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Past May Be Prologue, But I Just Warned Of A Central European Depression 2 Years Ago

Reggie Middleton's picture





 

 

Click the graphic to enlarge...

Exactly two years ago, I penned a piece called The Depression is Already Here for Some Members of Europe, and It Just Might Be Contagious! I excerpt it as follows...

Austria, Belgium and Sweden, while apparently healthy from a cursory perspective, have between one quarter to one half of their GDPs exposed to central and eastern European countries facing a full blown Depression! These exposed countries are surrounded by much larger (GDP-wise and geo-politically) countries who have severe structural fiscal deficiencies and excessive debt as a proportion to their GDPs, not to mention being highly "OVERBANKED" (a term that I have coined).

So as to quiet those pundits who feel I am being sensationalist, let's take this step by step....

I strongly suggest those interested in this topic to peruse the whole article for it explicitly warns of what is about to happen any minute now, but first lets see what's popping in world news today, as Bloomberg reports the IMF, EU May Need to Give E. Europe More Help:

The International Monetary Fund and other lenders, who spent $42 billion to stem an eastern European banking crisis after 2009, may be forced to commit more aid to the region to cushion the effects of banks cutting assets. The IMF, the European Bank for Reconstruction and Development, theWorld Bank and the European Investment Bank should “stand ready to provide external assistance and financial support to banks” in eastern Europe, the Vienna Initiative group of regulators and policy makers said in a statement after a meeting in the Austrian capital yesterday. “There is a very strong impact of this -- a potentially strong impact,” Erik Berglof, the EBRD’s chief economist, said in an interview today in Vienna. “You have the headquarters making decisions on assets that are very small when you look at the total balance sheet, but when you look at the subsidiaries in eastern Europe they are systemic in the countries where they operate.”

Regulators and policy makers are trying to shield economic growth in eastern Europe as western lenders must meet higher capital requirements to withstand the euro area’s deepening debt crisis.

This makes very little sense since the bulk of growth in the CEE states stems from trade with the EU. If the EU catches a cold, the CEE states contract chronic pneumonia!

About three-quarters of the banking market in eastern Europe is controlled by western European banks including UniCredit SpA (UCG)Erste Group Bank AG (EBS) and Raiffeisen Bank International AG (RBI), the biggest of which are raising capital and shedding assets, causing concerns that credit may become scarce.

As explicitly detailed to my subscribers two years ago, (subscribers, see File Icon Banks exposed to Central and Eastern Europe)

The Vienna group urged western European regulators and policy makers to work together to recapitalize banks and consider the effects on subsidiaries in other countries. Financial regulators need to step up coordination to reduce the risk of “disorderly deleveraging”...

Otherwise known as reality, a properly functioning market and transparent price discovery!!!

... in eastern Europe, Serbian central bank Vice Governor Bojan Markovic said at a Euromoney conference in Vienna today. By the end of June, European banks must have core capital reserves of 9 percent after writing down their holdings of sovereign debt, European Union leaders decided in October. That may require an additional 106 billion euros ($149 billion) of capital, a according to the European Banking Authority.

The 9 percent requirement “is not a very fortunate” plan given the current economic environment, European Central Bank Governing Council member Ewald Nowotny said at a Vienna conference today. “Regulatory requirements shouldn’t have a restrictive impact on the real economy,” Nowotny said.

Heh, let a banker tell the story and look what comes out! Appropriate regulatory requirements will have a restrictive impact on the economy if the prebious regulations were lax enough to allow abusive practives to juice the economy to unsustainable heights!!!

Deleveraging shouldn’t take place in countries that are growing and making structural changes to their economies, Albanian central bank Governor Ardian Fullani said today at the same conference.

Really? Suppose they aren't growing at the same rate that debt service emanating from piled derivative experiments are growing, and the structural changes being made are inadequate or fail to address the pertinent issues? I'm just saying... 

The message to foreign banks is “don’t put everyone in the same pot,” Fullani said. “Give stimulus to the right countries.”

Hey, that's novel and new! I've never heard the cry for stimulus before... Like a junkie creeping for another hit...

Banks may reduce funding by as much as 30 billion euros this year, according to estimates by Raiffeisen, board member Patrick Butler said at the Vienna conference. “Compare that to the growth that we saw in 2006 or 2007 of 200 billion euros a year -- it’s minimal,” Butler said. “It is not a credit crunch.”

 

...“It is important that home country authorities internalize the cross-border effects on EU and non-EU countries in formulating their measures,” the Vienna Initiative said in its statement. “In particular, the recapitalization plans of international banks submitted to the EBA should be scrutinized” for their “systemic impact on host economies.”

Yeah, BoomBustBlog covered this in detail... Two years ago - Introducing The BoomBustBlog Sovereign Contagion Model: Thus far, it has been right on the money for 5 months straight!

The BoomBustBlog Sovereign Contagion Model

Nearly every MSM analysts roundup attempts to speculate on who may be next in the contagion. We believe we can provide the road map, and to date we have been quite accurate. Most analysis looks at gross claims between countries, which of course can be very illuminating, but also tends to leave out many salient points and important risks/exposures.

foreign claims of PIIGS

In order to derive more meaningful conclusions about the risk emanating from the cross border exposures, it is essential to closely scrutinize the geographical break down of the total exposure as well as the level of risk surrounding each component. We have therefore developed a Sovereign Contagion model which aims to quantify the amount of risk weighted foreign claims and contingent exposure for major developed countries including major European countries, the US, Japan and Asia major.

I.          Summary of the methodology

    • We have followed a bottom-up approach wherein we have first identified the countries/regions with high financial risk either owing to rising sovereign risk (ballooning government debt and fiscal deficit) or structural issues including remnants from the asset bubble collapse, declining GDP, rising unemployment, current account deficits, etc. For the purpose of our analysis, we have selected PIIGS, CEE, Middle East (UAE and Kuwait), China and closely related countries (Korea and Malaysia), the US and UK as the trigger points of the financial risk dissemination across the analysed developed countries.
    • In order to quantify the financial risk emanating in the selected regions (trigger points), we looked into the probability of the risk event happening due to three factors - a) government default b) private sector default c) social unrest. The probabilities for each factor were arrived on the basis of a number of variables determining the relative weakness of the country. The aggregate risk event probability for each country (trigger point) is the average of the risk event probability due to the three factors.
    • Foreign claims of the developed countries against the trigger point countries were taken as the relevant exposure. The exposures of each developed country were expressed as % of its respective GDP in order to build a relative scale for inter-country comparison.
    • The risk event probability of the trigger point countries was multiplied by the respective exposure of the developed countries to arrive at the total risk weighted exposure of each developed country.
  • File Icon Sovereign Contagion Model - Retail- contains introduction, methodology summary, and findings
 

 

 


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Sun, 01/22/2012 - 22:02 | Link to Comment arg
arg's picture

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Thu, 01/19/2012 - 00:02 | Link to Comment BlackholeDivestment
BlackholeDivestment's picture

Looks like one of those maps in the back of an old KJV Bible. 

http://www.youtube.com/watch?v=LQEgZNqa8jE

Wed, 01/18/2012 - 21:23 | Link to Comment rsnoble
rsnoble's picture

wow. looks like a few people here are a few drinks ahead of me lmao.

One things for certain, all us "regular folk" will get the longest, shittiest ride of the bunch.

Wed, 01/18/2012 - 20:57 | Link to Comment Judge Arrow
Judge Arrow's picture

An amicus curiae in this court by Reggie always appreciated and thought over. Bailiff, drinks all around.

Wed, 01/18/2012 - 20:12 | Link to Comment The Reich
Wed, 01/18/2012 - 19:37 | Link to Comment Clockwork Orange
Clockwork Orange's picture

Reggie,

Ignore the garbage - you have been dead-on for a long time.  Keep it up please.

Wed, 01/18/2012 - 18:47 | Link to Comment jmcadg
jmcadg's picture

@ booboo

We've got Malta, sorted.

Wed, 01/18/2012 - 17:48 | Link to Comment booboo
booboo's picture

Greece, Italy, Ireland,  Portugal, Spain

Can we get Monrovia to step up to the plate so we can have the GIIMPS

Or... Portugal, United States, Spain, Yugoslavia

Wed, 01/18/2012 - 23:03 | Link to Comment Buck Johnson
Buck Johnson's picture

Look at the UK, they are very silent and are trying to hide.

Wed, 01/18/2012 - 17:56 | Link to Comment andybev01
andybev01's picture

"the gimp's sleepin'..."

Wed, 01/18/2012 - 17:45 | Link to Comment Cole Younger
Cole Younger's picture

I keep hearing the shy is falling..I am starting to get real skeptical.

Wed, 01/18/2012 - 17:27 | Link to Comment razorthin
razorthin's picture

Banksters cannot and will not take a haircut, Reggie.  They'll lie (more), steal (more) and beg (more).  They'll change all the rules on the fly and create another monetary scheme before they ever allow that.  The only take-downs will be according to bankster plan.

Wed, 01/18/2012 - 15:34 | Link to Comment andybev01
andybev01's picture

Reggie,

I enjoy your posts and the information that you present is always thought provoking however you should work on your low self esteem issue as it might make for a more positive read.

;-)

Wed, 01/18/2012 - 18:07 | Link to Comment General Debility
General Debility's picture

Haha. I'm sure Reggie will appreciate that remark. His healthy self-esteem can take it.

Wed, 01/18/2012 - 17:41 | Link to Comment Stack Trace
Stack Trace's picture

What "is" low self esteem?

Wed, 01/18/2012 - 15:26 | Link to Comment roadlust
roadlust's picture

So when is the Euro/Europe finally going to implode? Does "any minute" mean another two years of being "right on the money" without any significant changes in the range of equity or currency prices from last year? 

It's hard to trade on "information" that is based two year time frames.  Or four.

Wed, 01/18/2012 - 15:32 | Link to Comment Reggie Middleton
Reggie Middleton's picture

Subscribe to get those hard questions answered.
You shouldn't try to trade off of free blog posts anyway.

Wed, 01/18/2012 - 23:37 | Link to Comment I am a Man I am...
I am a Man I am Forty's picture

you know reggie, if you give other people your trades after you give your clients your trades, it only helps you and them, and just because you pay for something certainly doesn't mean you are going to make money

also, can you repost your iphone projections so we can compare with actuals for the apple earnings call?

Wed, 01/18/2012 - 16:50 | Link to Comment jcaz
jcaz's picture

LOL- that's funny.... YOU saw this two years ago?  Wow- you're up there with Robo Trader-  you expect us to PAY you for something we all saw THREE years ago?

You shouldn't troll for suckers on free blog posts anyway-  Overpriced pseudo-intellectual newsletters are so 1988....  Spend less on your suits and more on your content, we'll take a look at you.

At least your spelling is improving;  

Finally break down and hire spell-check?

Wed, 01/18/2012 - 17:56 | Link to Comment Jolly.Roger
Jolly.Roger's picture

Yeh 

Why is 20% of every Reggie Middleton post explaining what a great genius and wise soothsayer Reggie Middleton is?

Wed, 01/18/2012 - 21:18 | Link to Comment tricky rick
tricky rick's picture

   I like Reggie... lots to like - he's pretty right on for a smart guy.  But Reggie like Reggie too!  bet there isn't a mirror he hasn't noticed himself in!!  Sam Malone reincarnated!

Wed, 01/18/2012 - 15:31 | Link to Comment CompassionateFascist
CompassionateFascist's picture

Stop trading. Invest in lead.

Wed, 01/18/2012 - 19:32 | Link to Comment Zero Govt
Zero Govt's picture

Hi Reggie

the last 2 reports (short targets) i read of yours had no recommendations yet. In fact i've yet to read one that has1 So where precisely is your timing for the Euro collapse if you'd be so kind?

Thu, 01/19/2012 - 03:01 | Link to Comment Reggie Middleton
Reggie Middleton's picture

That is a discussion that should be had on my site.

Wed, 01/18/2012 - 14:37 | Link to Comment richard in norway
richard in norway's picture

i remember this post from way back and have not been surprised by devlopments. good work as always

Wed, 01/18/2012 - 14:17 | Link to Comment Nozza
Nozza's picture

Just keep 'em coming Reggie. Always worth reading and digesting. Some people all they do is piss and moan, always taking and never adding anything to the party.

Wed, 01/18/2012 - 13:11 | Link to Comment resurger
resurger's picture

Goldman Q4 profits is down by 57% and the share is up by 6%! WOW

Wed, 01/18/2012 - 20:08 | Link to Comment Clockwork Orange
Clockwork Orange's picture

GS stock price down 40% in past year and 3 of their Euro-technocrat criminal thugs got installed to run countries or the ECB itself!   Success has its rewards. 

Wed, 01/18/2012 - 12:33 | Link to Comment falak pema
falak pema's picture

the key to your strong, detailed,  now uncontested analysis : bottom up approach. Kudos. 

A top down approach would explain how sick minds think; just saying, as the facts speak for themselves.

Wed, 01/18/2012 - 11:13 | Link to Comment Jolly.Roger
Jolly.Roger's picture

 

Reggie,

 

Please get your articles proof-read before posting. Sloppy writing bespeaks a sloppy mind.

 

 

Wed, 01/18/2012 - 22:32 | Link to Comment philipat
philipat's picture

Reggie, Reggie, Reggie, as much as I love you, I do wish that you would stop telling all the (Cheap) ZH readers about what you advised paying clients X years ago. Look what you are missing? Sales promotion. Either put up or shut up. I think most ZH readers are capable of making informed decisions without the hype.

Wed, 01/18/2012 - 19:54 | Link to Comment hardcleareye
hardcleareye's picture

I like Reggie's articles just the way they are currently written.  His postings are clear and concise with very little ambiguity.

Criticisms of the grammer errors are only warranted if they change or shift the meaning of his message/sentence. 

Wed, 01/18/2012 - 16:03 | Link to Comment anonnn
anonnn's picture

But note that Reggie carefully defines all his use of acronyms, except the most common ones. This is so you and I can understand his ccommunication.

Wed, 01/18/2012 - 13:19 | Link to Comment Possible Impact
Possible Impact's picture

Timely - "off the cuff" - FREE

I'd rather have his quick take on a subject.

Wed, 01/18/2012 - 15:28 | Link to Comment CompassionateFascist
CompassionateFascist's picture

Alzo, he's right. And my sister, the frickin' mudshark, still wants to have his babies.

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