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The Greek Deal Accomplishes Nothing… Systemic Risk is Coming

Thursday, October 27, 2011 21:58
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Graham Summers

Phoenix Capital Research

The markets are exploding higher this morning on news of the expanded Euro Bailout. The numbers at the moment are

  1. A 50% haircut for private Greek bondholders
  2. European banks have eight months to raise about $147 billion in capital
  3. An expansion of the European Financial Stability facility to $1.3 trillion.

First off, let’s call this for what it is: a default on the part of Greece. Moreover it’s a default that isn’t big enough as a 50% haircut on private debt holders only lowers Greece’s total debt level by 22% or so.

Secondly, even after the haircut, Greece still has Debt to GDP levels north of 130%. And it’s expected to bring these levels to 120% by 2020.

And the IMF is giving Greece another $137 billion in loans.

So… Greece defaults… but gets $137 billion in new money (roughly what the default will wipe out) and is expected to still be insolvent in 2020.

Forgetting that any and all official estimates for Greece’s financial condition have been off by a mile, not to mention that Greece still hasn’t paid back its first round of bailout funds, this move is nothing short of moronic.

The reasons are:

  1. The default is not big enough (I expect Greek bondholders to get 20-30 cents back on the Dollar at best in the future)
  2. It accomplishes nothing of significance (Greece is still broke), and…
  3. It will trigger a credit event and has the makings of systemic risk.

Let’s put some of the other numbers from this deal into perspective. According to the agreement, European banks are supposed to raise $147 billion in new capital by June.

Well, German banks alone need to raise $173 billion in new capital. So… this new capital “requirement” from the deal is pointless.

Indeed, the European banking system as a whole is insolvent.

With OVER $46 trillion in assets outstanding, European banks would need to raise $1.77 TRILLION in capital to bring their leverage levels down to 13 to 1.

Yes… $1.7 TRILLION…

Now you see why the extra $147 billion in new capital is pointless. It’s like pouring a bucket of water into a desert and expecting it to sprout a jungle.

Folks, let’s get honest here. This deal accomplishes nothing. It’s just more “kicking the can” to avoid the reality. The reality is that the entire European Banking system is leveraged at near Lehman Brothers levels. And European banks need to roll over between 15-50% of their total debt (depending on which country they’re in) by the end of 2012.

The credit markets know this, which is why they’re predicting more Greece haircuts in the future. It’s also why IMF has decided to lend Greece another $137 billion… right as the country defaults.

Ignore this latest pop in stocks and the Euro. This mess isn’t over… not by a long shot. And before the smoke clears, much of Euro will be in default/ banking collapses.

So if you have not already taken steps to prepare for systemic failure, you NEED to do so NOW. We’re literally at most a few months, and very likely just a few weeks from Europe’s banks imploding.

I’ve already alerted Private Wealth Advisory to 12 CRISIS trades (three for Europe, nine for the US) that will all produce HUGE profits as this mess collapses.

We’ve also taken steps to prepare our loved ones and personal finances for systemic risk with my Protect Your Family, Protect Your Savings, and Protect Your Portfolio Special Reports.

With a total of 20 pages, these reports outline:

1) how to prepare for bank holidays
2) which banks to avoid
3) how much bullion to own
4) how much cash is needed to get through systemic crises
5) how much food to stockpile, what kind to get, and where to get it

And more…

I can do the same for you. All you need to do is take out a subscription to my Private Wealth Advisory newsletter.

You’ll immediate be given access to the Private Wealth Advisory archives, including my Protect Your Family, Protect Your Savings, and Protect Your Portfolio reports.

You’ll also join my private client list in receive my bi-weekly market commentaries as well as my real time investment alerts, telling you exactly when to buy and sell an investment and what prices to pay (we’ve recently closed out 14 straight winners).

All of this, for one full year, for just $199.99… but not much longer.

Indeed, we are raising the price of Private Wealth Advisory from $199 to $249 at the end of October. The reason is simple: both the performance of our picks (we’ve just closed out 14 straight winners) and the quality of our research (we predicted the 2008 bust, the Euro 2010 bust, the August 2011 collapse, and more) warrant a premium price.

So we’re raising the price of Private Wealth Advisory to $249 at the end of October.

To take out an annual subscription to Private Wealth Advisory now, lock in the soon to be old price of $249, and start taking steps to insure your loved ones and personal finances move through the coming storm safely…

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Best Regards,

Graham Summers




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  • Vahlsing

    It is my estimation that the “International Monetary Fund” and other World Banks are in the business of selling “instability fear”. So they can continue to create loan shark funding to countries; to sell their fake bonds (with loan shark interest rates) on the stock market to raise capital for their greedy selves. Let’s take Greece’s suffering for instance. The IMF threw fake bonds on the stock market to raise capital before; of which poor Greece will never be able to payback. “AND”… How is that a rational investment for anyone? Plus, Greece must deal with the issue of “International Monetary Fund” sucking their economy by way of these “loan shark” loans with an interest rate of about 30% more or less to the Greece government. Greece is being destroyed financially; as Greece will never catch-up or pay off their enormous debt; as in every country that gets loans from these loan sharks. …When are the people of Greece and all of us going to demand individual Freedom and a real “Free Enterprise / Market System”, and stop all this oppression? If we will allow the “Free Enterprise / Market System” work in real Freedom. You would see a huge difference in wealth distribution (a fairer distribution). The business playing field would be equalized for all businesses to struggle, to survive in a competitive world; (you are not too big to fail and no more government bailouts). Countries would not need these loan shark loans. Freedom also affords anyone that has experienced a failure; to brush themselves off, and an opportunity start anew. We are all fallible. Utopia is out of reach.

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