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Michael Parmar

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  • The plan for private-sector participation in the Greek rescue would constitute a "restricted default," says Fitch, noting the proposed debt exchange implies a 20% net present value loss for banks and other holders of Greek government debt. Once new bonds are issued, Fitch will issue new ratings which will likely be below speculative grade.  [View news story]
    That is somewhat unexpected since no one is not paying bonds.

    Greece is in a position to meet its debt repayments for the next few years thanks to the first bailout.

    Talk about jumping the gun.
    Jul 22 11:42 AM | Likes Like |Link to Comment
  • Sovereign Debt: Has Europe Finally Discovered Alchemy? [View article]
    I think the biggest concern is the AAA rating.
    Jul 21 11:00 PM | Likes Like |Link to Comment
  • Don't Underestimate EU Resolve [View article]
    I agree with you that lots of loose ends are there and I'm as skeptical about them - its far from a done deal.

    The so called 3.5% interest rate is if you look at the text an example rate, they actually say that EFSF funds cost 3.48% to raise hence they intend to lend at a low rate close to but above their balance of payments rate and that means currently at 3.5%. So with the future lending, if it rises above 3.48%, they will naturally raise the rate they lend at.

    At the same time, many things were not specified on purpose - e.g. leaving open the question of the size of fund with the possibility of raising it, mentioing collateral as you say - politicians like to keep their options open. Which is damaging to their credibility sometimes.

    My lingering concerns are
    1. the criteria for EFSF pre-emptive intervention which is to happen under "strict conditionality" - does that mean that ECB/EFSF will be given parameters to intervene continually or will strict conditionality be so strict that it never acts?

    2. EFSF has so many different objectives (Ireland, Portugal Greece bailouts; backstopping/recapital... some Italian/Spanish/Greek/... banks that failed or "nearly" failed the stress tests; Greek bond buy backs, plus unspecified plunge protection), that 440bn will run out pretty soon......

    But the positive is a key threshhold was passed today: the states realised this wasn't a Greek or PIIGs problem, its about EU survival; one for all and all for one vs a slow unravelling of the union itself.

    And I guess the implication of that is it requires closer fiscal union and better and more coordinated fiscal discipline.
    Jul 21 10:14 PM | Likes Like |Link to Comment
  • Is Europe One Step Closer to a Fiscal Union? [View article]
    Yes it most definitely is one step closer.

    But that was on the cards with the enhanced Stability and Growth Pact underpinning the Euro.

    The question is whether it is a sufficient step, and if not, whether Eurobonds are the answer.

    While the package looks good, the lingering doubt in my mind is whether the EFSF fund size is sufficient. EU stress will re-emerge when this funding begins to run out.
    Jul 21 06:07 PM | 1 Like Like |Link to Comment
  • Don't Underestimate EU Resolve [View article]

    I'm sure you have seen the text. As indicated here:

    It matches to a lot of what i have outlined above - the EFSF is to act as an EU style monetary fund, there is a commitment to disburse funds in a manner that ensures restructuring objectives plus intervention in secondary markets if necessary.

    Plus there is a commitment to further enhance convergence.

    Greece's initial funding gap as identified for 2nd stage bailout is to be covered by the EU/IMF and voluntary involvement in debt restructuring is entirely voluntary.

    Collateral mechanism to improve quality of Greek debt held with ECB probably in the form of new Greek bonds backed by EFSF guarantees, using a menu of options.

    In other words, the EU/IMF funding will be sufficient to retire Greece's debt and private sector is "invited" to write down some loans. Lots of negotiating ahead to determine the swap out price, etc I think.

    Whether the rating agencies consider it a default is their problem, not EU/ECB problem.

    What is most interesting on market dynamics is the "pre-emptive" ability of EFSF to intervene in markets, under "strict conditionality".

    Whether in practice that permission to act as "plunge protection" is never given, or given frequently, will be a whole new area to be tested by the markets.
    Jul 21 05:14 PM | Likes Like |Link to Comment
  • Stocks mixed after biggest day in a year [View article]
    The Dow is pricing at the same level it was when the EU summit of 31 May was held.

    It crashed from there when they put the onus on Greek parliament to vote in austerity, and the sitting parliament had a 5 vote majority, was unpopular and so on.

    This time, the EU seem to have learned their lesson with a lot more common ground for a further, longer kick down the road.
    Jul 20 01:47 PM | Likes Like |Link to Comment
  • Don't Underestimate EU Resolve [View article]
    Mike- thanks for your comment!

    You say so far its been like throwing money into a black hole. the plan on the table prior to tomorrow was a case of that.

    Having read the IMF/ECB/EU 120+ page report on the implementation status of Greece, and being familiar with the country, there are some good elements of real structural change there.
    Privatisation, liberalisation and deregulation of many markets and industries will help the country to grow with a real chance of transformaton, but not in the current economic climate and with the debt burdens it has.

    So the problem is not Greece's development path and prospects, but the proposed financing plan to date which doesnt help but hinder that.
    Jul 20 01:34 PM | Likes Like |Link to Comment
  • Don't Underestimate EU Resolve [View article]
    Peter - thanks for your comment!

    Having read the 120+page troika report on the second bailout there is a lot in there that makes sense and a lot of hope for the Greek economy - structured around privatization. So that is a big poistive.

    Debt forgiveness = default, and that is not an option, plus it runs into the moral hazard problem.

    And yes Merkel has been the most concerned about moral hazard.
    Jul 20 01:26 PM | Likes Like |Link to Comment
  • World's Biggest Engine of Growth Stalls [View article]
    Dave -Interesting comment! what did you expect?

    I take your "delusional" to mean the group i identified as not being the worlds engine of growth.

    As i see it, they determine PCE which accounts for about 65% + of US GDP. Investment (including private housebuilding and fixing) is about 15-20% of US GDP.
    Jul 13 01:31 AM | Likes Like |Link to Comment
  • Alcoa's 2Q earnings more than double on sales [View article]
    With world demand forecast lower, rising input prices and companies implementing the majority of efficiency measures during 2008-09 (shedding labour and so on) they will inevitably face a margin squeeze.

    Alcoa came out better than most since its a commodity producer with rising output prices
    Jul 12 03:52 AM | Likes Like |Link to Comment
  • Why QE2 Failed: The Money Went Offshore [View article]
    Gabe - I would be interested in your views on analysis i did with seasonally adjsusted US employment data.

    I agree with you that we are not in double dip territory but one step closer.
    Jul 12 03:44 AM | 1 Like Like |Link to Comment
  • Why QE2 Failed: The Money Went Offshore [View article]
    Thats it in a nutshell :)
    Jul 12 03:40 AM | 1 Like Like |Link to Comment
  • Why QE2 Failed: The Money Went Offshore [View article]
    Gabe you say the US economy is fine.

    I am not so sure about that, since those in employment fell by 445K in June and real incomes fell as well. That drop wiped out job growth leaving accroding to the BLS only +11K more people employed than in January.
    Jul 11 12:28 PM | 1 Like Like |Link to Comment
  • World's Biggest Engine of Growth Stalls [View article]
    Thanks for your comment!
    I agree there are tax effects arising from govt schemes, hence I looked at pre-tax income x number in full time emmployment as the power ofthe engine of growth. To save space I didn't want to go through all the implications of differences between disposable incomes, tax implications on employment prospects and so on, which, as you point out are very important
    Jul 11 12:18 PM | 1 Like Like |Link to Comment
  • Why QE2 Failed: The Money Went Offshore [View article]
    A very good article.

    It is also worth pointing out that banks create money with a key stroke all the time - whenever they lend against their own deposits. Their L to D ratios is a basic measure of how much.

    The unwinding of the QEs will involve the reverse process, but not just yet.

    And finally, the net effect of the QEs is somewhat lower than the the initial amount since during that period the Fed retired a number of pre-QE schemes.

    Jul 11 12:13 PM | 3 Likes Like |Link to Comment