UBS' Releases Most Dire Prediction To Date: Greece To Experience "Coercive" Restructuring With CDS Triggering Around March

Tyler Durden's picture

UBS, which has been issuing ever gloomier forecasts over the past few months, with the sole intent of getting someone to bail out the European financial system, which despite the current stay of execution is increasingly more brittle (because solvency crises only get worse with time, never better), has just come out with its magnum opus. In a report released overnight, the firm's Global Rates Team has just jumped the shark, with a prediction that things in Europe are literally about to implode: "we anticipate that the crisis will deteriorate further than the stressed levels of late November. We do not believe that Greek PSI will take place in a “voluntary” fashion but instead expect coercive restructuring of Greek debt either before or soon after the March redemption, triggering CDS contracts. Greece is not likely to decide to leave the euro area in 2012, though the risks of that happening have certainly increased." And as we well know from previous UBS reports, a departure of a country from the Eurozone would lead to a mass splurge in purchases of guns, spam and gold. So is this merely a last ditch call for a bailout from someone, anyone: either Fed or ECB will do? Most likely. Because if while the general market continues to ignore Europe, and European banks are out there literally screaming the end is nigh, then the truth is surely somewhere inbetween. Especially, if as Reuters reports, Greece is just the beginning. "One of Portugal's most prominent business leaders has moved his family holding company to Holland partly because of uncertainty over whether the country will remain in the euro, Alexandre Soares dos Santos said in a newspaper interview on Saturday. Soares dos Santos, who is chairman of the board of Jeronimo Martins, caused a stir in Portugal this week when it emerged that his family holding company that controls the country's second largest retailer had moved to Holland...."I also don't know if Portugal will stay in the euro. And if it leaves, it will be to the escudo," Soares dos Santos told Expresso, referring to the escudo currency used by Portugal before it adopted the euro. "I have a right to defend my property."" So while everyone continues to expect the best, those who really matter are planning for the worst.

From Reuters:

Asked if the transfer had to do with the risk of leaving the euro, Soares dos Santos said: "Clearly. Since 2008 our economic consultants have talked about this."


Jeronimo Martins has been one of Portugal's most successful companies in recent years after having built up a large business in Poland, where it is now the biggest food retailer.


Portugal is currently going through tough austerity under a 78-billion-euro bailout by the European Union and IMF which has sent the country into its deepest recession in decades.


Soares dos Santos said the decision to move the holding to Holland had also been motivated by lack of financing by Portuguese banks, which have been hit hard by the euro zone debt crisis.


Jeronimo Martins has said there is no impact on its tax position from the move by its biggest shareholder.

And back to UBS, which may be on to something:

The 2012 trading year will begin in earnest with the release of Friday’s Non-Farm Payrolls data. This release will either provide more confirmation of progressive forward movement in the U.S. economy or undermine this nascent optimism and allow the unfolding events in Europe to influence the price action. It continues to be a bimodal world and investors have remained close to benchmarks as they wait for a dominant theme to emerge.


Political risk continues to pollute the investment landscape. In the U.S., President Obama appears to be staking out a strategy of making Congressional dysfunction his main issue, pushing forward with political appointments during the holiday recess and posing as the populist advocate. The Payroll Tax Relief bill expires – somewhat appropriately – on February 29, providing a near term casus belli for the ideologues in Congress. The Republicans are waging internecine war as they move through the primaries, a process which will likely come to a resolution by late winter. The Supreme Court will soon hear cases on the President’s health care reform and Arizona immigration laws and is expected to issue a decision by early Summer. From that point on the focus will deservedly be on the November 6 election. The House is likely to remain in Republican hands, the Senate is anticipated to move towards an even split (with some pundits looking for an incremental Republican edge), while President Obama holds a 51% margin ( over the yet to be determined Republican nominee. As all these events unfold, the prospects for any significant fiscal package, regulatory clarification, or tax reform remain nil.


With little help from the fiscal side, the U.S. economy is expected to continue to move forward at a 2.25% pace over the calendar year (annual change), with inflation by most metrics holding to around 2.0%. The Unemployment Rate will remain stubbornly high – we currently forecast 8.6% at year end. The Fed is expected to remain locked down at 0.0% on the policy rate with the Open Market Desk continuing to shift the remaining balance of risk ($266 billion) towards the long intermediate and long end of the curve by June 30. While it’s not our expectation that the central bank will engage in further supportive measures such as QE, we do acknowledge the ongoing dovish tone of the FOMC Minutes as well as the cast of their public comments.


Against this backdrop of political events and economic activity we caution against taking duration risk. We see opportunities to enhance relative return along the curve, and advocate positioning for flatteners in the 2s/5s and 10s/30s parts of the curve, while forecasting a steepening in the 5s/15s sector. In the current refi-constrained world, volatility hedging remains subdued and vega is expected to decline. Lower long dated volatility and a stagnant to declining supply of mortgage product are expected to be supportive of the basis. The foreign official and Open Market Desk bid for MBS should also favor a narrower basis. As befits the parlous state of affairs, we advocate a tactical long position in gamma on 10- and 30- year tails. This can be funded with short gamma on five year tails where we expect little volatility in any outcome and short position in intermediate vega.


In Europe, events are expected to continue to move along a spasmodic evolutionary path. Greece will remain at the forefront of the crisis. We do not believe that Greek PSI will take place in a “voluntary” fashion but instead expect coercive restructuring of Greek debt either before or soon after the March redemption, triggering CDS contracts. Greece is not likely to decide to leave the euro area in 2012, though the risks of that happening have certainly increased.


As a result of the above - and other factors – we anticipate that the crisis will deteriorate further than the stressed levels of late November. As the situation becomes more disorderly, we anticipate a “big bang” commitment to future common debt issuance from governments, as well as institutional change to ensure fiscal discipline. The ECB will probably not provide the solution to the crisis by itself, but it might act to buy time for governments if they commit themselves in this way. We recommend buying the periphery when the commitment is made, even after a significant spread tightening. From then on, fade significant weakness in core spreads to swaps.

Our only question: what happens if no commitment is made and/or the only one with the ability to bail out Europe, and the world, remains the Fed?

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trav7777's picture

gonna need to short the piss out of EU banks too

Doña K's picture

if she blows hard, you may not be able to collect from your broker.

IMHO, it's going to be one of those "unexpected", "unpredictable" weekend events, where no one can react fast enough.  

The Limerick King's picture



The end will come shockingly fast

Akin to a nuclear blast

At the speed of a sneeze

Fake assets will freeze

The shit in your house needs to last's picture

New Hampshire debate starting. Anyone watching?

Ron Paul 2012!

redpill's picture

Do they have a prediction for when UBS will experience coercive restructuring?

Ghordius's picture

"...when UBS will experience coercive restructuring?" LOL

the joke is the solution - but is seen as a joke only... :-(



"a departure of a country from the Eurozone would lead to a mass splurge in purchases of guns, spam and gold" I find this kind of thinking puzzling - it reminds me the Domino Theory that we had during the Vietnam War.

If I lose one girlfriend, is my risk greater to lose the other one? And then my wife, too? ;-) Perhaps, perhaps not...

There are systems where the components depend in a critical way from each other, but there are also systems that improve when non-critical expensive and unnecessary parts are shed... again, sometimes is that other girlfriend just too expensive... ;-) ;-) 

Oh regional Indian's picture

Definitely the great downward spiral all around. 

Craziest stat I heard was (I'm visiting Delhi) that Real Estate in Delhi has DOUBLED in the past 12-18 months here.

Doubled. When you look around at the staggering poverty, it takes on even more sinister tones. Where is all this money coming from? US and EU, the core of India's outsourcing boom bloated middle class are flat on the ground. Rupee is being devalued like there is no tomorrow.

When you see this, you realize the depth of the great lie of BRICS and the shining future here, there or anywhere really. 

Greece is just a word a name, the convenient/planned scapegoat.



The Big Ching-aso's picture



Greek politicians hanging from the Acropolis.   A Greek Tragedy?

Iam_Silverman's picture

"gonna need to short the piss out of EU banks too"

That's contingent on two presumptions:

1 - That the government allows such "evil speculative actions"


2 - There are any shares left to borrow.  Seriously, don't you think that by now G-S has already seen the writing on the wall and loaded up short on EU banks?

vast-dom's picture

While my narrative remains essentially unchanged, my timing has been quite off for various reasons, and yet I still think Februaury is when the shit hits the fan. But that may just mean April or even later is when we actually get the smackdown. And if we factor in the QE3 in March theory and the Iran 50% escalation also of March we have confluence of perfect shitstorm......

persu's picture

Absolute rubbish, Greece will never default nor leave euro. Eurocrats rather buy all debt and give all money thereafter to ensure success of our european dream.

ask any German, they are completely content of the current ECB policy, this is excatly what they hoped to achieve by ensuring a perfect insulation from political pressure, and further, ECB is only responsible for inflation. Now that M3 as well has fallen well below the target of 4.5%, there is every reason to trust savvy policy to steer us on solid ground.

Doña K's picture

You may be right if by Greece you mean the government and not the people. But would the people go for even more austerity?

AldousHuxley's picture

Greek people have less power than a bottle of Greek olive oil.



Peter Pan's picture

If you mean that they have a government that is unaccountable to them, I agree. But if you mean that they will continue to allow themselves and their nation to be gutted....then you have another thing coming. Sooner or later a politician will be shot or set upon. Sooner or later the whole populace will rise up. They haven't been defending western civilization for the last 2500 years by chance. Just read about their unmatched resisitance during WWII and what Churchill , Hitler and others said about them and you will realise that they are a time bomb that will go off.


Doña K's picture

So far, they have put cops on fire, they have used all the marble from the square as weapons, They have made parliamentary members quit while saying that they want to live.

The parliament convenes at midnight fearing death. The tunnel from the parliament building (which was the palace sometime ago) that connects to the harbour of Pereaus which was blocked due to several earthquakes has been reopened for fast getaways of the members.

Then they copied the Spanish indignados to see if that method would work and it didn't, So now phase three is pyrothanasia and holocautomaa of banksters and politicians.

What are Americans doing while the constitution is being burnt in your faces page by page with brazen audacity by your ruthless government lead by an impostor? 

No mas!


fightthepower's picture

Greek people have the power to grab a gun and defend their country.

oogs66's picture

Greece wants to default. Greece needs to default. Doesn't matter what the Germans and French want and they have screwed themselves by wasting so much money on it Greece.

Watch inflation with Eur at 1.20

Cloud9.5's picture

Ah never.  The Soviet Union was never going to collapse, and the price of real estate was never going to go down.

Hot Shakedown's picture

OT- Obama has some ballot challenges..court date set..

perhaps there is a god and Obama's utter fraud will finally be revealed during discovery.

Hephasteus's picture

Those Tea Partiers are doing a pretty good job.

cossack55's picture

Gold is on the periphery?????

Future Tense's picture

The biggest problem is no longer Greece, it is Japan.  Greece is only the warm up.  All eyes should be on the "widow maker" because it is about to become the "money maker" for bond and currency shorts.  Good discussion of Japan's bond bubble here:

agent default's picture

Any real asset you can physically own and hide away, anything but fiat,

bitchez.<-Note ZH approved spelling.

Sudden Debt's picture

Looks like i'm going to win the pool!

surf0766's picture

Warmer weather then. Good for useful idiots in the streets.

pkea's picture

Told you so,its going to be march April with full blown crisis by november

Manthong's picture

I thought Europe had three weeks to live four weeks ago.

Ahmeexnal's picture

EEEEWW-rope is only living on borrowed time....from it's fate.

wisefool's picture

Hans Gruber/Merkel:

You asked for the impossible. I give you the IMF


ucsbcanuck's picture

Brings the following to mind:

"It was 2 minutes 5 minutes ago"

And of course the immortal "ze Germans"

q99x2's picture

Biden will be US President by then. Won't need an election.

Cloud9.5's picture

Lincoln held an election in the middle of the Civil War.  He had suspended the Bill of Rights, arrested thousands including members of Congress and various state legislatures who were his political enemies.  He even contemplated arresting members of the Supreme Court.  With all of this, he still submitted to the election process with the real possibility that George McClelland might beat him in a general election.

If elections are suspended then the Republic is done, over, finished!

Sudden Debt's picture

Dude, you picked like every month in 2012. It's like putting money on 36 numbers at reloutte.

Sudden Debt's picture

Greece is now backing up their bonds with land.
So if the economy (no way in hell) doesn't improve and the country is giving land away and the people get nothing, we might get a revolution over there.

Sizzurp's picture

Maybe the squid will end up with the acropolis.

GMadScientist's picture

Maybe there won't be much left of it by the time they get to Greece.

Pay Day Today's picture

Greek land owning feudal lords from foreign lands. Probably Germanic. Nice.

4horse's picture

Germanic . . . ?


misidentifying pathogens, deliberately, is what allows for their continued viral contagion: as if there were each in fact a separate and very specific phenotype at fault __the portugeuse. the irish. italians. greeks. spanish__ ?

when all along it's the single self-same swine




the spread of whose bacterial colonizing even now cockroaches and encrouches upon one acropolis after another into its necropolis, a worldwide stye which will as well imbibe an eiffel and a pisa along with its empire state, full of peons, for pennies-on-the-dollar

and usual pissants in power

while diagnoses like yours, false, only furthers the fingerpointing-- thisaway; the greek people : thataway; mediterraneans : every-which-way-but-truth, as if any particular population from either hereabouts or thereabouts could owe just Who over a quadrillion of anything --deseguys; deadbeats : doseguys; useless eaters : J'Accuse, individual people, so as to even further entangle these many arms and their industries to point everywhere but at the one putrid petri atop which squats their squalid octopus

H8 N0 one




the stink tank:1BigBank

The Occident
  The Orient


pine_marten's picture

When a revolution happened in the old country, the peasants would celebrate their freedom by going hunting on lands they had been barred from.

snowbaall's picture

The Greeks hate me because I'm beautiful.

Plus I shagged the Prime Minister's mother.

Sorry.  I can't help myself.

But that's the way I roll.