UBS' Euro Doom And Gloom Team Releases Sequel: "The Eurozone Sovereign Crisis Has Entered A More Dangerous Phase"

Tyler Durden's picture

From the same fine Swiss folks who three weeks ago (and before it was uncovered that when it comes to playing, or at least scapegoating, dangerously, UBS is second to none) brought you, "Under the current structure and with the current membership, the Euro does not work. Either the current structure will have to change, or the current membership will have to change," comes the sequel: "We believe the Eurozone sovereign crisis has entered a more dangerous phase. Financial and banking stresses are plainly evident as concerns about sovereign default grow. Notwithstanding signs from Washington this past weekend that European and world leaders are willing to consider more decisive policies, concrete steps remain elusive. Yet rising uncertainty threatens an already weakened world economy." The Swiss Bank's conclusions? "First, Europe’s politicians and policy makers must do more to shore up the Eurozone and investor confidence more generally. Among others, that probably includes stronger capital buffers in the banking sector, an expanded EFSF/ESM to finance bank recapitalization and support Eurozone bond markets, and further fiscal austerity in ‘at-risk’ Eurozone countries. But these are big asks of Europe’s ‘political economy’. Hence, the second conclusion: The likelihood is that the crisis will intensify before policy can deliver what is required." Reality 1: Strange little "source" voices inside the heads of chief economists of financial comedy cable channels: 0. 

And let's cut right down to the case, or in this case the section UBS titles, "Risk Scenarios":

Risk case 1: Disorderly default


It may be, however, that compromise between the ‘troika’ and the Greek government becomes at some point impossible. That could occur if the Greek government (and broader socio-political backdrop) is unable to deliver compliance with the IMF program of fiscal austerity, structural adjustment and privatization.


This risk scenario could then unfold with a unilateral Greek default, which if not adequately anticipated and provisioned in the form of capital buffers in the financial sector, would lead to the default and collapse of much of the Greek banking system (given its extensive holdings of Greek government debt), which would then spread via counterparty default to the non-financial corporate and household sector in Greece, as well as to the financial counterparties elsewhere, above all in European banks, pension funds and insurance companies. Plausibly, rising risk premiums would also lead to rising bond yields and widening spreads in the government debt markets elsewhere in the Eurozone, above all in Italy and Spain. Selling pressures could easily overwhelm the modest buying-power of the EFSF (assuming its mandate to buy bonds has been approved) and could even challenge the ability or willingness of the ECB to engage in very large- scale bond purchases.


The resulting rise in risk premiums would depress economic activity, quite possibly pushing weakly-growing economies such as Italy’s into recession, exacerbating sovereign credit risk perceptions. Financial stress and heightened uncertainty would almost surely be transmitted globally, dealing another shock to the already-fragile and wobbly US recovery. Indeed, we believe it would not be an overstatement to consider disorderly Eurozone sovereign default as the chief risk to global recovery.


Risk 2: Eurozone exit

In a recent paper “Euro breakup – the Consequences” we demonstrated how complex and costly expensive breaking up the Eurozone would be. The worst case scenario would be the exit of a weak country, such as Greece. Less costly, but still very expensive, would be the case of a strong country leaving the Eurozone. The ‘direct’ costs include sharp increases in risk premiums and large moves in exchange rates, which would likely result in recessions everywhere, compounded by very high inflation in weak countries that exit and issue their own currency.


But the costs extend to widespread financial stress and default. Currency mismatches between assets and liabilities could lead to very large private sector defaults. Beyond that, it would be difficult, in our opinion, to contain financial risks, including bank runs in other ‘at risk’ countries. The ensuing dislocations in economic and financial terms could even result in severe social unrest and pressures on the political fabric of the EU itself.


Elsewhere we have detailed the potential costs of Eurozone exit, either by a weak or strong country departure. We will not repeat those scenarios or calculations here—the interested reader is referred to the publications at the end of this document. However, suffice it to say, that exit represents in all likelihood the most adverse development of all, with output losses for affected Eurozone countries ranging from 20-40% of GDP (if not higher), accompanied by widespread bankruptcy and financial dislocation.


Yet that does not mean that exit can be ruled out. In the scenario of a disorderly sovereign default outlined above, political pressure might well result in exit, particularly if the defaulted government had little prospect of receiving financial assistance from the EU, ECB or IMF.


Needless to say, however, the broad market implications of disorderly default and exit only differ by degree. In either case, surging risk premiums and falling output would lead to declines in equity prices, widening credit spreads and financial market dislocations on par with those of the immediate post-Lehman brothers market melt-down. The refuges of risk-averse investors would most likely include the usual suspects: cash, the US dollar, Swiss franc and gold.


Risk 3: Recession


The latest stresses emanating from the Eurozone crisis are arriving at a time when the global economy slowed and is therefore more vulnerable to shocks. As global economist, Andy Cates, recently noted, model results suggest the probability of a global recession have risen to 15% from about nil just a few months ago. Global economic activity indicators have slumped relative to consensus estimates over the past month. And although the weakness is pronounced in sentiment and survey measures, concerns are rising that ‘hard’ activity indicators may turn sharply lower as well.


The Eurozone crisis imparts two adverse shocks to the world economy. First, heightened uncertainty erodes confidence, resulting in weaker (discretionary) outlays by households and firms alike. Second, increased financial stress and rising counter-party risk—as evidenced by Eurozone bank funding gaps— threatens to curtail credit to the real economy.


The market implications of a global ‘double-dip’ are superficially straightforward. Stocks, commodities and high-yield credit markets would slump, with safe-have bonds (Treasuries and Bunds) and currencies (Swiss franc) rallying.


But the scope of moves could be considerable. Notwithstanding the widespread observation that ‘stocks are cheap’, a global recession could send share prices 20-30% lower. That’s not just because earnings would fall. Concerns about how the world economy could extricate itself from recession, given the relative impotence of advanced economy monetary policies and the political or financial restraints on fiscal expansion, would result in more elevated risk premiums. The old adage that stocks don’t trade on trough multiples alongside trough earnings might not hold true if the world economy double-dips.

So.... in other words according to UBS, Steve Liesman's CDO Squared bailout rumor source, is that little voice of wishful thinking in the back of his head that always seems to pitch in whenever the danger of all those unvested GE options expiring worthless, and hence the Ponzi finally unwinding, reaches an apex.

Full report:


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UP Forester's picture

"But, but, but the Dow is back over 11,000!  This must be bullish!"

Ahmeexnal's picture

A pailful of ordure has just hit the fan in France: Sarzoky has banned sale of gold and silver over 450 euros.

WestVillageIdiot's picture

I noticed last night that BullionDirect now sells gold in quantities of 1 gram.  I had never seen that before. I guess they want to make sure the little guy can get into the act. 


That is just in time for the AU bubble to burst.  /sarc

In all seriousness I am waiting for the people I know that weren't buying gold because it is "too expensive" to now say they aren't going to buy because they are afraid of the bubble.  People are dumb.  Real dumb. 

Lucius Cornelius Sulla's picture

The last time I bought gold it was $360/ounce and I didn't tell anyone about it because people would have thought I was one of those freaky ultra paranoid survivalist types.  Now it's just the opposite.  Everyone thinks gold is such a safe investment!  Time to sell.

Fukushima Sam's picture

"Ladies and gentlemen, I regret to inform you that we have reached the 'dangerous phase' of our economic journey.  This will soon be followed by the 'fright or flight' phase followed by the 'shitting the bed' phase, and finally ending with the 'eating the Joneses' phase.  Don't worry, this is all part of our regularly scheduled programming.  Please relax as best you can while we apply some final adjustments to make your ride more comfortable."

EvlTheCat's picture

The following rides at Economic Journey have minimum height restrictions.These heights are measured with shoes on. Maximum weight restrictions are also listed where appropriate.

Sock Puppet's picture

After reading all of the above, the only solution is for Europe to socialize the bank's losses so businesses, governments and people don't go bankrupt.  Better to preserve the status quo than risk the financial devistation that would be wrought by defaut.

Just sayin.

TruthInSunshine's picture

Shit's hitting the fan in Germany today:

09-27 1:44: Germany at war over Eurozone bail-out - Telegraph

Germany at war over Eurozone bail-out - Telegraph

Confirmation of the talks, however, sparked outrage in Germany, where opposition politicians threatened to derail the plans by voting against a key amendment to the bail-out fund this Thursday. The head of Germany’s constitutional court also piled on the pressure by warning the government not to circumvent the law “by the back door”.

Sock Puppet's picture

Tuesday, Sep 27, 2011 01:39 AM

. . . . . . . . . . . . . . . . . . . . . . . . . 

 German Economy Minister Philipp Roesler, who’s also the leader of the Free Democratic Party, expects enough votes from the ruling parties to approve expansion of the European Financial Stability Facility without help from opposition lawmakers, Bild Zeitung reported, citing an interview.

Sock Puppet's picture

02:21 AM  German Gfk Consumer Confidence for October comes in at 5.2 vs. expectations for a reading of 5.0.

luna75's picture

Love your comment, made one change, hope you like this one too:


"Ladies and gentlemen, I regret to inform you that we have reached the 'dangerous phase' of our economic journey.  This will soon be followed by the 'fright or flight' phase followed by the 'shitting the bed' phase, and finally ending with the 'eating the Joneses' phase.  Don't worry, this is all part of our regularly scheduled programming.  Please relax as best you can while we apply some FOOD STAMPS to make your ride more comfortable."

CapitalistRock's picture

Fewer than 1 in 500 Americans own even a single ounce of gold bullion. What gave you the idea that "Everyone thinks gold is such a safe investment"? Absolutely nothing could be further from the truth!

LongBalls's picture

The way I understand it; anything over 450 Euro or $600 USD must go through a bank transaction. It's not an all our ban. It is however a tracking system for confiscation.

Something bigeth come our way. It seems that no matter what the price of gold the governments of the NWO are going to come for it.

Ahmeexnal's picture

Yes, that's exactly what it is as I also posted on the other thread.

WestVillageIdiot's picture

Does anybody really know where all of their metal is?  I'm serious.  I've given so much of the shit away, trying to turn people on to buying, that I don't know what I have anymore.  Don't tell my wife.  I'm trying to keep it secret. 

Ahmeexnal's picture

when TSHTF and "they" come for your shiny stuff, just tell them you hosted several Bunga-Bunga parties and paid for them with the metal.

Prometheus418's picture

I sold it all, on account of I was scairt of teh bubble bursting.  Can I write off the capital losses on my taxes now?

Tater Salad's picture

Sorry agents, I spent my bullion on prostitutes and whiskey....and yes one midget, needed a midget to complete the party.


yabyum's picture

Hooker & Blow! Always a sound investment.

WoodMizer's picture

I swapped it all for bitcoin after the Bernak called it tradition.

Founders Keeper's picture

[when TSHTF and "they" come for your shiny stuff...]---Ahmeexnal


"Who is it?"

"Federal Reserve Agents, Smith and Jones."

"What do you want?"

Mr. Keeper?...We're here to serve notice under the authority of the Federal Reserve and hereby execute the Precious Metal Repatriation Act.  We're here at your convenience to Repatriate your PMs to the Federal Reserve and compensate you at fair market price.  Are you alone, Mr. Keeper?

"Do you have a warrant, Agent Smith?"

"Well.  As you may be aware, Mr. Keeper, the mandate is a nationwide repatriation.  We wish to collect only those PMs for which we have purchase records.  We have your records here.  Can we expect your full and patriotic cooperation?  May we come in?

...Mr. Keeper?"

"You're gonna need more agents."


mcguire's picture

WVI, thanks for posting that... i thought i was the only one giving it away.


UP Forester's picture

Boy, doesn't this sound just like the Obamacare tracking requirements on gold?

Nah, it's just a conspiracy theory, 'cuz that little tidbit got Memory-holed....

doomz78's picture

so when banks in europe fail or they do a europe quantitative easing to liquify the banks will gold and silver shoot through the roof?   The world seems to be trying to print their way out of everything!!!!  I think if they bail out the european banks we will solidify another year of slow and steady bull market in gold and silver.  A more controlled explosion of the euro if you will...  Confusing times.  Now for the USA....  I don't know where to begin.  Euro and US dollar seem to be destined to sink together over time.  Thelma and Louise. 

Dapper Dan's picture


tout cela est écrit en langue française, je ne peux pas lire cette langue.

LeonardoFibonacci's picture

Ahmeexnal actually you are incorrect as all sale of gold > 450 euros can only be SETTLED by wire transfer method (virement).  The limit is not 450 euros, it is the method of settlement which is limited

Ahmeexnal's picture

Yes, it's CASH sales over 450 euros that are banned.

For all intents and purposes my statement that gold and silver sales in France are banned is correct.

It's just the timing of my statement which came to early.  Speed of thought is faster than speed of light.

So just relax and don't bother getting of you couch.

If the 450 ban on CASH sales means nothing to you, it's because you will never buy any PMs anyways.

For those who see the writing on the wall, it means they have not much time left to buy more.

Overflow-admin's picture

Foutu nain! Je parie qu'il veut tout l'or pour lui! Vive le marché noir n'est-ce pas?!?
-> Damn dwarf! I bet he wants all gold for him alone! Long live black market - isn't it ?!?


(sorry I couldn't resist...)

Cruel Aid's picture

11000 with participation plunging... hmmm!

WestVillageIdiot's picture

Look at that.  In early trading the Nikkei is up 1.5%.  It is all the way back to 8,500.  What a joke the American "market" is.  We'll see if the Dax can continue its rally tomorrow. 

Does anybody even look at NYSE futures anymore, for anything other than comic relief? 

wombats's picture

Damn right its bullish....and GS bonuses will be assured as well!  What more could the world ask?

westboundnup's picture

When doom finally arrives, the global economic system collapses, and markets finally close for good, the Dow will finish modestly up. 

Cheesy Bastard's picture

If tomorrow there was a world wide nuclear comet based earthquaking volcanic pole shifting explosive hurricane blizzard caused famine, the dow would finish modestly up.  Volume would probably be low.

Bunga Bunga's picture

Because such things are already priced in. But neutrinos are faster than light, this is not priced in yet and very bullish.

UP Forester's picture

And the only thing faster than neutrinos is the newest algo software, so GS can front-run it anyhoo....

WestVillageIdiot's picture

My wife always tells me I'm faster than the speed of light.  Or is it the speed of sound?  I don't really know.  I'm usually asleep by that point. 

Cheesy Bastard's picture

I used to be that fast.  Lately I can get to about the speed of smell.  When I'm done I can usually claim narcolepsy too.

Manthong's picture

The market is a discounting mechanism.

Neutrino algos have been discounted to the speed of a Greenspan kidney stone.

jdelano's picture

Junior physicist:

I hate to tell you this, Sir, but we've been unable to demonstrably prove or disprove the existence of the Higgs Particle. Whatsmore, we can't even find the particles we sent flying around this bitch...

Senior physicist:

What? What do you mean you can't find them?


There appears to have been an cognitive aberration in the observation apparatus that has catalyzed a systemic failure in the quantification dialectic.


In plain English, Son, where the f@$k are the particles.


Uh. We don't have a f$@king clue, Sir. We lost them.


You lost them?! Do you have any idea how many billions of dollars it took to build this freaking facility? We can't tell the msm we LOST the freaking particles because you inept ass hats can't run a proper experiment?!


Well, then what should we tell them, Sir....


I don't know--ANYTHING. Tell them we opened a new dimension--no, wait, even better, tell them we think we actually managed to accelerate the particles so freaking fast they exceeded the speed of light and made a quantum leap into another dimension!

G-R-U-N-T's picture

LOL/UGH!!...What's disturbing about this is there may indeed be a grain of truth in this.

Dapper Dan's picture

Stop the LHC now!

CERN should be halted until irrefutible evidence of Hawking Radiation is returned from GLAST, launched last year. Any sooner would be irresponsible. Visit the official myspace awareness site:

:24, Nov 30, Ms. Amanda Lucas, Germany
Why do I feel CERN's experiment should be stopped? For one, CERN stated that physicists who were part of the LHC Safety Assessment Group were not involved with the LHC experiments, when in truth, CERN physicist John Ellis has been promoting this experiment since 1987. CERN physicist Brian Cox has stated on numerous occasions that they don't know what will happen, like his statement "At every stage of understanding the universe better, the benefits to civilisation have been immeasurable. None of those big leaps were made with us knowing what was going to happen." Their most idiotic statement, two colliding protons which would be 100,000 times hotter than the core of the sun, is equivalent to two mosquitoes colliding. EQUIVALENT TO TWO MOSQUITOES COLLIDING! What the hell are they smoking down there? These CERN crackpots, who state they're not religious, like myself, are proudly showing off a four-armed statue outside their complex of the Hindu God Shiva, destroyer of worlds in Hinduism, which was a present from India. And they want us to take them serious when they state all is safe? CERN states on their site "The LHC, like other particle accelerators, recreates the natural phenomena of cosmic rays. Nature (cosmic rays) has already generated on Earth as many collisions as about a million LHC experiments ? and the planet still exists." and when you continue reading, third paragraph under the topic "Micro Black Holes" they contradict themselves on this same page with "Collisions at the LHC differ from cosmic-ray collisions with astronomical bodies like the Earth." MAD SCIENTISTS! First statement: Contradicting statement: Great source of info:

agent default's picture

Modestly?  It will rally at least 5000 points.  I mean total disaster. That's bullish right? Even better throw in WIII +15000 intraday guaranteed.

Seasmoke's picture

just seeing Liesman holding worthless options, makes a total collapse worth it

Sequitur's picture

Eurozone imploding? Who cares. Please pay attention to what is important:

A Deeper Look At The Dire Bonus Situation

At UBS, they say, "A bunch of employees that were staying put anticipating a bonus just got sacked in the nuts."