italian Woes Mean French Lows!!!

Reggie Middleton's picture


As a quick reminder, we're still looking out for the Great French Unwind, for it will start as The Pandemic Bank Flu Spread From Italy To France To ... You see, as I see it, the duopoly of those controlling the EU purse strings is far from invulnerable. As a matter of fact, from many perspectives, they have the farthest to fall. All you need to do is sit back and wait... Wait for the time when The Duopolistic Owners Of The EU Printing Presses Disagree On The Color Of The Ink! That's when the stinky brown stuff spatters from the fan blades. France will likely be the first to crack, with Italy as impetus, then recessionary Germany will stand alone, no? Not! For those hopium smoking Eurocrats who feel that Germany still will pull out of this unscathed, I reference the riddle: The Biggest Threat To The 2012 Economy Is??? Not What Wall Street Is Telling You...

I know all of this can get confusing, but it was easily foreseen back in 2010, and we've built a contagion model that helps track possible paths of mayhem. Of course, it's difficult to predict when things will go down or the precise route, but the how is really rather obvious. On with the concept of obvious, as stated many times in BoomBustBlog, French banks, hence the bank bailing socialist French government, is highly levered into Italy and Italian debt, among other porcine based fixed income instruments...

This was detailed in depth, with multiple banks named for BoomBustBlog Subscribers, are recommended to review the document icon Italy Exposure Producing Bank Risk (788.3 kB 2012-11-28 06:00:45)


Subscribers can reference French Bank Observations & Focus on...(519.21 kB 2012-06-28 08:36:37).  Part and parcel to this common sense update is recognition of the fact that Italy will bust French banks, causing France to do the socialist bailout thingy. See this chart from the report...

French bank Italian exposure

This exposure leaves France quite sensitive to Italian woes, considerably more so than your typical rating agency may lead you to believe even when downgrading France from AAA status - albeit it a year or so too late (Moody's Actions Add Pressure To The Inevitable In France?). Today, we see the MSM outlet CNBC espousing the obvious regarding Italy: Will Italy Need a Bailout in 2013? As you read this, remember they are essentially talking about France as 2nd derivative:

“We still see as our baseline scenario that Italy will likely be forced to ask for an international bailout at some point in 2013,” said Citi Analyst Giada Giani in a report on the country.

“Italian economic fundamentals have not really improved, despite some improvement in market conditions. The negative feedbacks from fiscal austerity on growth have been severe, as the ability of the private sector to absorb fiscal tightening by lowering its saving rate is limited.”

Economists at other banks and research institutions agreed that Italy’s recession will be deeper than financial markets are currently pricing in.

“The composition of austerity so far — skewed towards increases in taxation rather than cuts in expenditure — and the tight credit conditions, will weigh very negatively on the economy and the market will have to take stock of it,” said Nomura Economist Silvio Peruzzo.

“Weaker growth will have implications for fiscal plans and debt sustainability and could trigger a return of tensions.”

Mark Willis, an economist at Roubini Global Economics, said market focus on Greece’s and Spain’s economic woes had distracted investors from the structural weaknesses inherent in both Italy’s economy, and its political system.

He added that Italy suffered from three “core vulnerabilities” of weak growth, very high levels of public debt and regular bouts of political instability, the latter of which is likely to reappear in the build-up to the spring 2013 general election.

Italian woes lead to French Lows. Believe it! As stated in the seminal pieces, The Anatomy Of A European Bank Run: Look At The Banking Situation BEFORE The Run Occurs! and The Fuel Behind Institutional “Runs on the Bank” Burns Through Europe, Lehman-Style!, Bank runs are inevitable! 

Excerpted from our professional series File Icon Bank Run Liquidity Candidate Forensic Opinion:


This is how that document started off. Even if we were to disregard BNP's most serious liquidity and ALM mismatch issues, we still need to address the topic above. Now, if you were to employ the free BNP bank run models that I made available in the post "The BoomBustBlog BNP Paribas "Run On The Bank" Model Available for Download"" (click the link to download your own copy of the bank run model, whether your a simple BoomBustBlog follower or a paid subscriber) you would know that the odds are that BNP's bond portfolio would probably take a much bigger hit than that conservatively quoted above.  Here I demonstrated what more realistic numbers would look like in said model... 


Yes, European bank runs are inevitable, but the causes of the bank runs are not. That's the problem. Instead of addressing the root causes of the bank runs, EU decision makers opt to throw more paper money into a gaping furnace to be burned as fast as it can be shoveled. 

Since the problems have not been cured, they're literally guaranteed to come back and bite ass. Guaranteed! So, as suggested earlier on, download your appropriate BoomBustBlog BNP Paribas "Run On The Bank" Models (they range from free up to institutional), read the balance of this article for perspective, then populate the assumptions and inputs with what you feel is realistic. I'm sure you will come up with conclusions similar to ours. Below is sample output from the professional level model (BNP Exposures - Professional Subscriber Download Version) that simulates the bank run that the news clippings below appear to be describing in detail...(Click to enlarge to printer quality)



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Jack Sheet's picture

I've given up trying to make any sense out of these posts. there is no actionable information.

falak pema's picture

Reggie the fiat shovelling to the furnace is a game imposed by the GS clique since 2008 world-wide; so look at all sides of the divide when you talk of global downward dynamics. Race to bottom is as crazy as it comes. 

derek_vineyard's picture

reggie v obama (-3 1/2) in game to 21

tango's picture

Great analysis (as usual) from Reggie. What's so great about his exposition is that he does NOT claim to be clairvoyant or a genius. No, he simply points out mathematically unsustainable patterns. The French fiasco is understandable in light of their use of fleeing Greek, Portuguese, Italian and Spanish bank deposits.

BeaverFever's picture

You must be one of his sucker subscribers who, on the side of course, peddles fragmented Android phones at a 2 for 1 discount. Sad.

WaEver's picture

luckily Reggie has no stop-loss on his recommendations so he can ALWAYS claim he sold at the top/bought at the bottom.....

Mario55's picture

Readers may not like this comment (-7 to +1) but it is true, the OATyield keeps on decllining! Disconcerting but true.

France: Zero growth, always more taxes, fainted public spending cuts, nationalisation plans for ailing industries and foreign investors, but the OAT and the CAC keep on striding! Flabbergasting.

THE DORK OF CORK's picture

Yet again the IEA remains strangely quiet about the Italian situation….just giving the numbers in passing as if it were a small economy.

It talks about declines in Germany and the UK (now only 1.5 MBD) but nothing about Italy which was at least at one time a big economy.(bigger then the UK)

Italian diesel (work) demand continues its dramatic terminal dive.

Could it be…..the worst large country com. vehicle sales by far. (Greece & Portugal are even worse)

Italian commercial vehicle sales Jan – Oct
Vans -33.4%
Heavy trucks -28.8%
Trucks – 29.6 %
Buses – 30.8%

French diesel demand now looks like its beginning the decent phase


In a rational world reggie we would be back with Francs & Lira but these guys have a strange market state ambition.

Although if I were to hold any Euro countries (short term) debt it would be France.

It at least has the possibility of bringing back some structures from the nation state era.

Ask yourself what happens to car supply chains when or if the Euro breaks up ?

They won't be making car stuff in Turkey & Russia thats for sure.

The BRics and the other golden children (including modern Germany & Poland) are children of the Euro & its wage arbitrage games.

falak pema's picture

watch what happens to Arcelor; prize  euro steel factory bought by anglo-indian Oligarch Mittal, to feed the BRIC (china/india) market in the ramp-up period of 2003-2008 when growth was 9% there. Now that demand is collapsing world wide he is cutting and running for his life. 

A true Oligarch shill, short term asset stripper with no plan to add value. France could use this example to turn around the steel industry from outright disappearance. Its a major challenge, case study, of NWO outsourcing model's thumb nosing to first world industrial survival. Like the Petroplus refineries, it will require maybe temporary nationalisation to find a consortium that has value added ambition locally and euro-market focus; rather than casino globalisation à la Clinton-GWB-Obammy era... 

Paradigm change is a painful process of going thru recurrent crises, the name of the coming global game. 

Bubble's picture

subscribers can see my comments at

bank guy in Brussels's picture

Ha! Thanks

That is one cool link