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As I Said Was Guaranteed To Happen Two Years Ago: Greece = Kaboom! But Now Many Misunderstand The Consequences

Reggie Middleton's picture




 

 

Those that follow me know that I've been saying Greece was a guaranteed default as far back as the 1st quarter of 2010 (February 8 2010 to be exact). That was actually quite contrarian call back then. Well, fastforward exactly two years later and you get headlines such as Fitch (& S&P) Says Greece Will Default By March 20 Bond PaymentGreece Running Out of Time as Debt Talks Stumble and Europe ’Plays With Fire’ as Greek Rescue Hits Barrier, to wit:

Greece said that Europe’s wealthier countries are “playing with fire” by toying with the idea of expelling it from the 17-nation euro area as talks over a second aid program ran into new obstacles.

Finance Minister Evangelos Venizelos leveled the accusation after a decision slated for tonight on aid totaling 130 billion euros ($171 billion) was postponed until at least Feb. 20 and possibly until after a full-time Greek government emerges from elections later in the year.

“We are continually faced with new terms,” Venizelos told reporters in Athens today. “In the euro area, there are plenty who don’t want us anymore. There are some playing with fire, domestically and abroad. Some are playing with torches and some are playing with matches. But the risk is equally great.”

Two years after pledging to pull Greece back from the brink, European leaders are torn between pouring more aid into the struggling economy or risking an unprecedented national bankruptcy that might force the country out of the euro and prompt renewed market tumult.

I agree that the EU crew is playing with fire, and I have shown how badly said fire can burn over two years ago, yet ratings agencies and bank analysts still aren't sounding the alarm loud enough. As a matter of fact, even today, I doubt many understand that these REALLY are playing with F.I.R.E...

thumb_Reggie_Middleton_on_Street_Signs_Fire

Reggie Middleton Sets CNBC on F.I.R.E.!!! - Reggie Middleton preaching the travails of commercial real estate in 2012/13 on CNBC

Even two years later after I have been proven right beyond a shadow of a doubt regarding the prospects of a Greek default, investors, analysts and pundits still do not seem to fully appreciate the gravity of the situation. If one peruses the BoomBustBlog archives, you will find the post What Country is Next in the Comingsa Pan-European Sovereign Debt Crisis? dated February 9th, 2010, and no I don't have a time machine...

Now, let's put this into perspective.

    1. The amount of debt offered in the past will pail in quantity and scope with the amount of debt that needs to be offered now, amid historically record high deficits and dwindling revenues, high unemployment and global uncertainty.

Let's examine exactly how much debt we are talking about and when...
image014.png

The weaker Eurozone countries will start flooding the market with sovereign debt rollovers starting THIS MONTH. It remains to be seen whether Germany will backstop Greece, but if they do how can they avoid backstopping Spain, Portugal and Italy. The Spanish and Italian backstops will be particularly tricky since there are bank NPAs hidden in their whose extent has been purposely kept a big mystery. Reference the NPA as a percetn of GDP chart above. If Germany doesn't backstop these countries then it's left up to the IMF and their goes the credibility of the Euro. If Germany does backstop the countries, then their goes those Bund rates! An interesting conundrum, indeed.

Yes, there are massive amounts of debt coming on to the market, and if Greece defaults, there is no way contagion can be prevented from spreading to Spain, Italy and Portugal, then to France. Why not? Because these countries have essentially the same problem that Greece has, and that is massive amounts of highly leveraged capital that has been destroyed, leaving debt service in its wake supported by weak and weakening economies - All made worse by austerity measures which are anti-stimulative, the actual antithesis of economic stimulative measures which will be the only thing that will stimulate said economies. As the excerpt above mentions, "The Spanish and Italian backstops will be particularly tricky since there are bank NPAs hidden in their whose extent has been purposely kept a big mystery." Here are some links and charts to clue you in on said mystery....

image009.png

From the post Smoking Swap Guns Are Beginning to Litter EuroLand, Sovereign Debt Buyer Beware

There are broad indications hinting that Italy and Greece are not the only countries that have used SWAP agreements to manipulate its budget and deficit figures. France and Portugal may be two other European economies which have resorted to similar manipulations in the past in order to qualify as part of single currency member nations (Euro Zone). Below is a small subset of the research that I have been gathering as I construct a global sovereign default model. This model is very comprehensive and thus far has indicated that quite a few (as in more than two or three) nations of significance have an 90% probability of defaulting on their debt in the near to medium term. More on this later, now let's dig into what we have found that looks like gross
manipulation of the numbers in order to hide debt in several European countries. Here's a quick quiz. What well known (in name only) Italian American has a significant chunk of the European Union Sovereign nations apparently modeled their financial engineering from?

Charles Ponzi (March 3, 1882 - January 18, 1949) was an Italian swindler, who is considered one of the greatest swindlers in American history. His aliases include Charles PoneiCharles P. BianchiCarl and Carlo. The term "Ponzi scheme"....

Click the link above to read more on Pan-European Sovereign Ponzis, then go on to reference 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!, to wit and as excerpted:

... We have finished our review of the Italian "Austerity" plans to whip its debt load into shape. As with Greece (see "Greek Crisis Is Over, Region Safe", Prodi Says - I say Liar, Liar, Pants on Fire!), we have found it wanting. Believe it or not, the biggest issue is the credibility of the government. They stretch the facts, assumptions and gray areas to the point where you tend to doubt everything else. It is almost as if they believe no one will actually read what they have written, which very well may have been partially true in the past. Alas, that was the past and this is the present. Information, and to a lesser extent, knowledge travels through the web at the speed of atomic particles. On that note, I release to my subscribers the Italy public finances projection Italy public finances projection 2010-03-22 10:47:41 588.19 Kb.

For those that don't subscribe, I would like to make clear that my assertions of flagrant and unsubstantiated optimism on the part of European governments stem from how quicly they feel their economies will grow despite the fact that they failed to see this maelstrom coming in the first place.

This is Italy's presumption of economic growth used in their fiscal projections:

italian_real_gdp_growth.png

 Hey, there's more where that came from..

image042.png

 

So, you ask, "What in the hell does this have to do with the French?" Well, as I stated in my previous analysis of the big French banks, the French are heavily levered into Italy. How goes Italy, so goes many of the big French banks. Reference: 

So, does BNP have a funding problem, or is it at risk of the same?

BoomBustBlog subscribers know full well the answer to this question. I'm also going to be unusually generous this morning being that our prime French bank run candidate has approached my "crisis" scenario valuation band. So, as to answer the question as to BNP, let's reference File Icon Bank Run Liquidity Candidate Forensic Opinion - A full forensic note for professional and institutional subscribers, and otherwise known as BNP Paribas, First Thoughts...

The WSJ article excerpted above quotes BNP management as saying: "The bank has €135 billion in "unencumbered assets after haircuts" that are eligible to central banks."

OK, I'll bite. Excactly how did BNP get to this €135 billion figure? Was it by using Lehman math? Methinks so, as clearly delineated in my resarch report on the very first page:

BNP_Paribus_First_Thoughts_4_Page_01

The following two pages of this report go on to reveal the games being played to potentially come up with a figure such as the 135 billion quoted above. Boys and girls, I fear those may be Lehman bucks! 

So, let's assume that the Italians can be infected by the Greeks, and then can in turn infect the French. France has not pulled the finnacial engineering gimmicks that Greece did, so they shoul be able to whether storm after bailing out their top 3 overleveraged global banks with asset bases that are multiples of France's GDP, right???

Answers are in the links...

Ovebanked, Underfunded, and Overly Optimistic: The New Face of Sovereign Europe

image015.png

Hey, despite the banking sector 5x the size of the bailing socialist country, and liquidity problems (oh yeah, forgot about that one - check out the Anatomy of a Bank Run), the French can still handle their business better than the French because they didn't cheat with Financial Engineering Parlor Tricks to get into the EU like the Greeks did, right??? Sure. Just read Smoking Swap Guns Are Beginning to Litter EuroLand, Sovereign Debt Buyer Beware again...

The French

In 1997, the French government received an upfront payment of £4.7 billion ($7.1 billion) for assuming the pension liabilities for France Telecom workers in return. This quick cash injection helped bring down France's deficit, helping the country to meet the pre-condition to join the Euro zone. 

    • france_telecomm_transaction.png

 

You're probably saying to yourself, "Wow, those guys over in Europe are Fuc2ed. Yeah, well basically... But no need to worry, because Germany, the next export nation who's major export/trading partners are either going into recession, depression, economic hard landing or have struggling economies and whose mortgage banking sector is about to have its ass handed to it is about to save the day by rescuing all of these profligate nations by flushing the all with cash, so it can continue trading with them. You see, you silly pessimistic speculator you... It all over and everything is find.  

Hey, on that note I can probably run for POTUS now, eh? Except for one thing...

The Biggest Threat To The 2012 Economy Is??? Not What Wall Street Is Telling You...

I will continue this train of thought as I go over actual defaults and paths of contagion in my next post on this topic. As is usual, you can reach me via BoomBustBlog or by the following means...

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Fri, 02/17/2012 - 00:21 | 2168439 Frozen IcQb
Frozen IcQb's picture
The Biggest Threat To The 2012 Economy Is???:

Japan’s trade deficit will force a change from a weak Yen to a strong currency policy to facilitate their infrastructure reconstruction through cheaper imported material and energy. This will require repatriation of funds made possible by selling USD assets. Consequently, US import prices will soar to the detriment of overleveraged and unemployed American consumers.

 

 

Wed, 02/15/2012 - 19:48 | 2164061 vainamoinen
vainamoinen's picture

"There are broad indications hinting that Italy and Greece are not the only countries that have used SWAP agreements to manipulate its budget and deficit figures."

That quote alone is worth the read.

Just how deep does the corruption run?

Everyone is so busy  pretending they can't seem to smell the stench from the dead body(s) under the bed.

Thanks Reggie.

Wed, 02/15/2012 - 16:21 | 2163232 Raymont
Raymont's picture

Thank you Reggie.

I love reading your posts.

Cheers,

Wed, 02/15/2012 - 15:50 | 2163081 SILVERGEDDON
SILVERGEDDON's picture

I liked your posts better when you started them off with the naked huntsman overview. At least then, you looked like you were prepared for the " pockieclypse " that anyone can predict with certainty. Just ask that preacher guy who tripped on a decimal point with his end of the world prediction last year. Oh well, 9 more months to go before no one talks about the Mayans any more.........................

Wed, 02/15/2012 - 15:46 | 2163062 tony bonn
tony bonn's picture

"...The amount of debt offered in the past will pail in quantity and scope ..."

me tonto; you pail man....we bail out greece

Wed, 02/15/2012 - 15:38 | 2163025 Tic tock
Tic tock's picture

where's the part about the consequences?

Wed, 02/15/2012 - 15:38 | 2163023 Sandmann
Sandmann's picture

The Second German Reich lasted 43 years before entering War Dictatorship for another 4.

The First German Republic lasted 12 years before entering 3 years of Emergency Rule

The Third German Reich lasted 12 years followed by 4 years of Occupation Rule with No Government

The Second German Republic has lasted 41 years in Bonn and 21 years in Berlin

 

Looks like Germany is headed for another Convulsion as politicians destroy it all over again. Always the Grandiosity and madcap European Schemes that end up destroying whatever Germans build up - but this time Germany was seduced by the likes of Deutsche Bank becoming a global Investment Bank and Systemic Risk lobbying its politician puppets to save it from Armageddon. German Banking Elites are just as criminally insane as those on Wall Street - Achleitner and Ackermann have exactly the same sort of mentality

Wed, 02/15/2012 - 15:44 | 2163052 GeneMarchbanks
GeneMarchbanks's picture

DB = German Squid. Tentacles everywhere. Transnational Banking Elites = Criminally Insane.

Wed, 02/15/2012 - 15:31 | 2162992 spinone
spinone's picture

Promises promises

Wed, 02/15/2012 - 15:27 | 2162979 Treason Season
Treason Season's picture

Reg,

 If you don't mind me asking, how much of your personal portfolio is in gold?           

                                                                  T.I.A.

Wed, 02/15/2012 - 15:18 | 2162946 PicassoInActions
PicassoInActions's picture

for 3 years people knew the game was rigged

market was manipulated

Criminals were walking free

 

For 3 years people still continue to make money

for 2 years poeple knew Greece was fucked

for 2 years people was making money on Greece

On the long run we can predict anything.... we can say for the past 20 years we knew we will get a ressesion... sure we have one.

 

for 3 years Rules are changing constantly, laws have been brouken daily but if we can adopt quickly to the enviroment we can get a use out of it.

 

There will be another year for Greece and then you can say .. for the 3 years you warned us.

 

To make it simple while i agree with you, we have to take into concideration the manipulations, Central banks, criminal activities and deal with what we have and not of what we would prefer.

 

Anyway.. Good article ... tough i don't agree with the timing how it will play it out.

 

Wed, 02/15/2012 - 15:20 | 2162907 Money 4 Nothing
Money 4 Nothing's picture

But... but Reggie, they reported to have found a pen. I seriously question your research, it's not over till Troika sings. /sarc

Wed, 02/15/2012 - 15:01 | 2162846 hardcleareye
hardcleareye's picture

Damn, the story was just getting good!!!!

Does it continue on your site and how much do I have to pay to read it?

edit, I truly am grateful for the freebies, your work is a pleasure to read.

Wed, 02/15/2012 - 14:53 | 2162825 NotApplicable
NotApplicable's picture

This isn't a smart vs. stupid issue (at least not around the facts Reggie presents), but rather a belief issue pertaining to the political vs market economies.

It doesn't matter how smart you are, but how you believe the political machine will react.

My guess? Everything Reggie lays out will be moot as soon as the bombs start falling.

Oh, and all of his trading monies will be Corzined, rehypothetically speaking.

Wed, 02/15/2012 - 15:19 | 2162947 Money 4 Nothing
Money 4 Nothing's picture

Vaporized?

Wed, 02/15/2012 - 14:52 | 2162820 Piranhanoia
Piranhanoia's picture

Reggie always unscrambles another piece of the puzzle.  The problem is the puzzle is so large and confusing by design. The makers wanted it to go ever on, be impossible to crack, and trap everyone with a quatloo to invest, and find a way to steal every other one in their pocket and under the rock.

Wed, 02/15/2012 - 14:51 | 2162819 LawsofPhysics
LawsofPhysics's picture

Wake me up when the jubilee starts.

Wed, 02/15/2012 - 14:49 | 2162808 Sudden Debt
Sudden Debt's picture

Starting from 1.5 min, the european greek problem is explained....
http://www.youtube.com/watch?v=4mGVNySpCaA&sns=em

Wed, 02/15/2012 - 14:49 | 2162807 eddiebe
eddiebe's picture

For those of you who have'nt figured it out yet: At the bottom of the crisis is a currency crisis: A growing understanding that debt cannot be actual wealth. No reason to wait for Reggie to tell us that one.

Wed, 02/15/2012 - 14:36 | 2162758 OutLookingIn
OutLookingIn's picture

Here we go again! "I told you so" Reggie! Okay Reg - what now? Tell us something new.

Do NOT follow this link or you will be banned from the site!