Beware The Overly Optimistic Greek Speculators As Icarus Comes Crashing Down To Earth!

Reggie Middleton's picture


Greece will default on this latest set of bailout/restructured bonds much faster than they did on the bonds they replaced!

Two years ago in "Greek Crisis Is Over, Region Safe", Prodi Says - I say Liar, Liar, Pants on Fire! I compared the then Grecian situation to that of Damocles. Well, things have gotten much worse since then and I believe I was one of the most bearish (and accurate) at that time. Now, Greece resembles Icarus tumbing down from the skies, drenched in Hubris. Subscribers can download my full thoughts on Greece's sustainability post bailout here - debt restructuring_maturity extension blog - March 2012. Professional and institutional subscribers should feel free to email me in order to receive a copy of the Greek restructuring model used to create these charts and come to these conclusions.

Despite extensive, self-defeating, harsh and punitive austerity measures that have combined with a lack of true economic stimulus, Greece has (to date) failed to achievePrimary Balance. For the non-economists in the audience, primary balance is the elimination of a primary deficit, yet the absence of a primary surplus, ex. the midpoint between deficit and surplus before taking into consideration interest payments.


The primary balance looks at the structural issues a country may have.

Government expenditures have outstripped revenues ever since 2007 and have gotten worse nearly every year since, despite 3 bailouts a restructuring, austerity and a default!


The best analogy I’ve heard for the Grecian situation is the highly indebted family that has binged on credit cards creating huge interest and debt service payments. They then lose the earning power of one of the parents at the same time that a spike in medical bills and household repairs (ex. Murphy’s law) dig deeper into family finances. The family is then forced to continue spending via credit cards to meet these unforeseen expenses.

In short, the main reason for Greece requiring additional funding is its primary deficit but the main reason why this latest (as well as the two rounds before this latest) round of bailout funding won’t work is Greece’s primary deficit.

  • Even with the elimination of interest payments Greece will spiral downward.
  • Even with the near total absolution of its debt, as in a 90% haircut of the most recent bonds issued (which were swapped for bonds of which investors took an effective 74% haircut), Greece will spiral downward.
  • That is the likely reason why these newest bonds back by EU/IMF bailout economic capital are already trading 70 points below par and rated CCC.
  • These bonds are almost definitely slated for a 90%+ haircut by 2016.

With the expectation that austerity measures are not going to drastically reduce Greece’s expenditure in the coming fiscal quarters, and the revenue has no visible source of acceleration either, the assumption built into our modeling is that Greece will continue to experience primary and (as a result) fiscal deficit.

Long story, short - anyone who has purchased this latest round of bonds from Greece should expect a very, very nasty haircut before 2016, and likely sooner rather than later. 

Next up I will review our CRE, banking and insurance picks to see how such a re-default will affect them.

I'm in the Dubai/Abu Dhabi area and will meet any readers/subscribers who are local and willling to discuss opportunities. 

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CustomersMan's picture




Many investors assume that the people behind the EU actually want a solution to Greece's debt.


I see it differently and believe the intention has been to "asset strip" Greece of its most valued possessions, similar to a war, with reperations or conquest of and possession of territories, only NOW through economic means, aggression and coercion, show their ultimate strength and to force complying. The austerity measures are just to inflict pain, as they know they won't work.


Worse in some respects. And they want to make an example of Greece, for others to be worried about, and they are willing to show much destruction in the process.

Thats just my view. i could be way off.

viahj's picture

if the new bonds are backed by claims on Greece's gold...

Greece will default on this latest set of bailout/restructured bonds much faster than they did on the bonds they replaced!

this was the plan all along

hotkarlandtheclevelandsteamers's picture



"How ya like dem AAPL's"

NotApplicable's picture

Faster is better, duh.

At least it is if you're looking to takeover a place before it gets burnt to the ground.

Aren't the new bonds far more deadly?

SillySalesmanQuestion's picture

Icarus flew too close to "The Fire", aka Reggie...

BeetleBailey's picture

Abu Dhabi? Say "Hi" to Sheik Yer Booty for me Reg.

Fuh Querada's picture

Good analysis Reggie. This primary balance jazz is interesting - would be good to see charts for a few other countries. I suspect most of them look similar and the green line is the money printing factor. Sorry I can't join you in Abu Dabi, my back yard needs fixing.

arnoldsimage's picture

jeez... 2016? really? do you know how much shit can happen before 2016? ( that probably won't happen because everyone has been waiting years for the shit to hit the fan and it hasn't )

NotApplicable's picture

Don't worry, it's all priced in. ;)

Northeaster's picture

"I'm in the Dubai/Abu Dhabi area"

Admit it Reggie, you're really in that region to cash in on all those Iraqi Dinars you've been buying, because the RV is "imminent"...



smb12321's picture

Few note that the reason austerity doesn't work in social welfare states is due to the enormous size of the State.   If the State performed minimum tasks - coinage, defense, protection of property, etc - austerity would matter little.  But when government has become the biggest force in the economy, it hurts. 

For example Indonesian austerity would affect few folks since they have not yet reached the level or redistribution and debt that "advanced" states are now trapped in.


ffart's picture

Well to be fair, the State is fucking horrible at managing coinage, defense, and property rights enforcement too. In fact out of the 3 it's hard to tell which one the US has done a more terrible job at.

Zero Govt's picture

Eeekk! ..sorry, "Icarus tumbing down from the skies.."

Cute mataphor Reg, very interesting article too :) Greece hasn't got long on their 3rd throw of the dice either ..this is problem solving par excellence from Europe ..where do we find these value investors (village idiots) eh?