Two Years Ago I Said Greece Was A Guaranteed Default, Today's 1 Yr Yield is 426.118%, Give Or Take

Reggie Middleton's picture

Do you want to know who's next for the bond vigilantes? Read on...

In today's headlines:

On Thursday, 22 April 2010 I Explicitly Forwarned, Greece Is Well On Its Way To Default, and Previously Published Numbers Were Waaaayyy Too Optimistic! That post provided ample evidence to support said assertion. Fast forward nearly two years and the Greek Govt Bond 1Year Yield is roughly 426.118%. Many, if not most, pundits swore that Greece would not default. Now, even S&P Says Likely to Cut Greece to 'Selective Default'.

Standard & Poor's will likely downgrade Greece's ratings to "selective default" when the country concludes its debt restructuring, but that will not necessarily destroy the credibility of the European Union, an official with the ratings agency said on Tuesday.

Who's willing to bet the farm on that statement?

"It's not a given that Greece's default would have a domino effect in the euro zone," John Chambers, the chairman of S&P's sovereign rating committee, said in an event organized by Blooomberg Link.

Of course not! It wouldn't effect Portugal, Italy, Spain nor Ireland, right???!!! You know that I know that you know that Portugal is up next. Of course, games will continue to be played with CDS, since some declare that "selective default" does not necessarily trigger CDS. The pertinent fact is being missed, or ignored. Even if one does wiggle around triggering CDS, the losses will have to be taken, even if through counterparty risks blowing apart as the banks that thought they were hedged weren't hedged, collapse, bringing the counterparties who relied on them for payment down with them... Daisy Chain style. There really is no way around it.

CNBC goes on to report...

IMF Positive

Asked if there was still hope of a deal, IMF chief Christine Lagarde said she remained positive.

"I'm determined to be positive," she told Deutschlandradio Kultur. "Political leaders have the instruments and possible measures in order to manage this situation and bring the euro zone back on to a sustainable path."

Yeah, right! You see, the IMF's problem is that they're too positive on Greece and Portugal. As excerpted from  Lies, Damn Lies, and Sovereign Truths: Why the Euro is Destined to Collapse!:

Let's take a visual perusal of what I am talking about, focusing on those sovereign nations that I have covered thus far.


Notice how dramatically off the market the IMF has been, skewered HEAVILY to the optimistic side. Now, notice how aggressively the IMF has downwardly revsied their forecasts to still end up widlly optimistic. image018.pngimage018.pngimage018.png

Ever since the beginning of this crisis, IMF estimates of government balance have been just as bad...


Do remember what I told the Dutch about being optimistic, or pessimistic...

For those who are optmistic of a plan to work out an orderly default with CDS, let me explain again... You are missing the point!  Massive amounts of capital has been destroyed, and it is not coming back. That capital destruction has yet to be recognized by the markets and TPTB are trying their best to postpone said recognition. Once that recognition is upon us, the daisy chain effect will be inevitable as various players seek to be made whole. I have run through the capital destruction scenario two years ago...

  1. What is the Most Likely Scenario in the Greek Debt Fiasco? Restructuring Via Extension of Maturity Dates
  2. A Comparison of Our Greek Bond Restructuring Analysis to that of Argentina

Now, all of you hedge fund guys who are trying to stay ahead of the curve, turn your attention past Greece and back to Portugal - as I have. Reference my past writings...

I discussed Portugal's role in the domino effect in illustrative detail in Amsterdam last year...

Other articles of interest on the topic...

  1. Ovebanked, Underfunded, and Overly Optimistic: The New Face of Sovereign Europe
  2. How Greece Killed Its Own Banks!
  3. The Greek Bank Tear Sheet is Now Available to the Public
  4. Lies, Damn Lies, and Sovereign Truths: Why the Euro is Destined to Collapse!

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falak pema's picture

OT : Apple LIVE: APPLE NUMBERS ARE OUT AND IT'S A BLOWOUT Jay Yarow | Jan. 24, 2012, 5:01 PM |; background-attachment: initial; background-origin: initial; background-clip: initial; background-color: initial; color: #f11e1e; background-position: -300px 0px; background-repeat: no-repeat no-repeat;" title="views">101,780

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Centauri's picture

Reg - care to make a real prediction re: Apple? Results out in 2 hours - more evidence of the impending collapse? 

ZackAttack's picture

Whatever happened to Leo's call that this 1y debt was a screaming buy above 7% coupon? I seem to recall that from sometime back in 2010.

OldE_Ant's picture

FYI folks:  I found an article just a bit ago on y@hoo finance titled "Greek Default: Why Europe Thinks It May Not Be So Bad"  put in the finance url and add /news/greek-default-why-europe-thinks-174456707.html to get to original article. 

Quoting the first part of the article which comes from a CNBC live interview of Charles Dallara (lead negotiator for the private holders of Greek debt)

"European leaders are beginning to accept the idea that Greece will be forced to default on its debt, causing a long-feared "credit event" that triggers billions of dollars of credit default swaps.

Financial markets have been worried for months about such an event, fearing that it would spark another financial crisis similar to the one that was triggered by the collapse of Lehman Brothers in 2008.

But European leaders are becoming less worried about the impact such an event would have on the global financial system. There are two reasons for this: an involuntary Greek default would not come as a suprise to financial markets, and the amount of money involved would be relatively small..."

Well heck Maaaw looks like ever'thin' is fine.

Starting to look like Greeks get off scott free.  Man I can't wait to see the sovereigns lining up at the BK door.  Mee too, can I have some of that default candy, cause I want to get some new credit cards and run up some bills so I can BK again.   lol.   I'm ready to break out the popcorn to watch the fireworks because somehow I don't think 3.8B is going to even remotely offset the losses on 150B or whatever the current number is for Greece.  Someone is going to come up with a Greek debt belly ache somewhere if that happens..

Questan1913's picture

Yahoo is defnitely one of the best sites to go to if you want to see what the establiishment liestream narative currently being promulgated is.  Then understand that what you have just seen or read is roughly equivalent to a swindler trying to position you on the losing side of his proposition, and that 99 percent of mainstream financial media has the same intent, proven during the runup to the tech bubble and the realestate bubble both of which emptied the pockets of millions of trusting viewers and readers, and yet still works magnificently today.  What does this tell us?

Dingleberry's picture

Reggie was outfront and spreading the alarm when all the "green shoots" were coming into full bloom, and all the MSM was giving the all-clear sign.  Reggie ain't perfect.....but he appears to be honest and very prescient.  Even in the face of a tsunami of lies coming out of Euroland, the MSM and the Fed.

PORTA PORTA's picture
Reggie Middleton is a HOAX... overvalued and a luxury bloger. The art of copy paste with above average IQ can make you an Economist? What if i told you about Austrian default and Polish meltdown very soon? The Sweedish RE bubble ? PP
ebworthen's picture

Bacardi 151 or Everclear?

PORTA PORTA's picture

“The muddle is the risk.”

In Europe, the muddle is the risk. It’s not the breakup of the eurozone we need to fear in 2012 but a reactive, incremental approach to crisis management that will fail to satisfy investors and could push events beyond the control of political officials. The uncertainty and volatility we saw in 2011 has only just begun.

Ian Bremmer
President of the Eurasia Group
“The broader euro crisis can only continue.”

The ECB’s long-term repo has clearly lifted sentiment and probably postponed a banking crisis, which looked imminent in late 2011. But the broader euro crisis can only continue because policymakers still haven’t addressed the underlying cause – current and future imbalances in the euro area (and who pays for them). Only full fiscal transfers can keep the euro area together in its current form and there is evidently no political appetite for that. Instead, we have extreme austerity that will only compound the region’s problems. At some point (possibly quite soon), Greece is likely to leave and then we’ll get massive contagion and the probable breakdown of the euro area.

Dario Perkins
Director of Global Economics at Lombard Street Research
“More years of continuing fiscal consolidation and painful structural reform in the periphery will still be needed with all the attendant economic and political risks.”

Is the euro crisis over? Certainly not, indeed we may not be able to say that with any confidence for a number of months, perhaps even years. But in the end, we believe the euro area should eventually emerge stronger with its current membership intact. To be sure, the conviction of our belief is not as high as we would like and the risks remain skewed to the negative.

The immediate risk relates to Greece and the restructuring of its debt which if handled badly could lead to damaging contagion and in the worst case, fragmentation of the monetary union itself.
As agreement is secured on the long run fiscal governance issues, so it is more likely that the ECB will we more willing to play this role and help to bring yields down as needed.

Of course, even then, the crisis would not be over. More years of continuing fiscal consolidation and painful structural reform in the periphery will still be needed with all the attendant economic and political risks. By the time that period of adjustment is complete we are likely to see a new policy infrastructure up and running, with enhanced fiscal union perhaps involving eurobonds. Only then will the euro area be truly sustainable. At that point, we might be able to declare the euro area sovereign crisis over.

Peter Westaway
Chief European Economist at Vanguard Asset Management, Ltd.
“The idea that no further negative headlines await us is misguided.”

The euro crisis is most certainly not over. The ECB has gone a long way towards mitigating the worst liquidity fears however the idea that no further negative headlines await us is misguided. The Euro area has been a decades long project, borne out of difficult and lengthy periods of negotiation. This is merely the latest.

Dan Greenhaus
Managing Director and Chief Global Strategist at BTIG LLC
“The big crisis is over,” though there are still risks.

The existential crisis for the euro is largely over — baring any political shocks, for example, like Marine LePen winning the next French presidentail election (highly unlikely). However, just because the existential crisis is over, does not mean there will be no more systemic risks coming from the euro area. The banking system is going to continue on life support from the ECB. The sovereign debt issue has gone nowhere. Each new round of austerity risks a stronger back-lash from european tax payers.

So, with the euozone, the big crisis is over. The problems are far from over though, and the unresolved risks in the system mean we could see the crisis re-emerge.

However, for investors, it is worthwhile to think of what the market is priced for at the moment. If you think it is priced in crisis mode, then it is surely over-sold.

Lorcan Roche Kelly
Chief Europe Strategist at Trend Macrolytics, LLC
LTROs and bailout packages “will all buy some time, but eventually the weaker EZ countries will need a growth strategy, and will decide leaving the EZ and undergoing a competitive devaluation is the fastest way to pursue one.”
LTROs and bailout packages

For the Eurozone crisis to be suddenly over (in the absence of Eurobonds or fiscal transfers), three main issues would need to be resolved: some of Europe’s debt would need to be written down, the sovereign/banking feedback loop would need to be broken and (most importantly) the Eurozone would need to have a credible growth strategy going forward.

EZ government bond yields have dropped since the end of last year and peripheral government debt auctions have gone very well in January 2012. This is largely due to the ECB’s new 3 year LTRO facility, which has reduced some of the pressure on EZ banks but does not address any of the fundamental underlying causes of the EZ crisis and therefore is not a game changer.

Looking forward the next few months, I think we’ll see a coercive debt restructuring in Greece, a disappointingly small take-up of the second 3 year LTRO and a bailout package cobbled together for Italy and Spain. These things will all buy some time, but eventually the weaker EZ countries will need a growth strategy, and will decide leaving the EZ and undergoing a competitive devaluation is the fastest way to pursue one.

Megan Greene
Senior Economist for Western Europe and the Eurozone at Roubini Global Economics


Zero Govt's picture

Great going Reggie

I take your point capital destruction is capital destruction.. an "orderly default" is about as significant to the event as a birthday candle in a steal mills 2,000 Degree blast furnace

i'm waiting for the default to see if Count Dracula continues Trichets delusional window dressing with words amidst the clearly crumbling EU and manages to fit "orderly default" and "stability" into the same sentance... hope i'm near a hospital if he does as i'm going to split my fuking sides laughing (those 2 clowns are very funny blokes)

ebworthen's picture

But...but...Lagarde used the magic word "sustainable" Reggie!?

She also incanted "positive" and necromanced "instruments" and "measures".

Greece 1- year bond at 426%; doesn't that mean I can make a lot of money?

(/sarc off - and Reggie - this one was nice and succinct and to the point - well done).

resurger's picture

Are you selling a CDS EB?

Zero Govt's picture

no EB is humming the mantra of trigger words designed to Valium (mind-numb and hed fuk) the masses into the entirely false premise;

a). everything is alright (when it clearly fuking is not)

b). deflect public gaze from bankrupt gambling bums (bwankers) who have destroyed almost every country in Europe as far as Iceland (as the worthless commission-cutters/c*nts have been doing for centuries)

c). that the elite have a plan/clue what they're doing (another lie, these peanut brained clowns make it up as they go along and cover their unfolding shambles in bluff and bluster)

EB is of course wise enough, cynical enough and realistic enough that the (snake) oil/PR and water/reality don't match and Lagarde is talking complete crap (a CV 'essential skill' for an IMF or any central banking job)

resurger's picture

true! i loaded more Gold and Silver to my portfolio, am short stocks atm

resurger's picture

Hello Reggie,

you are officially the ZH Cephalopod Hunter : )

even if teh greeks reach consensus to accept 1% haircut on their bonds, this will still trigger the CDS! 100% Default

The only thing left is when?

are you blacklisted on CNBC yet...



kaiserhoff's picture

Don't know about those last two digits, but 426% sounds about right.  Maybe there is a god..., or at least, now and then, a market that passeth manipulation;)

michael_engineer's picture


The IMF is known for their rosy projections.

So what if their reduced expectations are just their "new rosy" in their attempts to adjust to the "new normal"?

If they have consistently overstated expectations in the past as that suits their purpose, then it just might be that they are still overstating expectations to suit their purpose.

They may have scaled back their "rosy outlook" so they are not viewed as too wildly out of touch with the real economic crisis on the ground.  Being too far out of touch would cause them to loose credibility quickly.

It might be interesting to consider that the IMF might be trying to stay some constant amount to the rosy side, maybe up to 5 percentage points or so.

Can someone easily quantify what their rosy fudge factor might be?

Interestingly, if they are now somewhat more pessimistic and still skewed to the rosy side of reality, what might that imply about real economic activity and real GDP?


847328_3527's picture

great work, Reggie!

G. Marx's picture

Are CDSs the reason we haven't seen the bond vigilantes doing the work they would have done in the past? With CDSs they can have their cake and eat it too. Hold sovereign debt, some rated AAA, use it as leverage and buy CDSs to cover risk? Without CDSs would interest rates have risen higher? I'm not talking about Greece here, but those other nations (such as the US and Germany, where we all know that current rates truly do not represent the risk of default?

CompassionateFascist's picture

You got it. That's precisely the fcn of CDS's. And when they don't finally pay out, Blythe and Co. laugh all the way to the bank: "And you thought you really owned silver, were insured, etc...". SUCKERS!  CF sez: invest in lead.

847328_3527's picture

Great Yield! Maybe I'll put some of my pension money into inflation yes.....

It's a government bond.....It has to be safe, right...

resurger's picture

Sure! Wait for Basel III 2013 , 0% hair cut on all Soverigns...

Good Game

Possible Impact's picture
How unrealistic optimism is maintained in the face of reality


Distinct regions of the prefrontal cortex tracked estimation errors when those called for positive update, both in individuals who scored high and low on trait optimism. However, highly optimistic individuals exhibited reduced tracking of estimation errors that called for negative update in right inferior prefrontal gyrus. These findings indicate that optimism is tied to a selective update failure and diminished neural coding of undesirable information regarding the future.


JW n FL's picture



Shit Reggie! I thought you said it was a Buy and that I would see returns of 500%!

man I better stop buying before I have my coffee! LOL!!


JW n FL's picture



I might add that we could have done a LOT! worse for a Token Black Contributor than You!!

YHC-FTSE's picture

+1 Phew! Took me awhile to go through the material, but yes indeed, you absolutely deserve credit for calling it in 2010. 

I think I was one of the few  who wanted Greece to leave the Eurozone (I certainly got a lot of -ves for that comment, but I wasn't complimentary towards the Greeks), and damn the consequences. Nothing much has changed. Cheers Reg.

clones2's picture

Would be curious to know who the parties are that bought these Greek bonds...that will trade at 40 cents to the dollar... and who bought CDS - which won't be paid out...

NotApplicable's picture

Well, you bought the bonds (okay, okay, we bought them).

As for the CDSes... looks like the banks sold it to each other knowing it will never pay off, but use it to make their exposure appear less risky. (a.k.a. "facade maintenance")

disabledvet's picture

I'm not gonna argue with Reggie because he was the only other one who was there. I would say as a warning to investors "sovereign defaults ate a lot different from Lehman defaults." as we all are to well aware "governments make the law so they decide what's legal." MF Global is THE case study: taking a serial numbered bar of gold and "trying to decide who really owns it" says all we...already know. This time of course "it's paper." and of course the interest rates reflect that...don't they! Let me guess: "whether or not it's your money is irrelevant since your money is always mine." What's his name again? Khoderkovsky? And he still rots in prison?

ucsbcanuck's picture

 "governments make the law so they decide what's legal."

Which is why the fact, as TD pointed out yesterday, that some of the Portuguese bonds are UK-law makes it veeery interesting. Sure, the Portuguese government might make the laws that govern Portugal-law Portuguese bonds.

But the UK-law bonds - different story. UK government intervention? Most of the hedgies operate out of the UK, and I'm sure a fair few of them have high-level connections. Also, there is no love lost between the EU and the UK. Plus I'm pretty sure the UK judiciary is as independent of the UK government as the German judiciary is.

The Alarmist's picture

UK law governs ... BFD! I suppose the Royal Navy can re-commission the Ark Royal and send it and Illustrious to do a few dozen sorties on Lisbon before they run out of munitions. Seriously, what are they going to do? Portugal will simply go back to the days of prior to its glorious Revolution of 1974. Hey, maybe the IMF will let them re-colonise so they can repay that debt.

Ruffcut's picture

Whatever, it not the rule of any law, but the law of the top ruler. The elites are fed up with all these laws that don't apply to them.

It is not who you blow, but who you owe, bitchezzz.