Financial, Real Estate, Stock Markets Trends and Current Affairs

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Go to 1:45 in this video and listen carefully for at least 5 minutes (you'd probably want to watch more if you have an interest in truth in reporting, competent analysis, or simply the truth). Keep in mind that this interview was done in February, no crystal balls, just spreadsheets and common sense. Independent news has truly come into its own.

Remember, I warned readers to Beware The Overly Optimistic Greek Speculators As Icarus Comes Crashing Down To Earth! I gave subscribers (click here to subscribe) explicit proof that another Greek default was right around the corner. That's right! Direcly after the Greek default in March of this year!!!! Subscribers, see Greek debt restructuring maturity extension blog - March 2012 (Global Macro, Trades & Strategy). And in today's MSM fare: Greece Warns of Going Broke as Tax Proceeds Dry Up

As European leaders grapple with how to preserve their monetary union, Greece is rapidly running out of money. 

Nikos Lekkas, a government official, said banks had hindered his efforts to collect back taxes. 
Government coffers could be empty as soon as July, shortly after this month’s pivotal elections. In the worst case, Athens might have to temporarily stop paying for salaries and pensions, along with imports of fuel, food and pharmaceuticals.

Officials, scrambling for solutions, have considered dipping into funds that are supposed to be for Greece’s troubled banks. Some are even suggesting doling out i.o.u.’s.

Greek leaders said that despite their latest bailout of 130 billion euros, or $161.7 billion, they face a shortfall of 1.7 billion euros because tax revenue and other sources of potential income are drying up. A wrenching recession and harsh budget cuts have left businesses and individuals with less and less to give for taxes — and growing incentive to avoid paying what they owe.''

But...but... but didn't I warn everybody of this as far back as 2010 and as recently as last February?

Government expenditures have outstripped revenues ever since 2007 and have gotten worse nearly every year since, despite 3 bailouts a restructuring, austerity and a default!

Greece_Primary_deficit_copy

The budget gap is widening as the so-called troika of lenders — the International Monetary Fund, the European Central Bank and the European Commission — withholds 1 billion euros in bailout money earmarked for government financing while it waits to see whether new leaders elected June 17 will honor Greece’s commitments.

Even if the troika delivers that money, Greece will struggle to cover its obligations. It underscored a harsh reality that is playing out in other troubled euro zone economies. Prolonged austerity is making it harder, not easier, for governments like Greece to become self-reliant again.

Go figure! As excerpted from Beware The Overly Optimistic Greek Speculators As Icarus Comes Crashing Down To Earth!

Despite extensive, self-defeating, harsh and punitive austerity measures that have combined with a lack of true economic stimulus, Greece has (to date) failed to achieve Primary Balance. For the non-economists in the audience, primary balance is the elimination of a primary deficit, yet the absence of a primary surplus, ex. the midpoint between deficit and surplus before taking into consideration interest payments.

Greece_Primary_balance

The primary balance looks at the structural issues a country may have. The best analogy I’ve heard for the Grecian situation is the highly indebted family that has binged on credit cards creating huge interest and debt service payments. They then lose the earning power of one of the parents at the same time that a spike in medical bills and household repairs (ex. Murphy’s law) dig deeper into family finances. The family is then forced to continue spending via credit cards to meet these unforeseen expenses.

In short, the main reason for Greece requiring additional funding is its primary deficit but the main reason why this latest (as well as the two rounds before this latest) round of bailout funding won’t work is Greece’s primary deficit.

A top Spanish official acknowledged on Tuesday that Spain could not readily return to the markets to raise money because investors are demanding such high rates, highlighting how the debt crisis is spreading to larger economies in Europe.

Again, BoomBustBlog made this clear early in 2010. Surprise you should be not! Be sure to note the date on the articles below...

1. The Coming Pan-European Sovereign Debt Crisis – introduces the crisis and identified it as a pan-European problem, not a localized one... As a matter of fact, I directly and explicitly compared the plights of Greece vs Spain 2 years and 4 months ago, yes before anyone even publicly admitted Greece would have to default, not to mention Spain!!!

2. spain_vs_greece.pngspain_vs_greece.pngspain_vs_gre

3. The Coming Pan-European Soverign Debt Crisis, Pt 4: The Spread to Western European Countries
4. The Depression is Already Here for Some Members of Europe, and It Just Might Be Contagious!

Fast forward to years, and as luck will have it - The Economic Bloodstain From Spain's Pain Will Cause European Tears To Rain. 

Oh, and here comes that Grecian Circular Argument again. What circular argument you query? Well simply read How Greece Killed Its Own Banks! and remember that this article was written in the beginning of 2010, when the bonds were trading for much more then they were right before they defaulted! then reference Greece Reports: "Circular Reasoning Works Because Circular Reasoning Works" - Or - Here Comes That Default!!!

, 

That has left a caretaker government scrambling for a Plan B. One thought is to take billions of euros reserved for recapitalizing Greek banks, which have suffered from a flight of deposits amid political uncertainty and fears that Greece may abandon the euro for its own currency.

But using that money would require the troika’s approval. Other notions, like i.o.u.’s and scrip, so far are only that — ideas.

Next up I will consider releasing my research on what wil probably be the most profitable (US) CRE short of the year - GGP part 2!

Follow me:

So, in today's news we have Greek bank runs (again), remnants of JP Morgan yield grab gone bananas, and European Banks Battered As Reality Sets In. I know there has to be at at least a small contingent of you who truly don't want to hear me say "I told you so". Well, guess what I have to say to that small contingent...

Better yet guess what very popular American bank has their fingers in all three of the fires fanning above? You see, I not only warned of a European bank collapse nearly three years ago, I actually went on a European banking collapse tour throughout, of all places, Europe!

 The bank run thingy was actually a foregone conclusion. Greece is only step one, albeit a very obvious step one, but still the first step nonetheless - reference How Greece Killed Its Own Banks!, written exactly TWO years ago - Tuesday, 27 April 2010. The MSM should stop harping on Greece, its done. The real story is what will Greece's bust bring about. Well, there are quite a few banks in much 'allegedly" stronger domiciles primed to do the 'ole accelerated one-two step (that's bank run for those without a sense of humor), reference "How to Prevent Bailouts, Bank Runs and Other Fun Things To Do With Your Hard Earned Dollars". 

Now, the question for the truly big boys is what happens after the inevitable Pan-European bank runs get started. Well, the answer to that is already stored in the BoomBustBlog archives. Come on, y'all, where the strategists, the chess players, those who are able to look more than two moves ahead. I made this post so, now others may start "Hunting the Squid", looking at JPM Morgan as the sovereign entity that it wants to be and DB as the leveraged powder keg that it appears. Then there's BNP, HSBC and BofA. You heard it all here first. Despite that, the MSM has put analysts in the consistent spotlight who I feel (without intending to disrespect them, of course) have been serially incorrect on banks. I have addressed this in my blog posts, namely Question the Quality Of BoomBustBlog Bank Research, Will You? Bove and Fitch Follow "The Blog"! and CNBC Favorite Dick Bove Admits To Being Wrong On Banks, But For The Right Reasons, But Those Reasons Are Still Wrong!!!

You see, with things crumbling so predictably, I don't have to do much along the lines of new content or writing. This entire mess has already been laid out in my archives, and in rather illustrious detail. Let's start archive grabbing with...

Goldman Sachs

The hardest hitting investment banking research available focusing on Goldman Sachs (the Squid), but before you go on, be sure you have read parts 1.2. and 3: 

1. I'm Hunting Big Game Today:The Squid On A Spear Tip, Part 1 & Introduction
2. Hunting the Squid, Part2: Since When Is Enough Derivative Exposure To Blow Up The World Something To Be Ignored?"
3. Reggie Middleton Serves Up Fried Calamari From Raw Squid: Market Perceptions of Real Risk in Goldman Sachs

So, what else can go wrong with the Squid? 

Plenty! In Hunting the Squid, Part2: Since When Is Enough Derivative Exposure To Blow Up The World Something To Be Ignored?" I included a graphic that illustrated Goldman's raw credit exposure...

So, what is the logical conclusion? More phallic looking charts of blatant, unbridled, and from a realistic perspective, unhedged RISK starring none other than Goldman Sachs...

 image006image006

And to think, many thought that JPM exposure vs World GDP chart was provocative. I query thee, exactly how will GS put a real workable hedge, a counterparty risk mitigating prophylactic if you will, over that big green stalk that is representative of Total Credit Exposure to Risk Based Capital? Short answer, Goldman may very well be to big for a counterparty condom. If that's truly the case, all of you pretty, brand name Goldman counterparties out there (and yes, there are a lot of y'all - GS really gets around), expect to get burned at the culmination of that French banking party
I've been talking about for the last few quarters. Oh yeah, that perpetually printing clinic also known as the Federal Reserve just might be running a little low on that cheap liquidity antibiotic... Just giving y'all a heads up ahead of time...

And for those who may not be sure of the significance, please review my presentation as the Keynote Speaker at the ING Real Estate Valuation Seminar in Amsterdam, below. After all, for all intents and purposes, Dexia has officially collapsed - [CNBC] France, Belgium Pledge Aid for Struggling Dexia... and its a good chance that it's a matter of time before BNP follows suit - exactly as BoomBustBlog predicted for paying subsccribers way back in July.

A step by step tutorial on exactly how it will happen....

• The Mechanics Behind Setting Up A Potential European Bank Run Trade and European Bank Run Trading Supplement
• What Happens When That Juggler Gets Clumsy?
• Let's Walk The Path Of A Potential Pan-European Bank Run, Then Construct Trades To Profit From Such
• The Anatomy Of A European Bank Run: Look At The Banking Situation BEFORE The Run Occurs!
• The Fuel Behind Institutional “Runs on the Bank” Burns Through Europe, Lehman-Style!
• Multiple Botched and Mismanaged Stress Test Have Created The Makings Of A Pan-European Bank Run 
• France, As Most Susceptible To Contagion, Will See Its Banks Suffer
• Observations Of French Markets From A Trader's Perspective
• On Your Mark, Get Set, (Bank) Run! The D…
• ECB As European Lender Of Last Resort = Institutional Purveyor Of A Pan-European Ponzi Scheme

 The European banking debacle was predicted at the start of 2010, a full year and a half before this has come to a head. If I could have seen it so clearly, why couldn't the banking industry and its regulators?

Now, back to GS, and considering all of the European falllout coming down the pike, of which Goldman is heavily leveraged into, particulary France (say BNP/Dexia/etc.)...

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Let's go over exactly how GS is exposed following the logic outlined in the graphic before this series of videos, as excerpted from subscriber document Goldmans Sachs Derivative Exposure: The Squid in the Coal Mine?, pages 3,4 and 5.

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And to think, many thought that JPM exposure vs World GDP chart was provocative. I query thee, exactly how will GS put a real workable hedge, a counterparty risk mitigating prophylactic if you will, over that big green stalk that is representative of Total Credit Exposure to Risk Based Capital? Short answer, Goldman may very well be to big for a counterparty condom. If that's truly the case, all of you pretty, brand name Goldman counterparties out there (and yes, there are a lot of y'all - GS really gets around), expect to get burned at the culmination of that French banking party I've been talking about for the last few quarters. Oh yeah, that perpetually printing clinic also known as the Federal Reserve just might be running a little low on that cheap liquidity antibiotic... Just giving y'all a heads up ahead of time...

S&P and Fitch finally downgrade JP Morgan, 3 years after my initial multimedia warnings (see Listen Carefully...  for the details). Unfortunately, despite threats and ruminations, these rating agencies again act in retrospect, failing to do anything but remind stakeholders of the losses they have already taken rather than assisting them in avoiding losses.

So, what are the rating agencies missing?  They're missing the fact that nearly all of the big money center banks are doing exactly what JPM was doing and they have no one to rely upon but themselves when things go awry from a counterparty perspective. Bennie Bernanke has instituted perpetual ZIRP, and as such has basically broken the banking business in his attempt to save it. Through ZIRP, banks simply cannot make money doing things that traditional banks do, ex. profit from lending. As such, they reach for yield, and that's just the conservative ones. The big boys take baseball bats swinging for home runs, either consciously or subconsciously sanguine in the protection of the Bernanke flavored taxpayer put under their respective businesses. With such protection, already historically proven, bank managers are getting progressively more aggressive and increasingly less aware of the term "RISK adjusted reward" as they simply seek rewards. Alas, I'm getting ahead of myself, let me explain...

JPM Public Excerpt of Forensic Analysis Subscription Final 092209 Page 07JPM Public Excerpt of Forensic Analysis Subscription Final 092209 Page 07 copy

The JPM prop desk that held the losses which generated headlines earlier this week was marketed as a hedging operation when we all know it was anything but. What it was was a concerted grasp for yield and profit in a ZIRP environment where JPM (one of the world's largest congregations of interest bearing assets) was bearing effectively no interest.

Banks need to make money too, hence when there's no money to be made in traditional FI yields, the banks start reaching, and they tend to start reaching farther as desperation to make the next quarter mounts in the face of BoomBustBlog reading investors who may be able to see past earnings stuffing stemming from less than prudent reserve releases consistent underprovisioning.

JPM_Underprovisioning

 The BoomBustBlog subscriber document JPM Q1 2011 Review & Analysis illustrates the point of JPM's waning ability to make money by making loans and holding debt with perfect clarity, and did so a year in advance....

 JPM Public Excerpt of Forensic Analysis Subscription Final 092209 Page 09

So, what do you do if you're a bank but you can't make money lending? You gamble, that's what you do! It's not like JPM hasn't gambled before, and it's not like they haven't lost money gambling...

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I put out what I consider to be some of the best predictive research available. I also put an inordinate amount of info out for absolutely free, particularly in the case of those big names as in the employer of Voldemort. For those who have not read my seminal piece on Dimon's house of Morgan, JPM Public Excerpt of Forensic Analysis Subscription published nearly three years ago, allow me to take the liberty to excerpt it for you...

Hmmm... Tell me if you get stuff like this from the rating agencies.... This is a good time to bring up that Interesting Documentary on the Power of Rating Agencies, with Reggie Middleton Excerpts

The next post on this topic will outline and illustrate several banks whom the agencies need to downgrade NOW, as in RIGHT NOW. These banks are, of course, JPM counterparties. In the meantime and in between time, follow me:

Here's a subscription dump of our archives for JPM to placate the insatiable thirst of the BoomBustBlog paid subscriber:

JPM Q1 2011 Review & Analysis

JPM 3Q 2010 Forensic Update 

JPM Public Excerpt of Forensic Analysis Subscription

JPM Restricted Stock scheme

JPM 2Q10 review

 JPM 1Q 2010 Valuation Review 

 JPM 4Q09 review

 JPM Report (092209) Final - Professional09/24/2009

JPM Forensic Report (092209) Final- Retail

JPM Option Analysis

Of course, you know I'm going to say "I told you so!" Reference So, When Does 3+5=4? When You Aggregate A Bunch Of Risky Banks & Then Pretend That You Didn't? and then Hunting the Squid, Part2: Since When Is Enough Derivative Exposure To Blow Up The World Something To Be Ignored? You see, in said piece, ZeroHedge dutifully reported that Five Banks Account For 96% Of The $250 Trillion In Outstanding US Derivative Exposure- a very interesting refresh of what I called out two years ago through "The Next Step in the Bank Implosion Cycle???":

The amount of bubbliciousness, overvaluation and risk in the market is outrageous, particularly considering the fact that we haven't even come close to deflating the bubble from earlier this year and last year! Even more alarming is some of the largest banks in the world, and some of the most respected (and disrespected) banks are heavily leveraged into this trade one way or the other. The alleged swap hedges that these guys allegedly have will be put to the test, and put to the test relatively soon. As I have alleged in previous posts (As the markets climb on top of one big, incestuous pool of concentrated risk... ), you cannot truly hedge multi-billion risks in a closed circle of only 4 counterparties, all of whom are in the same businesses taking the same risks.

Click to expand!

bank_ficc_derivative_trading.png 

Again, from ZeroHedge: 

... and just for some clarity on how this occurred. We know the positions that Iksil held were in IG9 (more likely to be tranches) but this $2bn loss comes from a tiny 12bps decompression in the index - which means the DV01 must be huge...(as we already knew given the massive rise in net notional that we warned about)...

This is the Investment Grade credit index series 9 - which is the most active tranche-related index and was the index that Iksil had driven massively rich to its fair-value...

Of course, there's more to this story. After all, there is NEVER just one roach. I will cover that in my next post on the topic, which will entail COUNTERPARTY RISK. That's right, do you really think this will effect just JP Morgan?  In the meantime and in between time, here's a subscription dump of our archives for JPM to placate the insatiable thirst of the BoomBustBlog paid subscriber:

JPM Q1 2011 Review & Analysis

JPM 3Q 2010 Forensic Update 

JPM Public Excerpt of Forensic Analysis Subscription

JPM Restricted Stock scheme

JPM 2Q10 review

 JPM 1Q 2010 Valuation Review 

 JPM 4Q09 review

 JPM Report (092209) Final - Professional09/24/2009

JPM Forensic Report (092209) Final- Retail

JPM Option Analysis

Bloomberg reports Google’s Android Infringed Oracle’s Java, Jury Says:

Google Inc. (GOOG), the largest Web-search provider, infringed copyrights for Oracle Corp. (ORCL)’s technology in developing Android software running on more than 300 million mobile devices, a federal jury said.

The 12-member panel in San Francisco, however, was unable to come to a unanimous verdict on whether Google had made “fair use” of Oracle’s intellectual property.

The decision prevents Oracle from seeking damages for all but nine lines of computer code on Android, out of 15 million total lines, that the jury found were copied from Oracle, U.S. District Judge William Alsup said today. Oracle is seeking $1 billion in damages.

I'm far from an IP lawyer or anything of the sort, but it appears as if this registers as an epic #FAIL for team Oracle!

“There has been zero finding of liability on copyright, the issue of fair use is still in play,” Alsup said after the verdict was read.

Google attorney Robert Van Nest asked Alsup to declare a mistrial, saying the issue of whether it’s liable for infringement is directly linked to the question of whether it was fair use. Alsup said he would consider Google’s request later. He ordered the patent phase of the case to begin.

The decision came in the copyright phase of an eight-week intellectual-property trial that began April 16 and next will shift to Oracle’s claims of patent infringement. A third phase, on damages, will follow the other two.

See also..

Industry Leading, Subscription Based Google Research

All paying subscribers should download the Google Q1-2012 Valuation Summary, wherein we have updated the valuation numbers for Google using a variety of metrics. Click here to subscribe or upgrade. 

Google still exhibits the likelihood that they will control mobile computing for the balance of the decade.

Subscription research:

Google Q1-2012 Valuation Summmary 04/20/2012

Google Q1 2011 results 04/18/2011

Google Q3 2010 reveiw 11/08/2010

Google Final Report 10/08/2010

An Analysis and Valuation of Google's Android and AdMob 09/27/2010 

Google Valuation Model 09/21/2010 

 Google's VOIP and Telephony Services 09/16/2010

Google Cloud Based Services

Google TV Analysis

A couple of bits from our archives...

I've had a few subscribers who, after reviewing the (subscription only) FaceBook IPO & Valuation Note Update and Facebook Valuation Model, have seriously queried how Facebook is managing to drum up so much froth and interest for its obviously overpriced shares? The apparent answer is the marketing machine known as Goldman, et. al. The less recognized answer is assistance from the MSM, as demonstrted by this CNBC article - Facebook’s Premium Ad Prices Still Rising:

Pricing for Facebook’s premium “social” advertisements continues to rise, two recent studies have found—a positive indicator that could offset concerns about a dip in advertising growth and help sentiment towards the Internet company’s initial public offering.

This is a net positive statement, no?

A report to be released on Monday by Marin Software, a digital marketing platform that processes more than $100 million worth of spending on Facebook, found a 26 percent increase over the last year in the cost per click for “premium” ad formats such as Sponsored Stories, which highlight friends’ “likes”, comments and other endorsements of brands’ activity on the site.

Wow! That's pretty good growth and pricing elasticity, no? Bring on those newly public shares and let 'em rip!!!

However, Marin’s report also found the cost per click for Facebook’s standard ads, which make up an estimated three-quarters of the social network’s advertising revenues, fell 26 percent over the last year.

Wait a minute, if 75% of the companies product dropped in price, doesn't that easily swamp the 26% of the companies premium ads that rose in price? An even more direct questions is, why isn't this being reported as the net negative that is is? Let's walk though this step by step for the more arithmetically challenged amongst us...

So, according to this MSM article, reporting a net 13% drop iin revenue somehow amounts to - and let me quote this so as to be as accurate as possible - "a positive indicator that could offset concerns about a dip in advertising growth and help sentiment towards the Internet company’s initial public offering". Please excuse me as I wipe the splattered bullshit from my computer screen - it's hard to type accurately with those opaque, stinking brown stains in the way. Even worse, it goes to show what portions of the MSM actually think in terms of the intellectual capacity of its readership.

Facebook will this week begin a roadshow to convince potential investors that its business is worth up to $96 billion in its initial public offering later this month.

So, slower subscriber growth...

Faster cost growth and lower profits - Facebook First-Quarter Profit Drops; Costs Almost Double, and a 13% drop in gross  ad pricing - virtually the sole source or revenue for Facebook, amount to a valuation for this company that at 99 Times Profit Exceeds 99% of S&P 500 Index. Hey, it gets better...

Marin’s report follows data published last month by TBG Digital, a digital advertising firm that buys Facebook ads on behalf of 235 companies in 190 countries, showing a 23 percent increase in cost per click for the first quarter of 2012 compared with the fourth quarter of 2011.

The cost of delivering an ad to 1,000 people increased 41 percent in the first quarter of 2012 compared with the same quarter last year. However, click-through rates on ads—a key measure of effectiveness—fell an average of 6 percent across Facebook’s top five territories.

Advertisers’ desire to grab the attention of the social network’s 900 million users is still running ahead of their ability to measure the returns from that investment, which is seen as a key long-term challenge for the social network.

 Here's where I broke it down on Capital Account

I also happened to do the same on the Max Kesier show...

Subscribers who haven't refreshed their viewing of our Facebook research should do so now - (subscription only) FaceBook IPO & Valuation Note Update. Pro and instititional subscribers are welcome to peruse the downloadable Facebook Valuation Model, allowing you to input your own assumptions in the very unlikely event you may not agree 180% with me :-)

And from the archives...

Reggie_Middleton_Facebooks_Valuation 

Facebook Finally Faces The Fact Of BoomBustBlog Analsysis 

I discussed Facebook on the Peter Schiff radio show, the Facebook excerpt is below...

From my previous Facebook analysis public excerpt:

Yeah, I was on a roll last year, wasn't I? That's not the gist of it either, as we reminisce even more...

Additional Facebook analysis, valuationa and commentary.

On Max Keiser, go to the 13:55 marker for more on Facebook...

Of course Facebook enthusiasm is burning hot. The coals in the "investor" (and I put this lightly) fire are being stoked by none other than the sell side agents doing God's work, among others...

Professional and institutional BoomBustBlog subscribers have access to a simplified unlocked version of the valuation model used for this report, available for immediate download - Facebook Valuation Model 08Feb2012. The full forensic opinion is available to all subscribers here FaceBook IPO & Valuation Note Update. It is recommended that subscribers (click here to subscribe) also review the original analyses (FB note final 01/11/2011) as well as the following free blog posts on the topic:

1. Facebook Registers The WHOLE WORLD! Or At Least They Would Have To In Order To Justify Goldman’s Pricing: Here’s What $2 Billion Or So Worth Of Goldman HNW Clients Probably Wish They Read This Time Last Week!
2. Facebook Becomes One Of The Most Highly Valued Media Companies In The World Thanks To Goldman, & Its Still Private!
3. Here’s A Look At What The Goldman FaceBook Fund Will Look Like As It Ignores The SEC & Peddles Private Shares To The Public Without Full Disclosure
4. The Anatomy Of The Record Bonus Pool As The Foregone Conclusion: We Plug The Numbers From Goldman’s Facebook Fund Marketing Brochure Into Our Models
5. Did Goldman Just Rip Its HNW and Institutional Clients Once Again? Facebook Growth Slows Pre-IPO, Just As We Warned!
6. The World's First Phenomenally Forensic Facebook Analysis - This Is What You Need Before You Invest, Pt 1
7. The Final Facebook Forensic IPO Analysis: the Good, the Bad & the Ugly

Bloomberg reports U.K. Plunges Into Double-Dip Recession, as does CNBC, UK Back Into Recession in First 'Double Dip' Since 1970s:

Britain's economy slid into its second recession since the financial crisis after official data unexpectedly showed a fall in output in the first three months of 2012, piling pressure on the embattled coalition government.

My contention is that the UK has not fallen back into recession, but has never truly risen out of the last one. Accounting parlour tricks, financial engineering machinations and outright verbal sleight of hand (what some may call not telling the truth) has given the illusion of organic growth, but in reality and at best, it was simply buying $1.00 worth of growth with $1.20 worth of stimulus - or should I reference this in pounds.

As we clearly articulated two years ago, when it was alleged that recession was over, in the subscriber (click here to subscribe) document  UK Public Finances March 2010:

 UK_Public_Finance_Analysis_2.0_Page_01_copy

UK_Public_Finance_Analysis_2.0_Page_02

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Roughly two years ago, I penned a piece called How Greece Killed Its Own Banks! It outlined the end result of Greece attempting to hide sparse demand for its debt by forcing its banks to binge on it using excessive leverage. Of course, once you eat too much garbage, you start to stink, and eventually... Well, let's look at it from a visual perspective:

image001

 Greece and the ECB kicked the can down the road for two years, but as fate would have it... Reality rears its ugly head, as exemplified in today's MSM headline from CNBC: Record Losses at Greek Banks Show Pain of Bond Swap

Greece's top banks posted historic losses for 2011 on Friday, hit by a bond swap last month that blew holes in their balance sheets and nearly wiped out their capital base.

Together, National, Alpha, Eurobank and Piraeus, posted an aggregate loss of 28.2 billion euros ($37.3 billion), about 10 times their current market worth or 13 percent of the country's GDP .

The banks treated losses from last month's bond swap to cut the country's debts — part of a rescue package for Greece negotiated with the European Union and International Monetary Fund — as if they took place last year.

Inflicting real losses of about 74 percent on bondholders, Greece's debt swap proved a near fatal financial torpedo for lenders, crippling the sector's capital base.

From the big four banks, only Alpha spelled out clearly where this left its Core Tier 1 capital ratio. The other three reported where capital ratios would land after their use of standby funds provided by a capital backstop, the Hellenic financial Stability Fund (HFSF).

Alpha's core capital ratio (Tier 1) fell to 3 percent. Eurobank [EFG-FF  0.61    0.004 (+0.66%)   ], the country's second biggest, did not disclose the figure but said the hit left it with total equity of 875 million euros.

National Bank [NAG-FF  1.73    -0.02  (-1.14%)   ], the country's biggest lender with operations in Turkey, said its Core Tier 1 ratio would reach 6.3 percent, taking into account the use of a 6.9 billion euros standby facility provided by the HFSF fund.

Piraeus gave no Tier 1 figure but said tapping up to 5 billion euros of HFSF funds would boost its total capital adequacy ratio to 9.7 percent.

Greek bank shares have shed 74 percent in the last 12 months, underperforming the Greek stock market which is down 50 percent.

...Battered by a shrinking deposit base, rising loan impairments and unable to access wholesale funding markets, banks will need to fill the resulting capital shortfall and meet capital adequacy targets set by the central bank.

They face a core Tier 1 target of 9 percent by end-September.

... With the economy mired in recession...

I think its fair to say "depression' at this point. The destruction of the banking system is what pushed the US over the edge in the early 1900s, and it had a lot more going for it than Greece does.

... and unemployment at a record 21.8 percent, asset quality deteriorated, meaning banks' non-performing loans rose further — by 130 basis points to 12.9 percent of Alpha's loan book. Eurobank's bad debt provisions rose 4.7 percent last year.

Relevant BoomBustBlog research:

Greece Public Finances Projections

Banks exposed to Central and Eastern Europe

Greek Banking Fundamental Tear Sheet

Those who follow me know that I have warned of this ad nauseum, through a variety of venues and media, focusing particularly on the destructive damage the bank collapses will bring, again...

image008

This will be exacerbated by a re-default of the Greek debt that was designed to bail out the defaulted Greek debt. Why will this happen? Greece has severe, rigid structural problems that simply cannot (and will not) be solved by throwing indebted liquidity at it. As a matter of fact, the additional debt simply exacerbates the problem - significantly! This was detailed in the post Beware The Overly Optimistic Greek Speculators As Icarus Comes Crashing Down To Earth!

This situation will simply get worse, considerably worse. I demonstrated in the post The Ugly Truth About The Greek Situation That'sToo Difficult Broadcast Through Mainstream Media that anyone who purchased the last set of bailout bonds from Greece will simply lose their money as well (that's right, just like those who purchased the previous set) since Greece is still running deep in structural problems and can't afford the interest nor the principal on its borrowing. It's really that simple. 

Unlike as portrayed in the media, Greece is not a standout profligate child, but simply a microcosm of what is to come to a good portion of Europe. Just scan today's headlines for evidence of such.... German Manufacturing Shrinks Fastest Since 2009

Of course it did. Germany is a net export nation whose trading partners are dancing between hard landings, serial recessions, and outright depression! Exactly how does one expect this song to be sung? Let me count the ways for you, as Germany is currently the undeserved linchpin to what's left of EU fiscal integrity. Reference The Biggest Threat To The 2012 Economy Is??? Not What Wall Street Is Telling You...

A little more than a year ago I introduced the concept of the "Economic Circle of Life" in the post Do Black Swans Really Matter? Not As Much as the Circle of Life ... In said post, I posited the interference from the concerted efforts of the global central bank price fixing cartel has done significantly more damage than it has good - to wit: 

And in today's news... Rescue Plan Falters

Europe's bold program to defuse its financial crisis by cash into banks is running out of steam. 

Go figure! Today's MSM commentary also features Print More Money? Central Banks May Have No Choice.

But wasn't this a a cause of much of the liquidity trap problem in the first place? Reference Portuguese Liquidity Trap: When You Add Too Liquidity to FIRE it Burns! The BofE agrees with this postulation, reference BoE Warns Inflation Could Run Into Medium Term. Of course, I have commentary on these guys as well... BoomBustBlog analysis: Subscription only -  UK Public Finances March 2010

The only bright side to this is what I posted earlier today... 

The EurAsian Global Distressed Asset Acquisition Initiative: 

I'm still quite bearish on banks/sovereigns, but as history dictates the greatest wealth has been created during the greatest dislocations, not during the greatest bull markets as popular opinion would lead many to believe. Think of the robber barons after the Great Depression...

Elsewhere in today's news... 

Spain Issues $3.2 Billion in Bonds, Demand Solid. Of course, this headline fails to convey one very key fact, and that is the borrowing Costs Rise For Spain:

Spain's 10-year borrowing costs increased at its debt auction, reflecting concerns about its ability to cut its budget deficit amid rising unemployment and falling economic output. 5:26 AM

I went through this in explicit detail just 3 days ago in the post The Spain Pain Will Not Wane: Continuing the Contagion Saga. It is a highly suggested read. I have also warned on Spain thoroughly in the past. It has BIG problems firmly nestled in its property, banking and financial systems. Big Problems... Elsewhere in today's MSM fodder: Spanish Banks' Bad Loans Highest Since Oct. 1994

BoomBustBlog analysis:

• As If On Cue After My Step By Step Illustration Of A Spanish Default, Spanish Yields Climb at Auction As Pressure Continues Thursday, December 16th, 2010

• Will Spain Default? The Answer Is Not Hard To Determine If You Take An Objective Look At The Numbers And Recent History! Monday, December 13th, 2010

• Subscribers only -  Spanish Banking Macro Discussion Note

Click here for the Pan-European Debt Crisis series archives or here for my latest on the topic.

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As with Greece, Spain, Portugal and Ireland, I warned thoroughly and quite early that Italy will deliver a rash of broken promises in regards to it public finances leading up to a probably restructuring. Today's MSM headlines simply confirm more of the same, just two years later...

Per CNBC: Italy to Miss Budget Deficit Targets, Debt to Rise: IMF 

Italy will miss its budget deficit targets in 2012 and 2013 and its public debt will rise in both years despite the government's austerity measures, the International Monetary Fund forecast on Tuesday. 

The IMF said in its Fiscal Monitor report that Italy's deficit would fall this year to 2.4 percent of output, well above Rome's 1.6 percent target, and would decline to 1.5 percent in 2013, when Italy is aiming to balance its budget.

The forecasts are a blow to Prime Minister Mario Monti, whose popularity is sliding and whose reform efforts are meeting rising criticism and resistance as the country's borrowing costs rise.

Italy's huge public debt, the second highest in the euro zone after Greece's as a proportion of GDP, will jump to 123.4 percent of gross domestic product this year, from 120.1 percent in 2011, and edge up to 123.8 percent in 2013, the IMF said.

Earlier on Thursday the IMF forecast the Italian economy would shrink by 1.9 percent this year and contract by 0.3 percent in 2013.

The Fund's forecast that Rome will significantly overshoot its balanced budget target next year will put pressure on Monti to adopt additional corrective measures, though the IMF itself has urged against this due to the weak economy.

Here are the first four pages of our subscriber research released in March 2010, sans the Italian crystal ball of course. Subscribers, please reference Italy public finances projection.

Italy_public_finances_projections_Page_01

Italy_public_finances_projections_Page_02

Italy_public_finances_projections_Page_03

Italy_public_finances_projections_Page_04

We should all keep in mind that Contagion Should Be The MSM Word Du Jour, Not Bailouts and Definitely Not Greece! The following are what we consider to be the focal point of sovereign debt stress if things continue to kick off.

Subscribers reference:

•  Report_122511 - Professional/Institutional edition (Insurers, Insurance & Risk Management)
•  Report_122511 -Retail edition (Insurers, Insurance & Risk Management)

Bank Haircuts, Derivative Risks and Valuation10/20/2011

Bank report 170610 Professional & Institutional07/07/2010

Bank report 170610 Retail07/07/2010

Bank Holdings_Report_04August2008 - retail09/16/2008

 Bank Holdings_Report_04August2008 - pro09/16/2008