So, What's Next Step Towards The Eurocalypse?

By: Reggie Middleton | Fri, Mar 9, 2012
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Europe's Voluntary 50% Loss Scheme

Okay, as I have been warning since the first quarter of 2010, Greece has defaulted. What I mean by default is that Greece did not honor the payment terms of its debtor agreements. I really don't care what this or that association decides to call it, if you bought Greek bonds you ain't getting the money that Greece promised when they promised they will give it to you. Just to add something official sounding to it, Fitch has declared it so, Fitch Downgrades Greece From C To Restricted Default. Of course, if you are on BoomBustBlog of following me, your probably smarter than to take these guys words for anything even remotely resembling predictive since they declared default status about three hours before Greece actually made it official they would default - plenty of time for interested parties to do something about it, no? Reference Rating Agencies vs Reggie Middleton, Part 3 and What Is More Valuable, The Opinion Of A Major Rating Agency Or The Opinion Of A Blog? Go Ahead, I DARE You To Answer!

But as I said in Greece = Kaboom! But Now Many Misunderstand The Consequences, the media, pundits, sell side analysts and unfortunately many investors fail to see the forest due to many trees standing in their way. Interestingly enough, Greece used coerce, retroactively applied, unilateral clauses to coerce a voluntary bond exchange! Yeah, it does sort of sound like bullshit doesn't it? I commented on this foregone conclusion last year in The Banks Have Volunteered (at Gunpoint) To Get 50% of Their Money Taken - No Credit Event??? Irrespective of whether CDS are triggered or not, if Greece gets away with walking away from 74% of their debt obligations, what in the hell makes anyone who even remotely resembles a person who has neuron or two to jump start synaptic activity think that Portugal and Ireland will NOT jump in line to stiff their creditors? Come on now, have we suspended the rules of human nature now as well. Greece's Problem Is Shared By Much Of The EU & Can't Be Solved Through Parlor Tricks. The use of said parlor tricks will (have) simply make things worse. I have warned that Contagion Should Be The MSM Word Du Jour... not Greece. As Greece gets away with an economic stick up (at financial gunpoint), Ireland and Portugal are looking for their Glocks!

I walked through this scenario in explicit detail a year and a half ago in my "Guide to the Beginning of the Largest String of Sovereign Defaults in Recent History" or The Anatomy of a Portugal Default: A GraphicalStep by Step Guide ...

This is the carnage that would occur in the OPTIMISTIC if the same restructuring were to be applied to Portugal today.

On the Portuguese Haircut, Argentinian Style

Yes, it will be nasty. That 35% decline in cash flows will be levered at least 10x, for that is how much of the investors in these bonds purchased them. A 35% drop is nasty enough, 35% x 10 starts to hurt the piggy bank! As a matter of fact, no matter which way you look at it, Portugal is destined to default/restructure. Its just a matter of time, and that time will probably not extend past 2013. Here are a plethora of scenarios to choose from...

Debt/GDP Level

This is Portugal's path as of today.

This is Portugal's path as of today

Even if we add in EU/IMF emergency funding, the inevitability of restructuring is not altered. As a matter of fact, the scenario gets worse because the debt is piled on.

The free/cheap money is doing more damage than it is good, just Watch As Near Free Money To Banks Fails to prevent European CRE Nuclear Winter...

As is usual, you can reach me via BoomBustBlog or by the following means...

 


 

Reggie Middleton

Author: Reggie Middleton

Reggie Middleton
Reggie Middleton, LLC
Perpetual Interests, LLCTM
http://boombustblog.com/

Reggie Middleton

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Well, I fancy myself the personification of the free thinking maverick, the ultimate non-conformist as it applies to investment and analysis. I am definitively outside the box - not your typical or stereotypical Wall Street investor. I work out of my home, not a Manhattan office. I build my own technology and perform my own research - in lieu of buying it or following the crowd. I create and follow my own macro strategies and am by definition, a contrarian to the nth degree.

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Source: The Contrarian Take http://blogs.forbes.com/michaelpollaro/
austrian-money-supply/