Let's face it, in order for the few to thrive, a majority have to suffer in apathy, ignorance and the resultant bliss before the storm! Is that the way it is? Is that the way it has to be? Well, apparently that's the way it's going down in Europe. I have issued very, very explicit warnings on the ex-sovereign entity known as Portugal. Despite such. and despite my track record on such matters (see Who is Reggie Middleton?), the financial media, sell side and practically the rest of the world hailed an "all's clear" as absolutely nothing has gotten better yet several things have gotten worse.
What has come of it? Well....
From ZeroHedge: Portugal's Presidential Warning Spikes Yields To 8 Months Highs
UPDATE: 5Y now +126bps (biggest jump in 19 months - snce the record highs) and rest of Europe is catching their systemic risk flu
Of course reasons are given for this spike that come from very smart people who do very impressive things. The fact du jour is that this spike was guaranteed to happen, and it was guaranteed to happen this year. That's right! Guaranteed, and all paying BoomBustBlog subscribers knew this to be a fact TWO and a half (that's 2.5 for the number nerds amongst us) years ago! Did I (or my subscribers) know that the Portuguese government would come close to blowing up this year? NO.
So, exactly how did we know? Well, let's start by acknowledging today's date. July 12, 2013. Next we dig into the BoomBustBlog archives, going back to...
Monday, 06 December 2010 The Truth Behind Portugal's Inevitable Default - Arithmetic Evidence Available Only Through BoomBustBlog
The inevitable truth of the matter is that several European states WILL default, and default they will. If Germany, or any other economy that still has its druthers to it decides to stand in front of said occurrence, it will likely be dragged down as well. The Germans apparently realize this. See this excerpt from our discussion on the topic regarding Ireland's prospects for default:
... from the post Ireland’s Bailout Is Finalized, The Indebted Gets More Debt As A Solution But The Fine Print Is Glossed Over – Caveat Emptor! wherein BoomBustBlogger Nick asked:
Do you have any reason as to why they are choosing 2013 as a deadline ? Seems like an arbitrary date.
Well, Nick, just follow the money or the lack thereof…
So, what debt raising and servicing soveriegn nation that was unsustainable in 2010 was lent even more debt to become even more unsustainable. The chickens come home to roost in 2013, post IMF/EU/Bilateral state le veraged into Ireland loan/Pension fund raiding bailout! What Angela in Germany was alluding to was what all in the know, well… know, and that is that Ireland is already in default and those defaults have been purposely pushed out until 2013. Angela simply (and wisely from a local political perspective, although unwisely from a global geopolitical standpoint) admitted/suggested was that the defaults will be pre-packaged and managed ahead of time. The EU politbureau insists that politics rule the day, and no prepackaged structure be in place for the Irish defaults to be. This means the potential foe even more carnage through the pipelines of uncertainty!
Tuesday, 07 December 2010 The Anatomy of a Portugal Default: A Graphical Step by Step Guide to the Beginning of the Largest String of Sovereign Defaults in Recent History
... Let's jump straight into Portugal's situation, and remember that many of these countries have deliberately mislead and misrepresented their fiscal situations for years (see Once You Catch a Few EU Countries “Stretching the Truth”, Why Should You Trust the Rest? and Lies, Damn Lies, and Sovereign Truths: Why the Euro is Destined to Collapse!).
This is the carnage that would occur 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.
Monday, 12 March 2012 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.