 6/15/2018 | 6.27 | 0.28 | 6.26 | 4.450% |
| Refer-Rede Ferroviaria Nacional SA | 02/18/09 | 2/18/2019 | 0.50 | 0.03 | 6.94 | 5.875% |
| Portugal Obrigacoes do Tesouro OT | 03/03/09 | 6/14/2019 | 6.86 | 0.33 | 7.26 | 4.750% |
| CP - Comboios de Portugal EPE | 10/16/09 | 10/16/2019 | 0.50 | 0.02 | 7.60 | 4.170% |
| Portugal Government AID Bond | 03/08/90 | 2/25/2020 | 0.01 | 0.00 | 7.96 | 1.520% |
| Portugal Obrigacoes do Tesouro OT | 02/17/10 | 6/15/2020 | 5.26 | 0.25 | 8.26 | 4.800% |
| Parpublica - Participacoes Publicas SGPS | 09/22/05 | 9/22/2020 | 0.50 | 0.02 | 8.54 | 3.567% |
| Parpublica - Participacoes Publicas SGPS | 12/28/05 | 12/28/2020 | 0.15 | 0.00 | 8.80 | 2.423% |
| Portugal Obrigacoes do Tesouro OT | 02/23/05 | 4/15/2021 | 7.08 | 0.27 | 9.10 | 3.850% |
| Refer-Rede Ferroviaria Nacional SA | 12/13/06 | 12/13/2021 | 0.50 | 0.02 | 9.76 | 4.250% |
| Portugal Obrigacoes do Tesouro OT | 06/10/08 | 10/25/2023 | 6.53 | 0.32 | 11.63 | 4.950% |
| Refer-Rede Ferroviaria Nacional SA | 10/16/09 | 10/16/2024 | 0.50 | 0.02 | 12.60 | 4.675% |
| Refer-Rede Ferroviaria Nacional SA | 11/16/06 | 11/16/2026 | 0.60 | 0.02 | 14.69 | 4.047% |
| Parpublica - Participacoes Publicas SGPS | 11/16/06 | 11/16/2026 | 0.25 | 0.01 | 14.69 | 4.200% |
| CP - Comboios de Portugal EPE | 03/05/10 | 2/5/2030 | 0.20 | 0.01 | 17.91 | 5.700% |
| Portugal Obrigacoes do Tesouro OT | 03/22/06 | 4/15/2037 | 6.97 | 0.29 | 25.11 | 4.100% |
| Governo Portugues Consolidado | 01/01/40 | 1/29/2049 | 0.00 | 0.00 | 36.91 | 3.987% |
| Governo Portugues Consolidado | 02/01/42 | 2/28/2049 | 0.01 | 0.00 | 36.99 | 2.997% |
| Governo Portugues Consolidado | 03/15/43 | 3/29/2049 | 0.00 | 0.00 | 37.07 | 2.764% |
| Governo Portugues Consolidado | 12/01/41 | 12/29/2049 | 0.00 | 0.00 | 37.82 | 3.520% |
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Reggie,
Don't pay any attention to what they say or what they want you to hear, instead investigate that which they don't mention.
I.T.A.L.Y
The real 800 lbs gorilla in the room is about to go wild.
Greece's partial jubilee was becoming obvious almost 2 years ago. The fact that it happened set the precedent for Portugal and eventually Ireland.
How is Italy supposed to roll-over their 400 billion debt coming due this year? Are the buyers of Greece's debt yesterday, so stupid they will sink their money into buying Italy's debt today?
Keep us posted on Italy.
Cheers,
S.P.A.I.N
F.R.A.N.C.E
list could go on....
75% haircuts.
Dr. Bernanke understands the "hogs at the trough" theory perfectly...it is probally what he wrote his thesis on and recieved his PhD in. Oink, oink...feed the fed.
Reggie: Appreciate your work. Sweet Jesus do you do some serious numbers crunching.
Too bad 97% of the populace is more interested in Dancing With The Stars......
Oh christ, do we really have to have you (wrongly) bang on about Portugal for the next year like you did for Greece??
How are those aapl shorts going for you Reg?
Now That's Funny!
As usual Reggie, you are right on- but the market don't give a shit.
Reggie predicts 12 to 24 months in the future. Better take not because it always become a headline a year or two later and nobody could have seen it comming....
Not even close. First Portugal has to threaten default to get the debt write down and new loans, aka "new deal".
It's called "kicking the can with the left foot".
Screw it, Just save Ireland and the Guinness....
Just save the Guinness!
AND CHEDAR CHEESE!
No pizza goes well without it....
Imperialism and loansharking are perfectly identified ...identified, exactly as imperialism used to be identified with war conflicts. This is why we believe that the consequences of some “mistakes” easily reveal the “motives” of those who planned them.
In reality, there is a permanent “recycling” of the same tactics that lead to the mistake and then to disaster. The method used in the case of Greece is a version of the practice that started from the imperialistic centers to expand all over the world. Simply, in Greece, that is a “terminal”, banking illegal superprofits were produced so that loan sharks “spoil” the Greek public assets, while at the “center” of the planning banking superprofits were created so that loan sharks “spoil” the "Greeces”. Exactly the same illegal things were planned to bring profit to their loan sharking inspirators ...illegal profits.
More info about Global Debt Crisis here:
http://eamb-ydrohoos.blogspot.com/2012/01/global-debt-crisis.html
.
Junk me all you like. Olympia your blog and you want to lay blame on everyone else except Greece. Guess what alot of Greeks played their game. Look in the mirror for a change and stop blaming the world for your problems. I absolutely agree the loan sharks were on your shores. But for them to function someone had to play their game. Just like they do here in America. I respect the Greeks and people of most countries but your people made the choice to play the game. Now the payment is due and it cannot be met so you are taking haircuts that honesly will not solve your problems. I think the original Greek problem started when you hit 120% GDP and this haircut takes you where back to 129% GDP. Nothing is going to be solved.
I am not European although I lived in Europe for 5 years. My best advice is to get out of the euro and control your own destiny, but yet again you all want to play the Euro games and you are headed right back to another bailout. The Greeks currently do not choose to control their own destiny. So your masters will again be squeezing the lifeblood that remains from your country. Until Greece controls their own destiny and takes their medicine this charade will continue. Better to take it now then later once Europe comes to try and take all of your gold.
I do not play the games to be honest I have no debt and do not play with the sharks. I stay on shore and watch fools take their swim only to be eaten or injured critically. Choice is the one thing you or I can make. Greece made some bad choices and now must live with them. This game will not end until Greece sails their own ship. Guess what the ISDA declared Greece in default and the sun came up the next day. The same thing will happen if Greece would have gone back to the drachma. Yes it will be hard but at least you will have your gold and country. Blaming the USA and for that matter everyone else solves nothing.
I like your blogs at times but lately laying blame on eveeryone else gets old.
The problems are as old as currency exists. But the biggest fraud of all time started in 1913 with the creation of the Fed.
USA is not to blame per se, but the cabal that called the US shores their home when they ran out of gullible idiots in Europe. The two biggest wars were faught over currency manipulation, debt, deleveraging and trying to rid the world of the cancer. Alas the cabal was quick to see their fate and regroup from Frankfurt to London, from London to NY.
Good luck getting rid of the cancer. We're all Greeks.
Walkure Both the ECB and the Fed are criminal cabals you will get no argument from me. You may want to look towards London first. I do not play the fricking banksters games anymore. With the exception of my 401k which I now manage after 2008 after taking a bloodbath, I have made it all back and some profits.
The problem is people see easy money and never think about how they will pay it all back. consider this; If the Greeks or for that matter Americans did not have to keep up with their neighbors we would be better off. I pay cash for stuff and go without. The only exception is an automobile. My home is paid for and it is a modest home. I do not need a Mc mansion. I just updated what I have. This years project is redoing the master bath to accomodate our older age. Walk in bath tub anyone!! I saved for this remake or it would not happen.
The banksters play on our greed and I know what is happening to your country will not work. Austerity will not work when your economy is in decline. Yet the masters of Europe are going to suqeeze your country for all they can and it saddens me knowing 2000 years ago yours was the first democracy and the first place women had an equal say in government. I really do hope you tell them all we will now control our own destiny. The only reason America is still afloat (yes our turn is coming) is because we control our fiat money supply and it is the reserve currency.
I understand there is no balancing mechanism in Europe for the consumers vs the producers. I think this may end with the Dictatorship of Europe to be honest. Hell they have already installed two puppets without elections and now want Greece to pospone theirs. Why do they want to do that? They want to do that to screw the working people in every European country and control their lives. Hell we are no better in the USA now with the patriot act and now the NDAA. Hell the FBI is checking the legality of the president ordering the killing of its citizens on American soil. Sound alot like we too are moving into a dictatorship without any rights at all. Hell they passed a law that it is no longe legal to assemble near a ferderal building nor anywhere there is a federal employee present. No one fucking care and the media will not report anything but the next Ipad or the zoo we call the republican primaries. We are fucked to be honest until people start to think. Not going to happen in my lifetime though.