8/2/2019 Beware the Overly Optimistic Greek Speculators as Icarus Comes Crashing Down to Earth

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Beware The Overly Optimistic Greek Speculators As Icarus Comes CrashingDown To Earth!

Two years ago in"Greek Crisis Is Over, Region Safe", Prodi Says - I say Liar, Liar, Pants

on Fire!I compared the then Grecian situation to that of Damocles. Well, things have

gotten much worse since then and I believe I was one of the most bearish (and

accurate) at that time. Now, Greece resembles Icarus tumbing down from the skies,

drenched in Hubris.Subscriberscan download my full thoughts on Greece's sustainabilitypost bailout here- debt restructuring_maturity extension blog - March 2012.

Professional and institutional subscribers shouldfeel free to email mein order to receive

a copy of the Greek restructuring model used to create these charts and come to these

conclusions.

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.

The primary balance looks at the structural issues a country may have.

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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!

The best analogy Ive heard for the Grecian situation is the highly indebted family that

has binged on credit cards creating huge interest and debt service payments. They thenlose the earning power of one of the parents at the same time that a spike in medicalbills and household repairs (ex. Murphys 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 butthe main reason why this latest (as well as the two rounds before this latest) round ofbailout funding wont work is Greeces primary deficit.

Even with the elimination of interest payments Greece will spiral downward. Even with the near total absolution of its debt, as in a 90% haircut of the most

recent bonds issued (which were swapped for bonds of which investors took aneffective 74% haircut), Greece will spiral downward.

That is the likely reason why these newest bonds back by EU/IMF bailouteconomic capital are already trading 70 points below par and rated CCC.

These bonds are almost definitely slated for a 90%+ haircut by 2016.

With the expectation that austerity measures are not going to drastically reduce Greecesexpenditure in the coming fiscal quarters, and the revenue has no visible source ofacceleration either, the assumption built into our modeling is that Greece will continue toexperience primary and (as a result) fiscal deficit.

Long story, short - anyone who has purchased this latest round of bonds from Greeceshould expect a very, very nasty haircut before 2016, and likely sooner rather thanlater.

Next up I will review our CRE, banking and insurance picks to see how such a re-default

will affect them.

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