Spain Runs Out Of Money To Feed The Zombies

Zero Hedge
May 29, 2012

One of the problems with the Hispanic Pandora’s box unleashed by a now insolvent Bankia, which as we noted some time ago, is merely the Canary in the Coalmine, is that once the case study “example” of rewarding terminal failure is in the open, everyone else who happens to be insolvent also wants to give it a try. And in the case of Spain it quite literally may be “everyone else.” But before we get there, we just get a rude awakening from The Telegraph’s Ambrose Evans-Pritchard that just as the bailout party is getting started, Spain is officially out of bailout money: “where is the €23.5 billion for the Bankia rescue going to come from? The state’s Fund for Orderly Bank Restructuring (FROB) is down to €5.3 billion.”

From here on out, the alternatives have been discussed to death and are clear as day: either the ECB, and the global central bank syndicate, inflates away the debt, which can only happen if Germany gives the ECB a carte blanche to print up the the $3-5 trillion required to backstop the European financial system, or we proceed straight to an instance of “Odius debt”/debt moratorium/write down, which however with trillions in daisy-chained, rehypothecated, partly submerged within the broker-dealer mediated shadow banking system, liabilities permeating throughout the global financial system, the outcome would be a tremor that shakes the very foundations of the financial system, in the process also impairing the $1 quadrillion OTC derivative credit money pyramid. In other words: nobody wants to, pardon, nobody dares to do anything, and the best Europe, and by implication the world, can hope for is to survive day to day, without launching the terminal financial D-Day. Pritchard’s summary of next steps is expected: “The result of Europe’s policy paralysis is more likely to be a disorderly break-up as Spain – and others – act desperately in their own national interest. Se salve quien pueda.” Only it is not only Europe. It is the entire world. But it will start in Europe. And specifically Spain, which unlike Greece is too big to be swept under the rug. It is also a place where the zombies are now congregating.

In an indication of just how surreal the modern financial world has become, none other than Bloomberg has just come out with an article titled “Spain Delays and Prays That Zombies Repay Debt.” We can only surmise there was some rhetorical humor in this headline, because as the past weekend demonstrated, the best zombies are capable of, especially those high on Zombie Dust, or its functional equivalent in the modern financial system: monetary methadone, as first penned here in March 2009, is to bite someone else’s face off with tragic consequences for all involved. What Bloomberg is certainly not joking about is that the financial zombies in Spain are now everywhere.

Spain is trying to clean up its banks, requiring lenders to set aside more for possible losses on loans deemed performing to developers like Metrovacesa SA (MVC), which hasn’t completed a project in more than a year and has none under way. While that represents about 30 billion euros ($38 billion) of increased provisions, it’s not enough because many of the loans said to be performing aren’t, said Mikel Echavarren, chairman of Irea, a Madrid-based finance company specializing in real estate.

“Spain has engaged in a policy of delay and pray,” Echavarren said in an interview. “The problem hasn’t been quantified by anyone because there is huge pressure not to tell the truth.”

Yes, lying and ignoring reality are truly signs of a stable, mature system. Just look at Bankia, which went from “profitable” to broke in a few days. And at the risk of repeating ourselves for the n^th time, Bankia is merely the beginning.

The Economy Ministry says that Spanish banks have 184 billion euros of developers’ loans and assets that are “problematic,” while the remaining 123 billion euros are performing. The need for more reserves to cover losses on the loans can’t be ruled out, Nomura International analysts Daragh Quinn and Duncan Farr said in a May 14 report. If Spain took losses on developer loans like Ireland did, Spanish banks would need 8.9 billion euros under the best case to 76.5 billion euros of additional provisions in the worst scenario, Nomura estimates.

A hole as big as €76.5 billion, plugged with… the €5.3 billion left in the FROB? Good luck. And why is the hole there to begin with? Because of the same lies and same prayers and delays that are now the only policy instrument left in the administration’s arsenal:

Many Spanish banks are avoiding property sales so they don’t have to make “mark to market” valuations. Instead, they’re giving developers new loans to pay debt coming due to prevent defaults, said Ruben Manso, an economist at Mansolivar & IAX and a former Bank of Spain inspector.

“The larger banks have been selling bits and pieces and can absorb the losses,” Manso said. “Smaller savings banks are acting in bad faith in their refusal to allow transactions and saying they can’t mark to market because there isn’t one.”

A spokeswoman for CECA, the association for Spanish savings banks, who declined to be identified citing company policy, said the group can’t comment on the banks’ commercial policies.

While there is virtually no clarity, one case gives us a terrifying glimpse into the murky waters beneath the surface:

Metrovacesa, once Spain’s largest developer, is typical of the industry, according to Manso. The Madrid-based company, which once owned HSBC Holdings Plc’s London headquarters and had about a 50 billion-euro market value, was taken over by creditors in 2009 after its largest shareholder struggled to service billions of euros of debt.

Metrovacesa has racked up 1.8 billion euros of losses since 2008. It has debt of 5.1 billion euros and property assets valued at 3.9 billion euros.

“The banks have made writedowns in their Metrovacesa stakes, but they haven’t taken the full hit,” Manso said.

Metrovacesa currently trades at 38 cents a share, valuing the company at about 375.5 million euros. UBS AG downgraded the shares to sell on May 22 and changed its target price to 32 cents. In August, its lenders renegotiated the terms of 3.6 billion euros of its debt, extending maturities on 2.47 billion euros of obligations and granting a five-year grace period for interest payments on 1.12 billion euros of loans.

“Having no controlling stake in Metrovacesa means that its creditor banks don’t have to consolidate the company’s debt or assets and contaminate their own balance sheets,” Manso said. “There are hundreds of cases like Metrovacesa out there, albeit smaller in size, and this distorts the official amount of real estate and bad developer loans that banks profess to have.”

Terrifying, because proper accounting treatment would mean that the abovementioned €76.5 billion in max provisions is really orders of magnitude lower than what the final number will be.

Of course, it wouldn’t be an article about a ponzi scheme if it didn’t have an official refutation. Sure enough:

Metrovacesa isn’t a zombie, said a company spokesman, who
declined to be named citing company policy.

And That, ladies and gents, just won the prize for the most hilarious denial in the history of denials… to date. As the ponzi unravels more and more each day, the above case will be rather serious compared to what is in the pipeline. But for now, a company spokesman forced to deny that the company he works for is not an undead creature with a penchant for brains does it for us.

Metrovacesa has
projects in mind, but the market doesn’t allow homebuilding, he
said.

Wait, wasn’t everything Bush’s fault? Or in the worst case: Merkel? Now we get one more culprit for lack of market clearing. Why, the market itself of course.

But if the above hasn’t caused blood to shoot out of one’s ears yet, the next paragraphs absolutely will.

More than half of Spain’s 67,000 developers can be categorized as “zombies,” according R.R. de Acuna & Asociados, a real-estate consulting firm. They have combined debt of 180 billion euros that will lead to 104 billion euros of losses that hasn’t been fully provisioned for, Acuna estimates.

“They aren’t officially bankrupt because they have been refinanced time and time again,” Fernando Rodriguez de Acuna Martinez, a partner at the company, said by telephone. “Their assets are worth much less than their liabilities, they struggle to repay loans and they haven’t revaluated them to reflect today’s prices.”

And that, in a centrally planned world, is why no company is allowed to go bankrupt – because the central banks merely allow them to refi into perpetuity, even if, as is admitted, “assets are worth much less than their liabilities” – surely a justification to invoke the Fed’s emergency Section 13(3) emergency powers…

In the meantime, the Fed’s domestic partner, the Bank of Spain is doing all it can to avoid the realization that zombies walk among us:

The Bank of Spain allows loans that are refinanced before turning delinquent and interest-only loans to be considered “normal” or “performing” on banks’ books, according to Manso.

“You won’t find that data anywhere,” Manso said. “There has been a lot of cheating going on where banks have lent developers new money, classed as new lending, so they can pay off their original loans.” That’s masking delinquency, he said.

Refinancing the current and future zombie developers will cost 30 billion euros over the next two years, according to Acuna. The depreciation of those developer assets from 2012 onwards will generate a further 20 billion euros of losses in that time, he said.

And saving the absolute farce for last:

Echavarren’s Irea brokered the refinancing of a 200 million-euro loan two years ago for a developer. After two more rounds of refinancing, there is about 180 million euros left on the loan and it’s classified as performing, he said, without identifying the company.

“The probability that this loan will be paid when it comes due is zero,” Echavarren said. “There are dozens of similar cases.”

Spain’s government and banks need to be more like their counterparts in Ireland and be more forthcoming about loan losses, according to Echavarren. He forecasts that the larger Spanish banks with income from international operations will be able to pay for domestic real-estate losses within two years. The rest can’t take such a hit and will have to be nationalized, he said.

“We cannot continue to jeopardize the whole financial system by not telling the truth,” Echavarren said.

Who says we can not: why, it is the sole prerogative of every central bank not to fight inflation, not to maximize employment, and lately, not even to keep the Russell 2000 over 800. It is merely to perpetuate the lies, to extend and pretend, to keep the zombies in check, to repeal every law of math, physics and statistics known to man: from the second law of thermodynamics, to simple sine wave oscillations, to prop the insolvent as the liabilities get exponentially bigger than the assets, to change accounting rules, and to pretend that reality matters, until everything finally crashes.

Which at this point is a certainty.

For those of an inquisitive nature, the only question is when. But, frankly, even that is becoming less and less relevant with each passing day.

Greek Retailers Stocking Up On Shutters In Case Of Riots, Alcohol Inventories Plunge

Zero Hedge
May 29, 2012

While America may be experiencing the occasional zombie apocalypse breakout, probably due to the absence of easily available edible iPads, Greek retailers are preparing for the retail version. “British electrical retailer Dixons has spent the last few weeks stockpiling security shutters to protect its nearly 100 stores across Greece in case of riot. The planning, says Dixons chief Sebastian James, may look alarmist but it’s good to be prepared.” Why Dixons? “Europe’s No 2 electrical retailer Dixons owns Greece’s market leading but loss-making Kotsovolos chain, which has a 25-percent market share selling iPads and laptops as well as washing machines, televisions and air conditioning units.” There we go: Bill Dudley’s edible iPads. The question is what happens when this easily digestable piece of plastic is thoroughly looted after local rioters dispense with the “shutters” supposedly protecting their wares. What will be on the menu next? Sadly not booze: “Diageo, the world’s biggest spirits group and the name behind Johnnie Walker whisky and Smirnoff vodka, has reacted by slashing its marketing spend in Greece, reducing stock levels and pulling cash quickly out of the country after it saw its Greek sales halve in the last three years to less than 100 million pounds.” So: no food, no booze, no cheap 99 cent iPad aps: this is the way the world’s most miserable monetary experiment ends.

Who else is preparing for a peak in rioting, and how?

Company bosses around Europe agree. As the financial crisis in Greece worsens, companies are getting ready for everything from social unrest to a complete meltdown of the financial system.

Those preparations include sweeping cash out of Greece every night, cutting debts, weeding out badly paying customers and readying for a switch to a new Greek drachma if the country is forced to abandon the euro.

“Most companies are getting ready and preparing for a Greek exit and have looked at cash, treasury and currency issues,” said Roger Bayly, a partner at advisory and accountancy firm KPMG.

Chief Executive James says the company has contingency plans to shutter up its 69 wholly owned and 29 franchised Greek stores and close them in the short term to protect against any threat of civil unrest and prepare for a switch to a new drachma.

Greece accounts for just over 3 percent of Dixon’s annual sales of around 8.2 billion pounds. The company competes with Europe’s No 1 electrical chain Metro and with a number of local players which James says may struggled to survive in a crisis.

“We know it would put paid to quite a lot of our competitors and give us an opportunity to get more of a market share. So we are ready and we would be very interested to see how it would turn out,” said James.

Dixons should know what is the rioter’s pick du jour:

Dixons, using its experience of dealing with riots in London and other British cities last summer – big flat-screen televisions were the looters’ booty of choice – has ordered enough shutters to protect its stores and is working with the Greek police and security groups.

The group’s sales dipped 9 percent in Italy, Greece and Turkey in the year to late April. The group does not split out Greek sales, but these three nations make up around 7 percent of the group’s annual sales.

The 6 Greek Cs:

“Businesses need to build in protection by checking payment terms, sweeping cash out of subsidiaries and into other currencies and check on the vulnerability of suppliers,” said Martin O’Donovan, ACT’s deputy policy and technical director.

KPMG’s Bayly advises his clients to check the six Cs when preparing for a possible Greek euro exit: cash, contracts, continuity, counterparties, control and commercial. He believes that automotive companies, tour operators and pharmaceutical groups would see the biggest immediate disruption from an early euro exit by Greece.

He argues most companies are well prepared on cash issues and contracts with suppliers, but less so on how they would cope with business continuity in the immediate aftermath of a euro exit.

The worst news? No more booze:

Diageo, the world’s biggest spirits group and the name behind Johnnie Walker whisky and Smirnoff vodka, has reacted by slashing its marketing spend in Greece, reducing stock levels and pulling cash quickly out of the country after it saw its Greek sales halve in the last three years to less than 100 million pounds.

Diageo has weekly meetings aimed at cutting its exposure to Greece, protecting remaining sales by bolstering its own in-house distribution network, halting supplies to some small bars and focusing on high-end hotels and clubs.

Diageo’s Chief Marketing Officer Andy Fennell says its Greek sales are still falling. The once big Johnnie Walker market has already shrunk and now accounts for less than one percent of the group’s 10 billion pound annual turnover.

“There could be a marked impact on Greece but the big question is what happens elsewhere across the eurozone,” Fennell said with an eye on Diageo’s bigger troubled markets inside the eurozone such as Spain and Ireland.

The best news: new drachma will be well stocked and easily available:

De La Rue, which as the world’s biggest commercial banknote printer produces more than 150 currencies, has made no comment. Analysts say Greece could have to turn to outside printers because of the sheer quantity of banknotes needed.

Of course, if after reading this any Greeks are still not utterly terrified of what their vote for Syriza would bring (nothing but Keynesian fire and brimstone), very soon precogs will be released to arrest any and all who dare to vote for ending a disastrous monetary experiment which will eventually unleash what happened in Miami over the weekend, worldwide.

As the financial collapse approaches, should you go all-in on gold and silver?

J. D. Heyes
Natural News
May 29, 2012

U.S. debt is spiraling out of control. The Treasury Department’s printing presses are cranking out hundreds of billions in new money. The U.S. dollar is weak. The stock market is volatile. European countries are imploding financially and the entire European Union is at risk of collapse. The Middle East is an even worse tinderbox than normal, due to all the “Arab Spring” unrest.

Should you put all of your assets – your hard currency, your 401K, your stock portfolio – into gold and silver now, before it’s “too late?” Capital market specialist and entrepreneur Peter Pham thinks so.

Since 2008, when theGreat Recessionbegan in the U.S., gold and silver prices have hit the stratosphere. On Oct. 30 of that year, gold closed at $737.20 an ounce; silver closed at $9.785 an ounce. Today, gold and silver respectively are around $1,550 and $28 an ounce. Gold has more than doubled in value; silver has performed better, nearly tripling in value.

That’s all well and good, and there is no question that people who got into the gold and silver markets early-on have done well with their investment. But what about from this point on? What does the future hold for gold and, to a lesser extent, silver?

That’s never an easy question to answer – predicting the future value of something. But there are signs that could at least point you in the right direction.

Historically valuable and a hedge against bad times

First, gold and silver had historically heldsomevalue, especially as economic times get tough.

Secondly, governments today seem to beaddinggold to their currency reserves, not divesting themselves of gold.

“The latest numbers published by the World Gold Council reveal that there is a sea-change happening in the gold market,” Pham wrote in an assessment of gold and silver recently. “It’s no secret that central banks have been buying, intermittently, gold and adding to their official reserves. The first quarter numbers showed clearly that gold demand is rising in the East faster than it is in the West and this has helped push the price higher. The trend looks to be just beginning.”

Producers of a product watch their markets closely to see if demand for their product is increasing or decreasing. As Pham notes, there has been some recent “weakness” in gold and there has been some decrease in demand in certain sectors of the global economy. But overall, production is up 5 percent, and that’s largely due to acquisitions of gold by governments, especially in Asia.

And that, says Pham, is likely because those governments believe gold is presently undervalued.

Central banks around the world loading up

“In 2011, for the first time, investment demand outstripped jewelry demand by 9 tons,” Pham wrote, noting in one example that Turkey’s central bank added 79.3 tons, raising reserves to 195 tons by the end of 2011, an increase of more than 32 percent over the previous year.

“Efforts by the government to bring some of that private gold into the banking system have seen their reserves rise to 209.6 tons by May, representing more than 12 percent of Turkey’s reserves. Clearly both the people and the government of Turkey are worried about the future,” he wrote.

That trend is growing throughout Asia, “from the Baltic with countries like Russia, Kazakhstan and Turkey all adding to their official reserves, to Southeast Asia where investment demand dominates in places like Vietnam and Thailand.”

He said central banks make these kinds of monetary moves for a variety of reasons, but in this case, he believes it is happening because “they are diversifying away from the U.S. dollar as their primary reserve currency to protect themselves from the stresses in the U.S. and European banking systems.”

‘Something fundamentally wrong’

“The gold flow data clearly shows them reacting to protect themselves,” Pham says.

There are also geopolitical factors driving the demand.

“Let’s not forget the looming U.S. and E.U. sanctions against anyone still trading with Iran, namely Iran, Turkey and Russia, who have been, by far, the biggest buyers of gold in the past fifteen months,” Pham writes.

What does it all mean? What is gold, at least, trying to tell us?

“At this point gold is telling us that the people on my side of the world believe gold to be grossly undervalued in the futures market and will continue to sit back and catch gold bars as they fall into their laps at discount prices,” he said.

“It’s also telling us that there is something fundamentally wrong with the path we’re on.”

Sources for this article include:

http://www.alphavn.com/2012/05/19/gold-is-telling-us-something/

http://silver-and-gold-prices.goldprice.org/2008_10_01_archive.html

http://www.indianexpress.com

Greece to Leave Euro Zone on June 18: Wealth Manager

Shai Ahmed
CNBC
May 28, 2012

Greece will leave the euro zone on June 18 if the populist government wins the country’s elections on the 17 as the rest of the euro zone rounds on “cheaters,” Nick Dewhirst, director at wealth management firm Integral Asset Management, told CNBC.com Monday.

“The euro zone is a club but you get cheaters who get away with it until everyone finds out and at that point you need to remove them otherwise everyone will cheat. It’s better for Greece to leave,” Dewhirst said.

He added that Greek society was built on cheating and scheming, saying “everyone does it” but that voters elsewhere in the euro zone were now calling Greece to account.

“The basic question is that a German has to increase working from 65 to 67 and that is to pay for Greeks retiring at 50. The 17th of June is the perfect opportunity to say either ‘we’ll behave’ or ‘we’ll carry on cheating,’” he said.

Full story here.

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Why America Is Slouching Towards Third World Status

Steven Strauss
Business Insider
May 28, 2012

“The best lack all conviction, while the worst
Are full of passionate intensity” –”The Second Coming”, William Butler Yeats

Yeats’ lines aptly describe our current age of political mediocrity. As we consider our politicians, we can hardly say that they’re our best. And the worst of them are full of passionate intensity, with passions driven by ideology, rather than fact-based analysis.

The United States has been in decline relative to other countries for the last 30 years. On key metrics, we’ve fallen behind our peer group of industrialized countries, such as the UK, France, Germany, and Japan.

Am I exaggerating? Well, according to the Corruption Perception Index, we rank 24th in the world (only slightly better than Qatar) for public sector corruption. We rank 25th (way behind our peer group) in the OECD for math scores among 15-year-olds.

Over the past 30 years, our national debt has grown from about 30 percent of GDP to about 100 percent, and will become much worse based on current trends. In a recent survey of 10,000 Harvard Business School Alumni, “66 percent of respondents see the U.S. falling behind emerging economies.” It is difficult to find many encouraging metrics.

If the above statistics don’t convince you, visit the New Delhi International Airport, then compare it with our JFK or Newark International Airports. In many areas, our infrastructure is an embarrassment, already inferior to that of many third world countries.

These facts (and many others) have escaped Romney, Santorum and our current group of Republican leaders. Obama and the Democrats aren’t doing significantly better at confronting these challenges.

Full article here

Hundreds of words to avoid using online if you don’t want the government spying on you

DANIEL MILLER
UK Daily Mail
May 26, 2012

The Department of Homeland Security has been forced to release a list of keywords and phrases it uses to monitor social networking sites and online media for signs of terrorist or other threats against the U.S.

The intriguing the list includes obvious choices such as ‘attack’, ‘Al Qaeda’, ‘terrorism’ and ‘dirty bomb’ alongside dozens of seemingly innocent words like ‘pork’, ‘cloud’, ‘team’ and ‘Mexico’.

Released under a freedom of information request, the information sheds new light on how government analysts are instructed to patrol the internet searching for domestic and external threats.

The words are included in the department’s 2011 ‘Analyst’s Desktop Binder‘ used by workers at their National Operations Center which instructs workers to identify ‘media reports that reflect adversely on DHS and response activities’.

Department chiefs were forced to release the manual following a House hearing over documents obtained through a Freedom of Information Act lawsuit which revealed how analysts monitor social networks and media organisations for comments that ‘reflect adversely’ on the government.

Full article here

Lloyd’s of London preparing for euro collapse

Andrew Cave
London Telegraph
May 28, 2012

Richard Ward said the London market had put in place a contingency plan to switch euro underwriting to multi-currency settlement if Greece abandoned the euro.

In an interview with The Sunday Telegraph he also revealed that Lloyd’s could have to take writedowns on its £58.9bn investment portfolio if the eurozone collapses.

Europe accounts for 18pc of Lloyd’s £23.5bn of gross written premiums, mostly in France, Germany, Spain and Italy. The market also has a fledgling operation in Poland.

Lloyd’s move comes as a major Franco-German provider of credit insurance for eurozone trade, Euler Hermes, said it was considering reducing cover for trade with Greece because of the risk the country might leave the eurozone.

Full article here

CA CAFR shows $600 billion tax surplus, 1% criminals cover-up, demand ‘austerity’

Carl Herman
Washington’s Blog
May 28, 2012

Clint Richardson details California’s Comprehensive Annual Financial Report (CAFR) to reveal $577 billion in Californian taxpayers’ investments. This public evidence makes Governor Brown’s claim of a ~$16 billion budget deficit with no option than “austerity” a criminal lie of omission. This is similar if the governor claimed the public checking account didn’t have enough money for our children’s schools while he covered-up a savings account with over 30 times the claimed shortage.

Clint notes on page 107 of California’s CAFR that the $6 billion annual interest cost and $164 billion in state debt are also cover-ups when contrasted with taxpayers’ investments. The criminal economic fraud of the 1% expands with cover-ups of the policy options to issue its own credit and money to directly pay for public goods and services.

These facts at the state level in California are repeated by the two main political parties’ “leadership” in all states (explore here). They also reveal the US national debt as similar criminal fraud. Here are three simple points to explain:

1. The US does not have a money supply; we have its Orwellian opposite as a debt supply. This is because the US leading banks won legal right through passage of the 1913 Federal Reserve Act to have private banks and the Fed create debt for what we use as money, and then charge the 99% for its use.
2. The policy choice of a debt supply compounded with interest causes ever-increasing aggregate debt that can never be repaid. It can’t be repaid because this is what we use for money. The US national debt now pushing $16 trillion has a gross annual interest payment over $400 billion a year; ~$4,000 per US family of $50,000 annual income (if your household earns $100,000, then your gross annual interest payment is ~$8,000 every year).
3. Monetary reform creates debt-free money that extinguishes the debt (details here), and allows government to become employer of last resort for infrastructure investment (hard and soft). This creates full-employment, optimal infrastructure, and falling prices because infrastructurehistorically creates more value to the economy than cost. Credit reform allows for public loans (interest directly pays for public goods/services) as another monetary tool for stable money supply (credit reform details here).

I understand that most Americans find these facts difficult to embrace. My personal experience working with both parties’ “leadership” for 18 years and two UN Summits where they rejected ending poverty, even when it produces a profit with Microcredit, revealed the 1%’s character.

The solution to the 99%’s looted trillions is as old as law and justice itself: arrest the criminals, disclose the comprehensive facts, rebuild in good faith for policy in the public good.

Until the 99% demand arrests and justice, the 1% will continue to loot, lie, and demand we accept austerity on our knees.

It’s our assets. What will you think, say, and do to reclaim them? Until we collectively act, the 1% psychopathically rules us to kiss our own assets goodbye.