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  • Stability Of The European Union (12)? (Starts January 23, 2012) 184 comments
    Mar 12, 2012 7:00 PM
    • I changed the name of this Insta on Nov 21, 2010, after Ireland said they are seeking a bailout.

      This Instablog is the result of a question by one of the Renegades in OptionsGirl [OG] Quick Chat 90
      tinyurl.com/24y6u87

      Basically, what I wanted to address was what shoe is going to fall first, the US Dollar, or the Euro... I also wanted to see if there was any evidence for a time estimate with respect to issues for the Euro.

      I added more information on August 21, 2010.

      ____________________________________________
      Things are not looking good for Greece. I don't think they are going to be able to service all that debt. Enormous cuts in spending accompanied with increased taxes will likely destabilize their government. Remember, they can't print money as a way out of their debt trap. Investors are going to buy the safest assets in this environment. That should drive Greece's bowering rate higher. Here is some relevant information from a recent Bloomberg article:
      ___________________
      (August 13) Spanish, Greek Bonds Fall on Renewed Growth Concern; Bunds Gain By Anchalee Worrachate

      On August 13, the extra yield, or spread, investors demand to hold Greek 10-year securities instead of equivalent-maturity German debt, Europe's benchmark, rose 11 basis points to 808 basis points. That's the most since May 7, before the European Union announced a 750 billion-euro financial backstop for the region's most indebted nations.

      Concern some European nations would struggle to pay their debts helped boost demand this year for bunds, the region's benchmark securities. Spanish bonds returned 1.5 percent this year and Irish debt 0.5 percent, compared with an 8 percent gain from German securities, according to indexes compiled by European Federation of Financial Analysts Societies. Greek bonds lost 19 percent.

      Data today showed Spanish banks borrowed a record amount from the European Central Bank in July as investors shunned the indebted nation's lenders. Borrowing rose 3.1 percent to 130.2 billion euros ($167 billion) from 126.3 billion euros in June, according to daily averages compiled by the Bank of Spain.

      Spanish bonds are heading for their first weekly loss in five on renewed concern that climbing borrowing costs for Spanish regions put the national budget at risk.

      Catalonia, which accounts for a fifth of Spanish gross domestic product, has been shut out of public bond markets since March and the extra yield it pays over national government debt has almost tripled this year.

      The yield spread between 10-year Irish bonds and the benchmark German debt widened to 294 basis points today, the most since June 29, as investors bet the government will have to inject more capital into banks, including Anglo Irish Bank Corp.

      Ireland's borrowing costs rose at an auction of its six-and eight-month bills yesterday as investors demanded higher compensation for risk facing the government's finances. The country will sell 2014 and 2020 bonds debt next week. tinyurl.com/2dtuc5v
      ______________________________________________

      While the US is in a somewhat similar position, the US can print money, and our bonds have not be rated as junk. The higher the interest rate, the higher the perceived risk. The higher the interest rate, the deeper into the debt trap you go.

      I conclude that the Euro will drop relative to the dollar as money seeks less risk. How rapidly will this occur? I think the following chart provides some evidence with respect to timing.

      From June 2010 to August 2010 the average ten year Greek bond interest rate went from 64% of its peak crisis level to 85.5% of the peak crisis level.

      As of August, the Greek ten year bond interest rate is at the second highest level its been at over the past five years.

      If the interest rate is proportional to risk, than in the last three months, the risk level of the Greek ten year bond has increased at an average rate of 7.2% per month [ (85.5 - 64)/3 ].

      I suppose a natural accompaniment to shorting the Euro would be to go long on the dollar. This assumes that the debt crisis of the European Union will reach critical mass in advance of the US dollar.

      ______________________________________________________
      Added August 21, 2010

      A picture is often worth a thousand words. Here we have the Percent Economic Growth Rates for three countries: US, Greece, Germany. Note the distinct downturn in the US Economic Growth Rate.


      tinyurl.com/25vyea7

      Here is National debt as a percentage of GDP in 2009 for the Euro Zone. Look at Greece and Italy.


      tinyurl.com/2vvcnxv

      Here is Government deficit as a percent of GDP for 2009. Look at Greece and Ireland. Look at UK and Spain.


      tinyurl.com/2vvcnxv

      Here is the all important Jobs Picture as of March 2010. Look at Greece, Spain, Ireland and France.

      tinyurl.com/29grmpy

      =================
      Added September 29, 2011.

      What is the EFSF?:

      The European Financial Stability Facility (EFSF) is a special purpose vehicle financed by members of the Eurozone to combat the European sovereign debt crisis. The €110 billion bailout to Greece is not part of the EFSF guarantees, but a separate commitment.

      When you look at the Guarantee commitments by the different euro zone countries [tinyurl.com/3xde35o] you will see something interesting. Greece, Ireland, Italy, Portugal, and Spain (i.e., the PIIGS) account for over one-thrid (36.7%) of EFSF commitments. All by themselves, Italy and Spain have a financial commitment of almost one-thrid (29.8%) of the total EFSF commitment.

      ___________
      (October 23, 2011) I added this nice summary graphic of the Dominoes effect associated with the European debt crisis. You can also see the graphic and the accompanying article with the following link:

      (October 23, 2011) Guest Post: The European Financial Crisis In One Graphic: The Dominoes Of Debt. From: Zero Hedge, by: Tyler Durden. tinyurl.com/3ulxgmj

      The original copyrighted graphic is from Charles Hugh Smith (" 2011) attinyurl.com/ygsa6j

      Added February 9, 2012

      Greek General Government Debt Percent GDP
      tinyurl.com/73h5q2x

      (March 10, 2012) Europe's Scariest Chart Just Got Scarier. From: Zero Hedge, by Tyler Durden. tinyurl.com/7moa6tg

      Unemployment for individuals less than 25 rose to 51.1 %, twice as high as three years ago as budget cuts imposed by the European Union and the International Monetary Fund as a condition for dealing with the country's debt problems have caused a wave of corporate closures and bankruptcies.

      Fantasy Greek GDP Growth Rates:

      In the fantasy report "Greece: Preliminary debt Sustainability Analysis" dated February 15, 2012 which I referred to as the "Deus ex machine" report one of the EUs key economic assumptions was that Greek GDP growth in 2012 would be -4.8% and -1% in 2013.

      The Greek economy saw growth rates of:

      -0.2% in 2008,
      -3.3% in 2009,
      -3.4% in 2010,
      -6.9% in 2011
      -7.5% in fourth quarter of 2011.
      (Data from John Mauldin report tinyurl.com/7axvcmw)

      I plotted the Greek GDP data below and projected the GDP values for 2012 and 2013 based on the current data. I also plotted the Greek GDP projections from the Deus ex machine report - blue line.

      There is no Greek stimulus, jobs are in freefall. Which projection do you believe?

      ---------------------------- WARNING: This is a no Troll Zone. If you are disruptive, your comments will be deleted.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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Comments (184)
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  • Mayascribe
    , contributor
    Comments (9598) | Send Message
     
    FPA: Love the Troll warning!
    23 Jan 2012, 12:45 PM Reply Like
  • FocalPoint Analytics
    , contributor
    Comments (5804) | Send Message
     
    Author’s reply » :)
    23 Jan 2012, 12:54 PM Reply Like
  • tripleblack
    , contributor
    Comments (13444) | Send Message
     
    I do too. I am thinking of coming up with a sign to post with each of my REE instas...

     

    "Trolls will be crushed, melted down, and recycled as bridge abutments".

     

    Something like that.
    23 Jan 2012, 01:16 PM Reply Like
  • FocalPoint Analytics
    , contributor
    Comments (5804) | Send Message
     
    Author’s reply » Yes, a graphic would be cool. It could be put on all the Insta's. It could become an Internet standard for websites all over the world.
    23 Jan 2012, 01:35 PM Reply Like
  • optionsgirl
    , contributor
    Comments (5045) | Send Message
     
    This is a good argument for going long on the Euro.
    http://bit.ly/xghiso
    23 Jan 2012, 02:31 PM Reply Like
  • FocalPoint Analytics
    , contributor
    Comments (5804) | Send Message
     
    Author’s reply » I think the guy is suggesting to go long Euro based on the large short Euro position. A kind of technical analysis based decision. However, there may be good reasons for that heavy short Euro position.

     

    The Greek deal was rejected a few minutes ago, and the S&P started downgrading European banks. Meanwhile, in an article I posted on the previous Euro concentrator “Why Massive Quanto-Easing By The ECB May Be Coming Next Month” they are talking about the possibility of a 1 Trillion Euro LTRO. I think that will have the same effect as QE, and should drive the Euro lower and the Dollar higher. At least until the FED counter-plays with their own QE to bring the dollar back down.

     

    To me, it looks like the currency markets are going to get whip-sawed quite a bit in the near future. To play in that game, I would want to have access to a 24 hour trading capability and a pipeline to good reliable information. Even than, I know I am not good enough for that kind of play.
    23 Jan 2012, 06:18 PM Reply Like
  • FocalPoint Analytics
    , contributor
    Comments (5804) | Send Message
     
    Author’s reply » -EURO ZONE SOURCES –(January 23, 2012) Greek Debt Deal Rejected As S&P Begins European Bank Downgrades. From: Zero Hedge, by Tyler Durden.

     

    EURO ZONE FINANCE MINISTERS REJECT OFFER OF GREEK PSI REACHED WITH PRIVATE BONDHOLDERS, ASK NEGOTIATORS TO CONSIDER COUPON ON NEW GREEK BONDS BELOW 4 PCT.

     

    EURO FALLS VERSUS DOLLAR AFTER EURO ZONE FINANCE MINISTERS REJECT GREEEK PSI OFFER

     

    Translation: Greece demands that the coupon on its fresh start 30 Year bonds to be below 4%, or roughly in line with US 30 year paper. http://tinyurl.com/7b2...
    ------
    23 Jan 2012, 05:58 PM Reply Like
  • robert.b.ferguson
    , contributor
    Comments (10803) | Send Message
     
    All they have to do is bribe the ratings agencies to stamp them with AAA and wrap them in an MBS and they're problems are solved right?
    23 Jan 2012, 06:21 PM Reply Like
  • FocalPoint Analytics
    , contributor
    Comments (5804) | Send Message
     
    Author’s reply » LOL! May as well wrap them in used toilet paper and give them free CDS insurance too. They need to make a deal...

     

    The hedge funds are not going to go for the reduced coupon. If its mandated, they will sue. If they give the hedge funds the coupon they want, another source of funding needs to be brought into play to make up the differences... Meanwhile, the other PIIGS are watching. They want a big haircut on their debt too. So if a deal is made, how do they prevent the other PIIGS from going after a similar deal? What’s the stick going to be to prevent the PIIGS from wanting the same deal?

     

    I wondered about the European announcement that they are going in on the ban Iran oil deal. I would think that announcement had a quid pro quo associated with it...
    23 Jan 2012, 06:38 PM Reply Like
  • Jon Springer
    , contributor
    Comments (4152) | Send Message
     
    Fitch downgrades Spain, Italy, Belgium, Cyprus and Slovenia. Drudge Report gives it a banner headline.
    Business Insider: http://read.bi/waA4EO
    Bloomberg: http://bloom.bg/xZVY5C
    27 Jan 2012, 03:14 PM Reply Like
  • tripleblack
    , contributor
    Comments (13444) | Send Message
     
    Spain is at 23% unemployment (though to be fair, their numbers are more honest than our bogus BLS version - I think our "real" numbers are nearly as bad), and the trend is down.

     

    Fitch and the other rating agencies are dinosaurs from another century, far as I am concerned. All the recent history reinforces this.

     

    What I've been wandering is how ANYONE could ever have rated ANY of the Eurozone bonds (including Germany) as "Sovereign" anything. As has been proven without a doubt, NONE of them control their own currency (and frankly, its doubtful if the collective can, either). And you are NOT "Sovereign" in terms of your currency if you do not control it!

     

    So the entire EZ and all their separate debt is labeled with just about the worst case of false advertising I can imagine.
    27 Jan 2012, 03:20 PM Reply Like
  • Jon Springer
    , contributor
    Comments (4152) | Send Message
     
    Awww shucks TB... I think you're really splitting semantical hairs over what it is to be "sovereign"... I mean, geez, these guys have come a long way in their ratings in the 5 years since they rated CDOs stuffed with a spider web of toxicity leveraged against structured investment banker imaginations AAA. I think you've got to give them a little more time to mature - maybe another decade or two - as rating agencies and to learn the ropes a bit more before you go spouting off your hoity toity Oxford English Dictionary definitions at them.

     

    (in case its not clear... this is tongue firmly planted in cheek... with brain very fuzzy on excess cold medication and the last vestiges of a NyQuil hangover)
    27 Jan 2012, 03:26 PM Reply Like
  • FocalPoint Analytics
    , contributor
    Comments (5804) | Send Message
     
    Author’s reply » Hmmm my notification flag did not pick up todays posts.... Hope its not the flu Jon.
    27 Jan 2012, 03:56 PM Reply Like
  • LT
    , contributor
    Comments (4600) | Send Message
     
    HTL requested that I post these next 3 posts here too...

     

    "Portugal not Greece to bring Euro down".... and the Germans are asking for control of the Greece economy thru veto power over the budget. "BBC says Merkel says Greece will default".
    http://bit.ly/w0Vfaf
    http://bit.ly/yohMLV
    http://bit.ly/xAk2Hr
    Now that everyone is hedged, markets have priced in a Greek default the Germans come up with another quirk to delay funding, I think they want Greece to default and see what happens.
    But, IF Greece defaults then Portugal goes into the same situation before the ink dries on Greece, and the end much faster than Greece.
    This is why the Deutsch bank CEO said they are playing with fire, contagion could spiral out of control.
    The entire euro-zone including France & Germany might as well just default at once.
    30 Jan 2012, 08:25 AM Reply Like
  • LT
    , contributor
    Comments (4600) | Send Message
     
    Will the Euro Survive? Central Bankers Say Yes, for Now ... this is a must read.
    http://bit.ly/z9Ufiy
    30 Jan 2012, 08:26 AM Reply Like
  • LT
    , contributor
    Comments (4600) | Send Message
     
    Banks Fight to Exempt Half of Swaps Books (IMO these things need to go...they are just too big)

     

    "The five banks control 95 percent of cash and derivatives trading for U.S. bank holding companies, which had $326 trillion in notional derivatives as of Sept. 30, the agency said."

     

    http://bloom.bg/zo7zOg

     

    Sarkozy, OWS & Unions call for financial tax

     

    http://bloom.bg/xgXdRm
    http://bloom.bg/yXXAe
    30 Jan 2012, 08:27 AM Reply Like
  • Jon Springer
    , contributor
    Comments (4152) | Send Message
     
    Lena Komileva, chief economist at G+ Economics, on Bloomberg TV. Never heard of her before, but I'll watch for further comments by her. She even made sense blowing my nose half-asleep.
    http://bloom.bg/xmKbUv
    30 Jan 2012, 04:05 PM Reply Like
  • Jon Springer
    , contributor
    Comments (4152) | Send Message
     
    Victory for Merkel... but Sarkozy says she's listening to his critiques...

     

    FT: http://on.ft.com/xH1LVp
    30 Jan 2012, 11:12 PM Reply Like
  • Jon Springer
    , contributor
    Comments (4152) | Send Message
     
    As noted by Albertarocks recently, the Baltic Dry Index is down 94%: http://seekingalpha.co...

     

    Well, guess what continent has some bad loans in the pipeline from the shipping industry: http://seekingalpha.co...

     

    All tips of the hats to 'rocks. I'm just reposting here as it seems relevant. Boom-bust cycle is pretty normal in the shipping industry BUT as fragile as the European banking scene is now, anything with possible knock-on effects is anything but normal.
    31 Jan 2012, 05:41 PM Reply Like
  • tripleblack
    , contributor
    Comments (13444) | Send Message
     
    Some shots just off the top of my head:

     

    1. Back when China launched its bid to corner the world supply of many commodities, and was building strategic stockpiles like mad, some idiots, er, "experienced shipping magnates" mistook a unique spike propelling the entire industry into a brief space shot for the "new China normal". They used some of that wildly easy credit to order brand new hulls like mad. Now most of those ships are either in use or soon will be. The glut is real, its huge, and its here for a while - and I would expect to see the Chinese, for instance, moving in and buying dead shippers for pennies on the dollar real soon...

     

    2. Viewing this unique demand spike is best done, imo, in the same manner in which the Hunts Brothers' attempt to corner silver should be viewed: As a unique event best left out of any sound charting and modeling endeavors, else it will distort everything. As we saw with silver, it only recently once again reached those outrageous numbers seen back when the Hunts were losing their billion dollar inheritance chasing a silver dream.

     

    3. Even so, the BDI is clearly showing the glut in shipping capacity of that type which some of us were predicting might occur. China is slipping back to importing merely mortal quantities, and shipping even less as it grows its domestic market and works down some of those huge inventories it built up during the spike (they are fond of long range planning, y'know).

     

    4. As more and more of the planet's manufacturing and heavy industry, as well as food industry (by far the largest trade for BDI shippers) has become concentrated in China, the effect of their buying habits are the dominant force in the equation.

     

    5. If what we have seen over the past 8 or 9 years is any indication, China's volatile commodity imports will continue to tax the ability of the dry shippers to respond when and where needed during the peaks, and survive the valleys.

     

    6. As a secondary note, the ramping up of supplies funneling into China from continental sources like Inner Mongolia, Russia, Mongolia, and the rest of Asia, will see the importance of pipelines, rail and roads increase, further eroding the BDI business.
    31 Jan 2012, 07:01 PM Reply Like
  • FocalPoint Analytics
    , contributor
    Comments (5804) | Send Message
     
    Author’s reply » Thanks Jon. 94% down!
    31 Jan 2012, 07:05 PM Reply Like
  • Jon Springer
    , contributor
    Comments (4152) | Send Message
     
    Great post TB.
    31 Jan 2012, 07:24 PM Reply Like
  • siliconhillbilly
    , contributor
    Comments (2100) | Send Message
     
    trip: If the Chinese start working down their metal inventories instead of buying every kg in sight, what will that do to the nonferrous metals?

     

    Copper seems overvalued now, at least to me.
    1 Feb 2012, 02:09 AM Reply Like
  • tripleblack
    , contributor
    Comments (13444) | Send Message
     
    Exactly. Copper was one of the key commodities involved, along with coal, iron, phosphates, etc. Its status as "doctor copper" is threatened, if not extinct, imo.

     

    It will take a long time for the dry shippers to work through the excess capacity problem. Unfortunately, its one of those situations where the smart operators who managed their business well get hammered by a situation brought about by their moronic competition.

     

    The winners will be those who buy cheap near the end of the surplus, or who are nation states masquerading as corporations...
    1 Feb 2012, 09:15 AM Reply Like
  • FocalPoint Analytics
    , contributor
    Comments (5804) | Send Message
     
    Author’s reply » When you cut jobs and incomes, tax revenues are also cut… here is the reality of the situation. And this is the background against which the Troika wants Greece to cut another 150,000 people, and to cut minimum wage even more? Less revenues mean a diminished ability to pay back debt. So instead of catching up, they are actually falling further and further into debt.

     

    ----
    (February 7, 2012) Greek Economy Implodes: Budget Revenues Tumble 7% In January On Expectation Of 9% Rise. From: Zero Hedge, by Tyler Durden.

     

    According to just released data from Kathimerini, budget revenues lagged projections by €1 billion in the first month of the year [2012]. "Revenues posted a 7 percent decline compared with January 2011, while the target that had been set in the budget provided for an 8.9 percent annual increase.

     

    Worse, value-added tax [VAT] receipts posted an 18.7 percent decrease last month from January 2011 as the economy continues to tread the path of recession: VAT receipts only amounted to 1.85 billion euros in January compared to 2.29 billion in the same month last year."

     

    According to the current data, the 2012 budget will certainly have to be revised, given that the original estimate for a contraction of 2.8 percent is now raised to 3.5 - 4 percent of gross domestic product. [That’s an increase in the size of the contraction of between 25 and 43%]

     

    Finance Ministry officials attribute the slump in VAT receipt figures to the major cash flow problems that enterprises are facing. Some of the latter are choosing not to pay for their VAT in order to plug other holes caused by liquidity problems.
    http://tinyurl.com/7p2...
    7 Feb 2012, 06:13 PM Reply Like
  • tripleblack
    , contributor
    Comments (13444) | Send Message
     
    The reality is that Greece has been subsisting for years upon deficit government spending for about half their so-called "economy". Removing deficit effects from the economy returns it to reality, which is going to be a lot smaller than the puffed up fake which some thought WAS a real economy a few years back.

     

    Their public sector is a bloated parasite and will either be removed at great pain to the components of the parasite, or the entire nation will default, revert to a worthless drachma, and descend into chaos.

     

    In both cases the shock to the entitlement culture is likely to be lethal.

     

    The continuing life support supplied by the EU is the only thing keeping the zombie ticking. Frankly, the difference between a reversion to a devalued drachma and a 70% haircut is not that much for the various Greek bondholders. Persumably the drachma will value at SOME price vs other currencies... Has anyone seen a study of just how much difference would net out for a new drachma vs a devalued euro post disaster?

     

    This is a cautionary tale for us all, if we but pay attention.
    8 Feb 2012, 07:55 AM Reply Like
  • jhooper
    , contributor
    Comments (5347) | Send Message
     
    If you think about it what has been going on between Germany and Greece is that Germany has been selling product to Greece and booking an AR (Euros in a trade surplus), and Greece has been booking AP (Euros in a trade deficit) [interesting enough this is the same relationship between China and the US].

     

    So Germany now has a customer that can't make good on that AR. In other words, all the Euros should have had value to allow Germans to go other places and exchange them for other goods and services, but in order to save Greece means severely damaging the purchasing power of those Euros.

     

    So what will they do? This is a creditor borrower situation. Generally a creditor will try and save a borrower by making concessions if the creditor feels the borrower can be saved and thereby finally making good on the debt. If I were Germany, my first reaction is that Greece can't be saved. Generally a borrower needs a track record of profitability for the creditor to believe they can save the borrower, and Greece doesn't seem to fit in that category.

     

    Also, Europe labors under the delusion that gov spending leads to growth because if you pay a gov worker then that worker pays taxes. As if paying out 10 and getting back 5 is a path to prosperity. So Germany may think that if they subsidize Greece long enough, then suddenly the growth will just appear and then their AR will have value again.

     

    Intuitively you would have to think, that at some point somewhere, they will all have to experience a reduction in their consumptive abilities (as they already have to some point), and that this will cause a dip in the markets. But how much of a dip, and when, and for how long?
    8 Feb 2012, 08:39 AM Reply Like
  • FocalPoint Analytics
    , contributor
    Comments (5804) | Send Message
     
    Author’s reply » Well how interesting... I went to add a new graphic, and I lost all the graphics with the new publishing feature.... I have no idea what went wrong other than I consider the new publishing process as a PITA.
    8 Feb 2012, 05:26 AM Reply Like
  • H. T. Love
    , contributor
    Comments (17304) | Send Message
     
    E-mail support@seekingalpha.com and ask them to restore a backup for you. And maybe they can explain what happened too.

     

    Developing in word on your local box and importing may be the necessary SOP now to avoid this sort of stuff.

     

    HardToLove
    8 Feb 2012, 05:36 AM Reply Like
  • FocalPoint Analytics
    , contributor
    Comments (5804) | Send Message
     
    Author’s reply » I tried that... I copied the insta into word, than pasted the new graphic into that document. As suggested, I saved it as a ".doc" file, than tried to import it. I got an error.

     

    I than copied the entire article and pasted it into a new version of this insta... none of the graphics came over...

     

    I can't scroll in the article field to use the graphic placement tool either. I sent technical support a message with a copy of the article and its graphics in word.

     

    I am totally frustrated with SA.
    8 Feb 2012, 05:41 AM Reply Like
  • tripleblack
    , contributor
    Comments (13444) | Send Message
     
    I have found that pulling graphics from .doc files onto SA is now very troublesome, and I avoid it. I have started converting all graphics to .jpg files and importing them separately. I believe the new setup cannot handle the imbedded graphics. This could be attributable to a specific iteration of Word. Mine is an older version I have never updated (since I adhere to the philosophy of "if it ain't busted, don't fix it".

     

    Even so, I also find that the author board frequently "loses" jpg's and I have to restore them from the original source before publishing.
    8 Feb 2012, 07:41 AM Reply Like
  • robert.b.ferguson
    , contributor
    Comments (10803) | Send Message
     
    S&P has figured out that the 70% hair cut is insufficient. http://yhoo.it/z9hM7e I wonder what their first clue was. They probably had an epiphany after they read this concentrator. LOL.
    8 Feb 2012, 04:39 PM Reply Like
  • H. T. Love
    , contributor
    Comments (17304) | Send Message
     
    I like the statement "... if they had done this two years ago ..." things would've worked out.

     

    So, kicking the can not only didn't work, it exacerbated the issue.

     

    Golly. I wonder if the U.S. can learn anything from that.

     

    Ol' Mises is going to be proven right about the collapse of credit bubbles. And here we (and everybody else too) are trying to cure the problem, as from the start, by trying to inflate the credit bubble again.

     

    What a maximum dose of "stupid" our "leaders" must have been injected with somewhere along the line.

     

    Anybody here for going back to our constitutional roots and elimination of our "debt money" system? Fire the Fed! ... And the president and the congress and ...

     

    Never mind - that might cause a "Great Recession" with nobody to kick the cans for us.

     

    HardToLove
    8 Feb 2012, 04:55 PM Reply Like
  • magounsq
    , contributor
    Comments (971) | Send Message
     
    HTL
    "...I wonder if the U.S. (any governments?) can learn anything ..." from history?
    May be somewhat OT...but given our international economic and political climate...

     

    circa 1970s...Liar's Poker, Michael Lewis

     

    "Michael Milken often spoke to students at business schools... (and) demonstrate how hard it is...to put a large company (country?) into bankruptcy. The forces interested in keeping a large company (country?) afloat...are far greater than those that wish to see it perish...
    First...locate a major factory in an earthquake zone...then infuriate unions by paying the executives (politicians?) large sums of money while cutting wages...then select a company on the brink of bankruptcy to supply us with an essential irreplaceable component in our production line...then, just in case our government is tempted to bail us out when we get in trouble...bribe a few foreign officials. That, Milken concluded, is precisely what Lockheed had done in the late 1970s"

     

    "Who's on first?"
    16 Feb 2012, 01:13 PM Reply Like
  • FocalPoint Analytics
    , contributor
    Comments (5804) | Send Message
     
    Author’s reply » OK, after screwing around with it, I got it to work. The problem is the normal scrolling process does not work for my computer/ browser. I am using OS X Lion with the latest version of Safari.

     

    If anyone is interested in how to make it work, send me an email.

     

    Meanwhile, take a look at the last chart in the Insta's header. That graphic demonstrates the structural problem that the Greeks face.
    .
    9 Feb 2012, 09:03 AM Reply Like
  • Jon Springer
    , contributor
    Comments (4152) | Send Message
     
    I'm on the same OS and having a lot of hassle too. Thought maybe using Chrome instead of Safari would help, but its just a pipe dream. New SA editor combined with slow internet connection at my hotel is going to put more gray in my beard. Any counsel will be most welcome, oh kindest of rats.

     

    On a separate note, soon as I looked at that chart, I envisioned the two lines being the legs of conjoined twins trying to walk in different directions (perhaps, I should sleep more).
    12 Feb 2012, 07:18 AM Reply Like
  • Jon Springer
    , contributor
    Comments (4152) | Send Message
     
    I downloaded Google Chrome and it works better with the SA editor
    18 Feb 2012, 04:37 AM Reply Like
  • FocalPoint Analytics
    , contributor
    Comments (5804) | Send Message
     
    Author’s reply » I will give that a try Jon.. thanks ... hope you are feeling better.
    18 Feb 2012, 07:17 AM Reply Like
  • Jon Springer
    , contributor
    Comments (4152) | Send Message
     
    Hope Google Chrome works for you as well.

     

    I am indeed feeling better, thank you. Although, I'm quite glad I brought an abundance of cough drops as its helped me managed coughing from the pollution here from time time. Of course, I can buy cough drops here... but I like my particular brand of cherry flavored ones.
    18 Feb 2012, 11:51 PM Reply Like
  • FocalPoint Analytics
    , contributor
    Comments (5804) | Send Message
     
    Author’s reply » You were right Jon... The scroll bar works with Chrome, it does not work with Safari. I just passed that news on to SA Tech Support.

     

    Thanks
    Bob
    21 Feb 2012, 02:02 PM Reply Like
  • Mercy Jimenez
    , contributor
    Comments (1889) | Send Message
     
    Does anyone else find this SA entry today as chilling as I do??

     

    "6:56 AM Vodafone (VOD) follows other firms, moving cash out of Greece "every evening," to guard against an exit from the euro, according to its CFO Andy Halford. GlaxoSmithKline (GSK) takes it a step further, moving its cash from all of Europe (save Germany) into the U.K. each day. [Global & FX, Financials] Comment!"

     

    This am a Greek deal is in hand (again) -- futures are up -- and all is well in happy land. Meanwhile large multinationals are moving all cash out of Greece and even out of Europe (except for Germany) every night! Draw your own conclusions and invest accordingly.
    9 Feb 2012, 09:18 AM Reply Like
  • FocalPoint Analytics
    , contributor
    Comments (5804) | Send Message
     
    Author’s reply » Dead on Mercy... (VOD) and others are not drinking the cool-aid and are taking steps to protect themselves. The sheep think the deal solves everything [buy, buy, buy] , while it solves nothing.
    9 Feb 2012, 09:32 AM Reply Like
  • jhooper
    , contributor
    Comments (5347) | Send Message
     
    "The FT's Kevin Hope is reporting that the Greek agreement with the troika has finally been concluded, and that the details of that agreement will be announced shortly.

     

    From the report:
    An official in the prime minister’s office says: “There’s an agreement, Mr Papademos has met with Mr Samaras and it’s done. There will be a statement shortly.”

     

    Troika officials have been demanding steep austerity measures as a prerequisite to the disbursement of the newest Greek bailout funds. Among those demands were massive private sector wage cuts, a steep drop in minimum wage, public sector layoffs, and changes to pension plans that would curtail pension plans.
    Greek politicians had resisted that decision, fearing those cuts would bite into an already contracting economy and escalate social pressures. One of the most vehement members of that opposition was New Democracy leader Antonis Samaras.

     

    Futures are now positive in the U.S. and the euro is rallying against the dollar.

     

    Even if this report is true, however, Greece still needs to reach a deal with its private sector creditors on a bond swap plan that would restructure the country's debt burden. Although such a plan has been discussed for months, creditors and Greek officials have had trouble seeing eye to eye so far.

     

    UPDATE: It's looking more and more like a deal has indeed been reached. WSJ is reporting that a spokesman for the prime minister's office has told them that the agreement has been finalized, and that the details will be released shortly."
    9 Feb 2012, 09:22 AM Reply Like
  • H. T. Love
    , contributor
    Comments (17304) | Send Message
     
    Now we have just execution risk, huh?

     

    HardToLove
    9 Feb 2012, 09:30 AM Reply Like
  • jhooper
    , contributor
    Comments (5347) | Send Message
     
    This may just be jawboning. We need more details.
    9 Feb 2012, 09:37 AM Reply Like
  • robert.b.ferguson
    , contributor
    Comments (10803) | Send Message
     
    I'm with H.T.Love. They have undoubtedly reached another meaningless deal that will go forward kicking the can along the way. Now the question becomes: How much time did they buy and how much worse will the delay make the final outcome?
    9 Feb 2012, 12:23 PM Reply Like
  • siliconhillbilly
    , contributor
    Comments (2100) | Send Message
     
    Did the deal come with any solid "deal breakers"? Once Greece has the money, how long will Papademos stall before he takes the massive political hit of enforcing all of those "austerity" measures? Days? Months?
    If you think they have problem with protests NOW, wait until they lay off 15k "civil servants"!

     

    I wonder how long the German voters will put up with the "lie and kick the can" approach to fixing the Greek problem?
    9 Feb 2012, 12:39 PM Reply Like
  • jakurtz
    , contributor
    Comments (1909) | Send Message
     
    I agree SH,

     

    It just seems silly to me, a laymen. Just let greece fall out of the euro and save the bailouts for portugal, spain etc. How is 140B Euro's going to help a country that has to administer more austerity (layoffs, wage cuts etc.) pull out of its 140% debt to gdp (I think I have that right), and expand its economy?
    9 Feb 2012, 04:55 PM Reply Like
  • Mark Bern, CFA
    , contributor
    Comments (4771) | Send Message
     
    jakurtz - Last I saw was 163% debt to gdp. Don't remember the source, though.
    18 Feb 2012, 09:57 AM Reply Like
  • Mercy Jimenez
    , contributor
    Comments (1889) | Send Message
     
    So now thousands of Greeks are taking to the streets in a two-day general strike as the international bailout is put in limbo http://bit.ly/xyUTQp and Greece's largest police union has threatened to issue arrest warrants for EU and IMF officials for demanding deeply unpopular austerity measures: http://bit.ly/y3RZcq Not to worry everything is under control! Hard to make this stuff up.
    10 Feb 2012, 08:43 AM Reply Like
  • jakurtz
    , contributor
    Comments (1909) | Send Message
     
    This is similar to the eerie feeling of last Sept. Oct. no one knows what is going to happen. It seems like the market would be fine with the two options 1. Greece default or 2. Greece get a bailout and kick the can. But when it is in limbo like today and nobody knows which way it will go is when it really takes its toll on the market.
    10 Feb 2012, 09:25 AM Reply Like
  • H. T. Love
    , contributor
    Comments (17304) | Send Message
     
    Edward Harrison's take on how the "Grexit" scenario will unfold.

     

    "Running Through Unilateral Greek Exit Scenarios"

     

    http://seekingalpha.co...

     

    HardToLove
    12 Feb 2012, 09:13 AM Reply Like
  • H. T. Love
    , contributor
    Comments (17304) | Send Message
     
    Going through some old articles and ran across "We're All Masochists Now" by Cullen Roche. A decent article.

     

    "http://seekingalpha.co...

     

    But the real reason I wanted to post was because of this great comment by Tony Petroski.

     

    http://seekingalpha.co...

     

    The article is a short read, the comment will make your day start off right!

     

    HardToLove
    12 Feb 2012, 04:31 PM Reply Like
  • H. T. Love
    , contributor
    Comments (17304) | Send Message
     
    CNBC World reports that Greece parliment has passed the necessary legislation to get the bail-out funds.

     

    HardToLove
    12 Feb 2012, 05:47 PM Reply Like
  • jhooper
    , contributor
    Comments (5347) | Send Message
     
    I can't help but think there is a difference between passing legislation, and actually abiding by it.
    12 Feb 2012, 07:59 PM Reply Like
  • siliconhillbilly
    , contributor
    Comments (2100) | Send Message
     
    See again my comment of 9 Feb, 12:39 PM.

     

    "second verse, same as the first!"
    12 Feb 2012, 07:12 PM Reply Like
  • H. T. Love
    , contributor
    Comments (17304) | Send Message
     
    On top of the cuts to 34 of 36 EZ banks yesterday, we now get "Moody's cuts ratings on Italy, Portugal, Spain", although there's more.

     

    http://bit.ly/y8KaD4

     

    I'm beginning to think the blog title should be "Instability of the Euro".

     

    HardToLove
    13 Feb 2012, 06:42 PM Reply Like
  • siliconhillbilly
    , contributor
    Comments (2100) | Send Message
     
    HTL; I had to scroll up to the top and check the blog title!
    14 Feb 2012, 12:52 AM Reply Like
  • jakurtz
    , contributor
    Comments (1909) | Send Message
     
    Greece contracting 7% up from 5%

     

    http://on.wsj.com/xc1eFx
    14 Feb 2012, 07:24 AM Reply Like
  • jakurtz
    , contributor
    Comments (1909) | Send Message
     
    Haha, great deals for tourism in Greece thanks to austerity measures. (I have thought about it myself, I just have to steer clear of the tear gas and burning buildings I guess.)

     

    http://sm.wsj.com/ypZdcJ
    14 Feb 2012, 08:31 AM Reply Like
  • robert.b.ferguson
    , contributor
    Comments (10803) | Send Message
     
    Europe in the spring. Wait until Greece goes back to the Drachma. Vacations will be ultra cheap because the USD will be in high demand. Don't fret about the smell of burning tires and take the advice jakurtz dispensed above. As an alternative Mexican vacation packages are very cheap. Each one comes with a flack jacket.
    14 Feb 2012, 09:30 AM Reply Like
  • tripleblack
    , contributor
    Comments (13444) | Send Message
     
    Don't forget Italian med. cruises. BYOLJ (bring your own life jacket).

     

    Of course, the demand from hopeful scuba divers might hurt your chances for a cheap ticket...
    14 Feb 2012, 09:38 AM Reply Like
  • siliconhillbilly
    , contributor
    Comments (2100) | Send Message
     
    trip: The thought of diving on a fresh wreck that is still sticking out of the water sends shivers down my spine!
    14 Feb 2012, 12:56 PM Reply Like
  • tripleblack
    , contributor
    Comments (13444) | Send Message
     
    Adrenaline junkies are everywhere.
    14 Feb 2012, 01:16 PM Reply Like
  • H. T. Love
    , contributor
    Comments (17304) | Send Message
     
    Maybe the captain of the greek ship was one?

     

    HardToLove
    14 Feb 2012, 01:20 PM Reply Like
  • robert.b.ferguson
    , contributor
    Comments (10803) | Send Message
     
    As I understand it PAPA was promoted to admiral. He was seen washing pots and pans at a Greek resort. When asked about it he replied that he had been placed in charge of all the vessels. Hey quit throwing things. It wasn't that bad. LOL.
    14 Feb 2012, 02:07 PM Reply Like
  • jakurtz
    , contributor
    Comments (1909) | Send Message
     
    FPA and Robert and others,

     

    I am a laymen with this stuff but it appears to me that the best way forward it to allow Greece to default or at the most give the creditors the bailout rather than the Greek government. This keeps up the creditors confidence to not bail on all of Europe and allows for a "soft" default for Greece. Greece is going to be in pain no matter what. Then allow Europe to begin concentrating on Spain, Portugal, Italy etc.

     

    What do you guys think?

     

    http://reut.rs/w5mt89

     

    It looks like Eurozone ministers have postponed their meeting on the Greek bailout. I wonder if they are contemplating this.

     

    http://on.wsj.com/z1vigG
    14 Feb 2012, 02:24 PM Reply Like
  • robert.b.ferguson
    , contributor
    Comments (10803) | Send Message
     
    This is a repost from QC 223 from a few minutes ago addressing a similar question. TPTB here and in the EZ have been doing all manner of political, semantic and economic gyrations to prevent the CDS from being triggered. They know full well that if that were to happen the entire house of cards would come tumbling down and the very wealthy that are being protected by all of this would suddenly be less wealthy. Much less wealthy. Those with deep pockets who purchased the short term debt instruments including Soros are trying to keep a lid on this until March when they expect a big pay day. After that deadline expires Greece will probably exit the EZ and the Euro.
    14 Feb 2012, 02:45 PM Reply Like
  • FocalPoint Analytics
    , contributor
    Comments (5804) | Send Message
     
    Author’s reply » I think the bond holders with CDSs are going to go for the haircut when they can get paid the market price via the CDSs. If the Greeks attempt to force them to take the haircut, it's an automatic credit event. I think all of the current manuavours are just stage playing... I don't think the Germans are going to give them the loan without proof they can impliment and wlll iimpliment the changes. The next likely PM of Greece has already inserted foot in mouth by saying he will re-negotate the agreement if he is elected in the next election.

     

    I also don't think they are going to get the loan... I think the EU will just keep putting up roadblocks and requirements until the time runs out, or the Greeks give up as their people riot.
    14 Feb 2012, 05:06 PM Reply Like
  • robert.b.ferguson
    , contributor
    Comments (10803) | Send Message
     
    FPA: Greetings. It's hard to tell right now. With all of the things riding on this TPTB may have painted themselves into a corner. Then we must think about what the Bernanke might do by way of pulling their fat out of the fire; covertly of course. If a credit event is declared the CDS are activated on the insured debt. Those providing the insurance must pay up or default themselves. How much of it is reinsured and by whom? If they get enough to pay the instruments in full they avoid the CDS event but need another loan because the one they just got paid the creditors and they still have no operating funds. Those holding the maturing debt get a payday either way so they really have no incentive to do anything but delay until something gives. That is why I expect the money to come from somewhere to prevent the CDS event followed by the exit of Greece to avoid the same action in the future. Those holding longer term debt will likely get the shaft on a Greek default but by then steps will have been taken to prevent a CDS event triggered by the that default.
    14 Feb 2012, 06:11 PM Reply Like
  • jakurtz
    , contributor
    Comments (1909) | Send Message
     
    Robert and FPA
    You guys really have your fingers on the pulse with this I think. If I am understanding correctly: A large bridge loan to stretch this out until march and pay-off the short-term creditors to avoid mass casualties with the CDS's or at least limit the casualty, then Greece exits with a soft default on the rest of the long-term debt holders, or Greece stays in and the long term debt-holders take a more massive haircut. It will all shape up to give us a nice hairy spring and summer with enough volatility to make the timid vomit.

     

    Is that it in a nutshell?
    15 Feb 2012, 02:14 PM Reply Like
  • robert.b.ferguson
    , contributor
    Comments (10803) | Send Message
     
    jakurtz: Greetings. Pretty much. Things are fluid and there are multiple variables but that's what it looks like to me. Those folks that bought up all that debt aren't dumb so I'm sure they had an exit strategy with two redundant back up plans. Corzine should have been as smart. Now he should just be in jail.
    15 Feb 2012, 02:20 PM Reply Like
  • robert.b.ferguson
    , contributor
    Comments (10803) | Send Message
     
    I wish that TPTB would just let Greece default and get it over with. Now they want to pray and delay extend and pretend with no end ever. http://bit.ly/zKSyPe
    15 Feb 2012, 02:44 PM Reply Like
  • FocalPoint Analytics
    , contributor
    Comments (5804) | Send Message
     
    Author’s reply » I have a more negative assessment of the Greek situation. I have doubts they will get the loan...
    15 Feb 2012, 03:05 PM Reply Like
  • robert.b.ferguson
    , contributor
    Comments (10803) | Send Message
     
    FPA: Greetings. I'll bet at least some of those creditors, Soros included, are with you. Since a default triggers the CDS they get paid. Those would be the ones with FOREX positions set up to profit from just that occurrence. Then they double their money with the FOREX hedge. That of course is Soros' specialty. http://bit.ly/yQKAPl Sweet huh?
    15 Feb 2012, 03:21 PM Reply Like
  • FocalPoint Analytics
    , contributor
    Comments (5804) | Send Message
     
    Author’s reply » I added a new table just above the Troll warning showing European Insurer's net exposure to Greek sovereign debt. The source is JPM. This gives a good idea of the bleed rate for the European Insurer's.
    16 Feb 2012, 01:45 AM Reply Like
  • H. T. Love
    , contributor
    Comments (17304) | Send Message
     
    Looks like a couple of those insurers might be in for ... "reduced profits", at a minimum.

     

    I wonder how they could let themselves get in that situation.

     

    HardToLove
    16 Feb 2012, 03:44 AM Reply Like
  • FocalPoint Analytics
    , contributor
    Comments (5804) | Send Message
     
    Author’s reply » Blinding greed overwhelms reason?
    I look at what the lenders have done, and what they are thinking of doing to continue the charade, and the only rationale that I see is greed to the point to madness. They seem to think the music will never stop and there really are enough chairs to go around. At this point I don’t see many more chairs, just the music in this final game of musical chairs played by Goldman:
    http://tinyurl.com/yojdg5
    16 Feb 2012, 07:30 AM Reply Like
  • Mercy Jimenez
    , contributor
    Comments (1889) | Send Message
     
    FPA, great/chilling data additions. And I have been meaning to say how much I love that "Greek Dilemma" graph -- 5 star clarity on "so what" message.
    16 Feb 2012, 08:01 AM Reply Like
  • FocalPoint Analytics
    , contributor
    Comments (5804) | Send Message
     
    Author’s reply » Thanks Mercy. It sure does tell the story in one quick look.
    16 Feb 2012, 09:28 AM Reply Like
  • robert.b.ferguson
    , contributor
    Comments (10803) | Send Message
     
    I wish I could watch videos here. "Sigh."
    16 Feb 2012, 10:42 AM Reply Like
  • robert.b.ferguson
    , contributor
    Comments (10803) | Send Message
     
    FPA, H.T.Love: Greetings. Great graphic there Rattie. I'm with H.T. it looks like a couple of those firms would be "Vaporized." much like IMF Global. Corzine wasn't involved with them was he? LOL.
    16 Feb 2012, 10:49 AM Reply Like
  • tripleblack
    , contributor
    Comments (13444) | Send Message
     
    Capital One just bought ING Direct USA for $9.1billion...
    16 Feb 2012, 11:57 AM Reply Like
  • Jon Springer
    , contributor
    Comments (4152) | Send Message
     
    Rule #1: Always beat the number.
    Rule #2: If you can't hit your target earning numbers, buy something and talk about synergies, cost savings, unlocking value, etc.
    Rule #3: If you're not sure about #1, follow #2.
    18 Feb 2012, 04:41 AM Reply Like
  • FocalPoint Analytics
    , contributor
    Comments (5804) | Send Message
     
    Author’s reply » The ECB bond swap just wrecked the EU sovereign debt bond market. Here is why:

     

    The ECB is exchanging its Greek bonds for bonds of an identical structure and nominal value, the only difference being that the ECB bonds would be exempt from so-called collective action clauses [CAC] to ensure the ECB isn’t forced to take losses in a debt restructuring [haircut].

     

    The ECB is barred by its founding treaty from directly financing governments. Taking a loss, or haircut, on its Greek bond holdings would amount to so-called monetary state financing, ECB President Mario Draghi said on Feb. 9.

     

    [The bonds the ECB bought had no CACs.] But now the Greek government [aka the EU Troka] will submit legislation to parliament on Feb. 21 to allow the use of CACs in a debt-swap process [haircuts] that will start on Feb. 22 and conclude on March 9. CACs typically make all bondholders subject to losing part of their capital in a retrospective action that does not require the assent of all lenders. The officials said the new Greek bonds the ECB will receive in exchange for its old ones are exempt from CACs.

     

    “In Europe, all bond holders are equal, but the ECB is more equal than others, apparently,” said Thomas Costerg, an economist at Standard Chartered Bank in London. “This could set a dangerous precedent, and, by creating a de-facto two-tier market, this could discourage investment in other peripheral debt markets.”

     

    Bundesbank President Jens Weidmann didn’t support the ECB’s decision to swap the bonds on concern the move would prompt legal action by other Greek bondholders.

     

    The introduction of CACs doesn’t in itself trigger default swaps, though using them does, according to rules of the International Swaps & Derivatives Association.
    Exempting the ECB from a debt restructuring may weaken the euro as it implies a senior status over other investors, Chris Walker, a foreign-exchange strategist at UBS AG in London, wrote in a research report today.

     

    [What does senior status mean?
    Price is proportional to risk. Bonds that are not subject to CAC induced haircuts have a lower risk than bonds that are subject to CAC induced haircuts. By giving the ECB bonds that are not subject to haircuts, the value of bonds that are subject to CAC induced haircuts goes down relative to the bonds that are haircut free. On top of this, the change in bondholder status is made retroactive to the bond purchase.]

     

    “The risk of a voluntary restructuring morphing into a coercive one has arguably increased significantly,” Chris Walker wrote. “If this ECB plan goes ahead it may appear that the ECB is receiving preferential treatment, raising questions about whether the ECB is senior to private-sector bondholders, not only in the case of Greek debt, but also regarding the debt of other euro-zone nations that the ECB may be purchasing.”

     

    The ECB has signaled it may distribute to national central banks any profits from its Greek bond holdings when they mature, so that they can pass that cash on to governments to help with the Greek bailout. This remains a possible course of action, the officials said. http://tinyurl.com/836...
    -----
    In other words, that payback will be used to lubricate the ‘wheels of justice’. The price of bonds is proportional to risk. When you are buying bonds, there is only one price. One price implies the risk is the same for all. But now, the ECB is not going to be subject to ACA induced haircuts. So the ECB’s risk is not the same as the private bond buyers risk because the private bondholders can be given forced [ACA induced] haircuts. Different risks, same price ????
    17 Feb 2012, 11:43 AM Reply Like
  • jhooper
    , contributor
    Comments (5347) | Send Message
     
    " Different risks, same price ???? "

     

    Whoa, how in the world then could you ever price a bond if you never know what risk you might be taking? After all the credit risk is just as much a part of the price as the interest rate risk, I guess really the lion share of the price. If you never know what this is going to be, then you are really going to be reluctant to purchase such assets. What would the interest rate have to be to entice someone with this sort of optionality implicit in these things?
    17 Feb 2012, 12:07 PM Reply Like
  • H. T. Love
    , contributor
    Comments (17304) | Send Message
     
    Golly. We did something similar here, albeit not in bonds, when we restructured some big outfits here in the U.S. didn't we?

     

    GM comes to mind. Just a case of it doesn't matter what the "rules" are, we can break them anytime we desire.

     

    That should add lots of confidence.

     

    HardToLove
    17 Feb 2012, 12:18 PM Reply Like
  • tripleblack
    , contributor
    Comments (13444) | Send Message
     
    The idiot fiction that these central banks are "just like private investors" when they buy and sell just needs to end. The surprise is NOT that they are "more equal pigs", but that anyone ever thought otherwise.

     

    And HTL is spot on, screwing the senior debtholders in the auto industry bailout to benefit the UAW was essentially the same sort of precedent.
    17 Feb 2012, 01:49 PM Reply Like
  • robert.b.ferguson
    , contributor
    Comments (10803) | Send Message
     
    Totally bazaar. Price on bonds moves inverse to interest which is dependent upon risk. The "New improved." bonds issued to the ECB should have a higher asking price and a lower yield base because there is minimal risk associated with the instrument. Keep in mind to that senior debt holders are paid off first in the event there is a default. Unless of course there is a third party intermediary like when Obama crushed the creditors as described by H.T. How will these bonds price on the secondary market if the ECB sells them for any reason? I would be a buyer because they have a low price and high yield. If I was one of the junior debt holders looking at this I would bail or, if bailing is impossible which is likely, sabotage the entire process to trigger the swaps before the ECB could finalize the deal.
    17 Feb 2012, 05:27 PM Reply Like
  • Mark Bern, CFA
    , contributor
    Comments (4771) | Send Message
     
    Robert - I totally agree with your premise. However, if you were a junior bond holder you would probably be a European bank. And if you were a European bank you would be 100% beholding to the ECB to remain solvent. What I'm getting at is that most of the "junior" bond holders are more than likely subservient dependents of the ECB and cannot possibly do the naturally obvious best thing. They are beyond self interest and well into survival mode now.
    17 Feb 2012, 05:40 PM Reply Like
  • H. T. Love
    , contributor
    Comments (17304) | Send Message
     
    Well, I guess it just became more attractive for the rest of the "private holders", banks or not, to reject their part of the deal and force CDS payoffs.

     

    That's what I would work towards.

     

    Compunction? None whatsoever since they are trying to steal from the rest of the bond holders.

     

    HardToLove
    17 Feb 2012, 06:03 PM Reply Like
  • Mark Bern, CFA
    , contributor
    Comments (4771) | Send Message
     
    Good Point! I think many of them are going down in any event, may as well get as much bonus money now cause there won't be any later.
    17 Feb 2012, 07:56 PM Reply Like
  • Mayascribe
    , contributor
    Comments (9598) | Send Message
     
    Just want to stop in and write how much I appreciate FPA's work, and all the insights of the commenters commenting.

     

    This thread helps keep me more informed about the unfolding EZ events far more than any chatterhead TV station, or via reading EIN, Rueters, the Washington Post, etc.

     

    So wonderful to be traveling, yet sit down in my hotel and catch up.

     

    Pal, Alberta Rocks wrote a gem on Lounsbury's site today about Apple possibly topping out (one heck of a candlestick happened on Friday). Plus, I see wagers on short ETFs surging, and that corporate bonds hold increasing interest, as well as base metals seem to be on a "threshold" ready to begin retracing.

     

    Have two corporate bonds maturing in late March and May. It'll be fun to see how best to invest the cash, which some will go into my home. Why not!

     

    Thanks to all of you! This column rocks.

     

    ####

     

    Mr. X-Masked Man, I always love it when you stop in. I read part 8 in your investing series earlier today. Great stuff!
    19 Feb 2012, 12:21 AM Reply Like
  • FocalPoint Analytics
    , contributor
    Comments (5804) | Send Message
     
    Author’s reply » The Greek second bailout has been signed... So far it looks like a slight Europe selloff on the news, but too early to tell... I will post charts on the deal latter today [it's 2:41 am here right now].

     

    PS:
    Standard & Poor’s Ratings Services said today that under its ratings criteria, application of retroactive “Collective Action Clauses” (CACs) affecting the timing or amount of debt service payments on outstanding Greek-law governed sovereign debt would constitute a selective default. Were such CACs implemented, Standard Poor’s would lower the sovereign credit rating (the issuer credit rating) on Greece to ‘SD’.
    21 Feb 2012, 05:41 AM Reply Like
  • Jon Springer
    , contributor
    Comments (4152) | Send Message
     
    Good.

     

    Now that we have Greek Bailout Sr. and Greek Bailout Jr. we can move on to Roman numerals.

     

    What will Greek Bailout III's birth date be?
    21 Feb 2012, 09:48 AM Reply Like
  • jhooper
    , contributor
    Comments (5347) | Send Message
     
    It will be like that scene in one of the Airplane movies with a "Rocky XVIII" poster featuring a withered old man as Rocky.
    21 Feb 2012, 10:02 AM Reply Like
  • FocalPoint Analytics
    , contributor
    Comments (5804) | Send Message
     
    Author’s reply » Deus ex machine
    I reviewed the document “Greece: Preliminary debt Sustainability Analysis dated February 15, 2012 GDP) contracted by 7.0 percent year-on-year in the fourth quarter 2011 [http://tinyurl.com/75b...], where did they come up with that constant revenues and grants assumption?

     

    Look under the Key macroeconomic assumptions in Table One. Ernst & Young Eurozone Forecast projects Greece’s GDP to continue to contract in excess of 6% in 2012 [http://tinyurl.com/8y5...]. But Table One has it at -4.3%. If the fourth quarter 2011 result continues, the contraction will be closer to 7%. That’s nearly a two-thirds (62.8%) discrepancy between Ernst & Young and the Deus ex machine estimate.

     

    Deus ex machine estimates real GDP growth in percent in Table one as zero percent by 2013. In other words, they estimate that the GDP growth is going to change from over minus 6% to 0% in two years. In their pessimistic estimate, they estimate GDP growth as -1% by 2013 [Table two http://tinyurl.com/73h...].

     

    Why am I concentrating on the GDP estimates? Because GDP estimates determine the percent debt to GDP curve. The larger the projected GDP, the smaller the percent debt to GDP. Take a look up in the bottom of the header of this instablog. There you will find a chart included in the Deus ex machine report that demonstrates what happens to the percent GDP to Debt ratio as a function of different levels of revenues.

     

    The chart is called Greek General Government Debt Percent GDP http://tinyurl.com/73h...

     

    The primary balance [PB] reference means Revenues minus Expenditures.
    If the primary balance gets stuck below 2.5 percent of GDP, that means the revenues are not sufficient to meet the debt payments. That means the amount of debt would start snowballing. You can see that happening in the top two curves.

     

    For example, the report says that significant shortfalls in privatization proceeds would raise the level of debt appreciably, and slow the projected decline of debt, leaving it at 148 percent of GDP by 2020. However, that is not the complete story. In that circumstance, look at the trajectory of the GDP to debt curve in the event of a revenues shortfall. It’s not linear, there is an inflection point signaling an ever increasing amount of debt as the revenues are not sufficient to prevent accumulation of new debt.

     

    So if GDP (revenues) continues to contract, and I see no reason why that would not happen given the mistaken general approach of more and more austerity, than the trajectory of the GDP to debt curve will be convex, not concave.

     

    Summarizing Some Open Questions Surrounding The Second Greek Bailout http://tinyurl.com/7oc....

     

    1) The deal includes a list of requirements which Greece must meet in the next week to get final approval for the bailout. These include: passing a supplementary budget with €3.3bn in cuts this year, cuts to minimum wage, increase labor market flexibility and reforms opening up numerous professions to greater competition. Passing that in one week?

     

    2) The Deus ex machine report notes that the probability of achieving a return to competitiveness (i.e., GDP growth) while also reducing debt is very small. The massive austerity could induce a further recession. Further recession is an understatement. The kind of cuts they are talking about will likely drive Greece into a depression.

     

    3) Greece may not be able to return to the market even after three years: The Deus ex machine points out that any new debt issue will essentially be junior to existing debt, hampering the chances of Greece issuing new debt in 2014/2015. I have been talking about the subordination issue since it first came up. I see significant problems trying to sell bonds that have different risk factors to both the ECB and private capital.

     

    4) There is also no talk of the money to recapitalise Greek banks. Greek banks’ main source of capital (government bonds) will have just been wiped out significantly. The needs were previously specified at €23bn, although reports now suggest they could top €50bn. It’s not clear where this money will come from or when it will be raised.
    21 Feb 2012, 03:48 PM Reply Like
  • Mercy Jimenez
    , contributor
    Comments (1889) | Send Message
     
    Thanks, FPA for the key take-aways from your analysis. What are your thoughts regarding the IMF threat to pull out from the bailout deal just announced -- unless the EZ takes action which Germans are loathe to take??

     

    SA 2/21/12
    3:37 PM The next obstacle to a Greek bailout deal will be the IMF, which has threatened to pull its contribution from the €130B package unless the eurozone combines 2 rescue funds to create a €750B firewall - something Germany is steadfastly opposed to. The issue will headline an EU summit next week and create a major debate within the Bundestag, which is set to debate the bailout.
    21 Feb 2012, 04:09 PM Reply Like
  • FocalPoint Analytics
    , contributor
    Comments (5804) | Send Message
     
    Author’s reply » That’s very interesting Mercy. My best guess is it’s a negotiation ploy by the IMF to get more funding. The IMF knows that Germany has resisted previous calls to merge the two funds because it will presumably increase their liability to a default. So perhaps rather than risking the bailout to a vote by the Bundestag, they might be hoping to use it as a bargaining chip in the big game. My interpretation gives you a pretty good idea of how jaundiced I am about these people. I suppose it could be something less sinister, but I have less than zero trust in these people.
    21 Feb 2012, 04:45 PM Reply Like
  • Mayascribe
    , contributor
    Comments (9598) | Send Message
     
    With the Greek economy contracting 20% in the last four years, nothing is yet set in stone. Besides obtaining IMF approval, we still have the April parlimentary elections coming.

     

    With roughly half of 15 to 24 year old Greeks unemployed, it's going to be a rough road for any politician to get elected who is running on an austerity platform.
    21 Feb 2012, 04:53 PM Reply Like
  • Mark Bern, CFA
    , contributor
    Comments (4771) | Send Message
     
    Maya - Very true. And it becomes more likely that the bailout gets pulled if the austerity platform loses the election. I think Germany and the other EZ leaders know that and are just playing the game until Greek finally pulls out on its own. Then they can say that they did all that they could but were betrayed. It's politics.
    21 Feb 2012, 09:51 PM Reply Like
  • FocalPoint Analytics
    , contributor
    Comments (5804) | Send Message
     
    Author’s reply » The Deus ex machine best case report seems very negative to me. If we keep seeing the EU raising more and more issues, than the strategy may be to force the Greeks out. If that happens, it will be before the elections.
    21 Feb 2012, 10:11 PM Reply Like
  • tripleblack
    , contributor
    Comments (13444) | Send Message
     
    I might disagree with the "before the elections" part, FPA. The EU leadership is notoriously venal and cowardly. They may fear a backlash from the voters, but at a deeper level they might welcome the removal of the heavy burden.

     

    Greece will hold its elections first, in April, and I believe those will tell the tale.

     

    France holds their Presidential election in April and May.

     

    Germany's elections aren't until 2013.
    22 Feb 2012, 08:35 AM Reply Like
  • FocalPoint Analytics
    , contributor
    Comments (5804) | Send Message
     
    Author’s reply » Could be Trip. I suspect anyone associated with this second loan is going to be punished. The opposition will seize on the Sustainability Analysis and ask the obvious question - "Are you mad?"
    22 Feb 2012, 09:07 AM Reply Like
  • FocalPoint Analytics
    , contributor
    Comments (5804) | Send Message
     
    Author’s reply » Greek 1 Year 763%
    22 Feb 2012, 09:01 AM Reply Like
  • FocalPoint Analytics
    , contributor
    Comments (5804) | Send Message
     
    Author’s reply » Greece Unveils - - - The Negative Salary

     

    Salary cutbacks (called "unified payroll") for contract workers at the public sector set to be finalized today. Cuts to be valid retroactively since November 2011. Expected result: Up to 64.000 people will work without salary this month, or even be asked to return money. http://tinyurl.com/7dn...
    ---
    22 Feb 2012, 09:27 AM Reply Like
  • tripleblack
    , contributor
    Comments (13444) | Send Message
     
    Gawd...

     

    Somehow that makes a twisted sort of sense. The same nutball public culture that was paying 1.5 months salary every year for hours NOT worked is now asking workers to pay THEM.

     

    What a surreal situation.
    22 Feb 2012, 09:30 AM Reply Like
  • H. T. Love
    , contributor
    Comments (17304) | Send Message
     
    Think that might spark a protest or two?

     

    I see heightened violence as a result of this.

     

    Assured to cause the elections to oust this regime, put in a new one, which will *immediately* retract all austerity promises.

     

    MHO,
    HardToLove
    22 Feb 2012, 10:31 AM Reply Like
  • Mercy Jimenez
    , contributor
    Comments (1889) | Send Message
     
    K202 suggested I re- post this from the QC. Currently pondering whether there is any connection between the recent TVIX suspension of new issuance due to mega demand lately http://yhoo.it/zqjDCT -- and the rumored 3/23 "planned" Greek default http://bit.ly/AqA0FV ??

     

    Also good post by Bill Luby on the implications of the TVIX suspension: http://bit.ly/ezb4Eb
    22 Feb 2012, 10:46 AM Reply Like
  • Mark Bern, CFA
    , contributor
    Comments (4771) | Send Message
     
    I think it really just a global plot to destroy my anniversary plans. We were married on 3/23/85! Maybe I should put on a market short position to help pay for our celebration.
    22 Feb 2012, 10:51 AM Reply Like
  • FocalPoint Analytics
    , contributor
    Comments (5804) | Send Message
     
    Author’s reply » It's sure going to be an interesting election HT. The major party leaders were forced to sign a pledge they will support the deal even after the elections. If they honor that pledge, the citizens will have had the power of their votes removed from them since if the pledges are honored, the people can't reverse the deal. So in effect, the election becomes like our elections - worthless exercises where the new boss is the same as the old boss.
    22 Feb 2012, 10:54 AM Reply Like
  • robert.b.ferguson
    , contributor
    Comments (10803) | Send Message
     
    As contraction continues in the EZ and China curtailing consumption http://bit.ly/xnR967 the price of gasoline continues to soar. We haven't seen prices at the pump this high since crude was at $140 PBL. It's at around $106 now. What part of the dynamic has changed to reflect this? Speculators piling into the sector or something else?
    22 Feb 2012, 01:14 PM Reply Like
  • Mercy Jimenez
    , contributor
    Comments (1889) | Send Message
     
    Robert, I am sure lots of margin games being played. But, last Friday the biggest factor apparently impacting gas prices was the actual/potential drop in refining capacity and deliveries (i.e. Eastern seaboard refinery shutdowns, BP refinery fire on West coast associated with 12% of refining capacity, and the oil spill on the Mississippi which was expected to delay shipments.
    22 Feb 2012, 01:36 PM Reply Like
  • H. T. Love
    , contributor
    Comments (17304) | Send Message
     
    IIRC, on CNBC a statement was also made that in the Northeast they went from 11 operating refineries to 4?

     

    This was supposedly due to insufficient crack-spread.

     

    I could be all wrong, but I thinks that's right.

     

    HardToLove
    22 Feb 2012, 02:56 PM Reply Like
  • Mayascribe
    , contributor
    Comments (9598) | Send Message
     
    Robert & Mercy: Additionally, I'm wondering if the likes of Goldman are hoarding again using tankers like they did as when oil spiked to $140.

     

    Playing the Iranian wild card to their benefit.

     

    Possibly, this your your speculation play, Robert. Or, at least one.
    22 Feb 2012, 02:08 PM Reply Like
  • FocalPoint Analytics
    , contributor
    Comments (5804) | Send Message
     
    Author’s reply » in the fine print of the 400-plus-page document — which Parliament members had a weekend to read and sign — Greece relinquished fundamental parts of its sovereignty to its foreign lenders, the European Commission, the European Central Bank and the International Monetary Fund.

     

    “This is the first time ever that a European and probably an O.E.C.D. state abdicates its rights of immunity over all its assets to its lenders,” said Louka Katseli, an independent member of Parliament who previously represented the Socialist Party, using the abbreviation for the Organization for Economic Cooperation and Development. She was one of several independents who joined 43 lawmakers from the two largest parties in voting against the loan agreement.

     

    Ms. Katseli, an economist who was labor minister in the government of George Papandreou until she left in a cabinet reshuffle last June, was also upset that Greece’s lenders will have the right to seize the gold reserves in the Bank of Greece under the terms of the new deal, and that future bonds issued will be governed by English law and in Luxembourg courts, conditions more favorable to creditors.
    http://tinyurl.com/7x5...
    ---
    Absolutly unexceptable. I would argue that the Greek government does not have the right to abdicate the Greek States right of immunity over all its assets. That right belongs to the people who are the state. With this, its clear the government is no longer working for the Greek people, and that means they must go.

     

    The Greeks must revolt.
    22 Feb 2012, 05:02 PM Reply Like
  • robert.b.ferguson
    , contributor
    Comments (10803) | Send Message
     
    FPA: Greetings. I think everyone knew that Greece was no longer in control of it's sovereignty when Goldman Sachs (GS) was put in charge of it's government. It's very clear at this point that the EZ oligarchs are in the PM seat and are working for their own benefit not for the Greek people. I'm just not sure what the end game is here. When Greece is finally pushed out of the EU will there be anything left to push out? When the Acropolis is burning will anyone care what started the fire or help to put it out? It looks as though the rest of the EU is going to pillage Greece and then leave them to their own devices once every bit of wealth has been plundered.
    22 Feb 2012, 05:56 PM Reply Like
  • FocalPoint Analytics
    , contributor
    Comments (5804) | Send Message
     
    Author’s reply » (February 27, 2012)
    German Bundestag Approves Second Greek Bailout
    27 Feb 2012, 12:30 PM Reply Like
  • tripleblack
    , contributor
    Comments (13444) | Send Message
     
    Yes. And we should not be surprised to see Germany move toward the IMF position, either, particularly in light of the action at the G20 summit.

     

    I am also expecting to start seeing strong QE efforts in non-PIIGS Europe, starting at the individual state level, and pretty much ignoring things like the EZ limits for deficit spending. As this becomes more visible, look for a concerted effort to stop this and shift the QE to the ECB.
    27 Feb 2012, 12:34 PM Reply Like
  • FocalPoint Analytics
    , contributor
    Comments (5804) | Send Message
     
    Author’s reply » The market pattern over the past three months sure looks like QE in action.
    27 Feb 2012, 12:41 PM Reply Like
  • tripleblack
    , contributor
    Comments (13444) | Send Message
     
    I believe it is undeniably a form of QE.

     

    Slipping the QE into the ECB function, however, avoids the problem where the individual states run their own QE and breach their commitment to the EZ and EU. Since most countries have been "mildly" breaking these agreements for some time now, I would not be surprised to see a systematic effort to stop this and "clean up" the situation while dumping it into one large mass under the ECB. Routing the funds through the central banks and the major 2Bigs is another way of hiding the facts and delaying the onset of negative results (inflation, currency volatility, etc).

     

    Anyone who spots a striking similarity to the American Fed and Treasury footsie game gets an extra twinkie come nap time.
    27 Feb 2012, 12:48 PM Reply Like
  • FocalPoint Analytics
    , contributor
    Comments (5804) | Send Message
     
    Author’s reply » Here is another clue... the S&P executed a golden cross at the start of February... this after less then satisfactory earnings... If it's QE, what is the mechanism, and how is the FED involved? It appears to have started in Mid December.
    27 Feb 2012, 12:54 PM Reply Like
  • tripleblack
    , contributor
    Comments (13444) | Send Message
     
    Other than the ongoing QE (twist program, plus reinvestment of profits instead of forwarding them back to the Treasury), I don't know of any new Fed initiative...

     

    But here's a wild one I have been looking over lately:

     

    As we have seen, there is massive collusion between the US (Treasury and Fed) and the EU (trillions flowing back and forth in support). Most of the money flow over the past 2 years appears to have been FROM the US, TO the EU.

     

    Perhaps we are seeing the EU paying us the favor back now.

     

    For a long time it has been illegal for the CIA to spy upon American citizens, but they get around this problem by getting the spy agencies of allies like Britain and Canada to do it FOR them. This sort of cooperation to circumvent law, regulation or just political blocks would make sense in this case as well...

     

    No idea how to really spot this, if it is occurring, but I bet there IS a way.
    27 Feb 2012, 01:02 PM Reply Like
  • jhooper
    , contributor
    Comments (5347) | Send Message
     
    From a market watch article.

     

    "The LTROs were announced by ECB President Mario Draghi in early December."

     

    http://bit.ly/wKoiMO

     

    Giving banks liquidity means they don't need it from markets. In other words, the banks don't need to entice depositors. The banks can lower deposit rates and push funds away, or at least not raise them to attract deposits. So perhaps the funds that would be going into the banks, are tired of the low yields and are chasing yield in the US.

     

    BB announced QE2 in Jackson Hole in August 2010, but actually didn't start doing it until November 2010. Take a look at the S&P between Aug 2010 and 1st qtr 2011. QE, from where ever seems to suggest risk on. I look at it as inflation, but not inflation in CPI assets but in financial assets.
    27 Feb 2012, 01:17 PM Reply Like
  • Mark Bern, CFA
    , contributor
    Comments (4771) | Send Message
     
    " I look at it as inflation, but not inflation in CPI assets but in financial assets."

     

    jhooper - I think this is exactly where the FED and Administration want the inflation to occur.
    27 Feb 2012, 02:10 PM Reply Like
  • jhooper
    , contributor
    Comments (5347) | Send Message
     
    I've come to view CBs as taxing mechanisms. After all a tax is just a transfer of purchasing/consumption power. If I go out and engage in labor that produces food, my reward is consumption of that food, or I can trade the food for shelter and consume the shelter. A tax simply uses gov force to confiscate a portion of my purchasing/consumption power and then gives it to someone else.

     

    This is fine, so long as I receive a benefit like a national defense or a court system, but if it is transferred to someone else to buy stock, then this wealth transfer will bid up the price of that stock and when that person sells, they receive the benefit, not me. The first ones in this play benefit when they sell their stocks at the top and improve their own personal equity. The ones taxed are those that loose interest on their CDs, pay higher prices for gas and food, or buy at the end of the stock bubble.

     

    The role of a CB is to transfer wealth from the general populace to financial markets via its ability to print the mediums for money without regard to production, and it can do this because it has the backing of gov force. Equities can continually be propped up, until so much wealth transfer has occured that people give up on producing at current levels because the perceived benefits of that labor begin to seem to have no benefit. Then they slow consumption and you get a recession.

     

    So as long as CBs are engaged in easing of any kind (ZIRP, OT, QE, LTRO, etc), the CB is taxing the general populace and transferring that purchasing power to financial markets. The CB is basically forcing or subsidizing the consumption of equities. The problem is, that this is occuring without regard to productivity increases by the respective companies whose stocks are being bid up, and it comes at the cost of the general populace. So you bid up the prices of stock that should go up because of new productivity, and then tax the people you need to purchase those products. In other words - a bubble.

     

    The thing is, how long can this go on? If we could measure the change in aggregate capital, we might be able to do a capital ratio and project a breaking point. Since we don't have anything like that, I'm not sure how long you can tax the general populace in this way before you hit the breaking point. The CBs are trapped in an easing mode, that can only be broken by some new amazing technological discovery that will create some new level of productivity for the economy or until a large portion of the population gives up and gets in the wagon instead of pulling it.

     

    For equities right now, good economic news is good news, and bad economic news is good news, because bad economic news means more taxing by CBs to transfer more purchasing power to equities. I guess this would mean, sell the peaks, and buy the dips.
    27 Feb 2012, 02:31 PM Reply Like
  • H. T. Love
    , contributor
    Comments (17304) | Send Message
     
    "The thing is, how long can this go on?"

     

    Not as long as if *every* created dollar *didn't* have debt attached to it. Compounding *eventually* causes a parabolic rise in the interest expense. Of course then can never be repaid with fresh dollars because ... they have debt attached to them.

     

    Restructuring when it crashes or never-ending inflation is the only out.

     

    This is the sin our congress committed in 1913 (with most on holiday for Christmas) when it established the Fed against the express advice and instructions from our founding fathers that the money belonged to the people and should only be issued by treasury in sufficient quantity to meet the needs of the commerce of the nation. There was no debt attached to it.

     

    They warned about giving over control of money to "The Bankers".

     

    How quaint it must now seem to those that have no understanding of these issues.

     

    And our government-mandated and controlled education provides no enlightenment on the issue - that *might* be self-defeating if they were to produce *gasp* an *educated* (in our historical founding considerations?) electorate.

     

    Don't even get me started on the fifth estate, which now can be viewed as nothing more than a co-conspirator.

     

    MHO,
    HardToLove
    27 Feb 2012, 02:48 PM Reply Like
  • robert.b.ferguson
    , contributor
    Comments (10803) | Send Message
     
    Greetings all. I don't think for a second that the ongoing market operations has ever stopped. The same slush fund is still doing the same things.
    27 Feb 2012, 04:55 PM Reply Like
  • jhooper
    , contributor
    Comments (5347) | Send Message
     
    Good point Robert. QE 1 & 2 are not over. Just the additional buying is. The Fed balance sheet is still bloated, and being maintained. Its like accelerating to 50 then to 100. Granted, you have stopped accelerating, but you are still doing a 100. You just have to hope nothing breaks at that speed.
    27 Feb 2012, 05:35 PM Reply Like
  • H. T. Love
    , contributor
    Comments (17304) | Send Message
     
    S&P downgrades Greece due to retroactive "CAC" modifications constituting an effective beginning of default in S&P's POV.

     

    It modifies the contract terms.

     

    HardToLove
    27 Feb 2012, 04:37 PM Reply Like
  • robert.b.ferguson
    , contributor
    Comments (10803) | Send Message
     
    Note they said nothing about it being a credit event.
    27 Feb 2012, 04:56 PM Reply Like
  • H. T. Love
    , contributor
    Comments (17304) | Send Message
     
    Right. here's a little more detail - "Selective Default", SD, rating.

     

    http://bit.ly/ynF81Y

     

    HardToLove
    27 Feb 2012, 05:18 PM Reply Like
  • Mayascribe
    , contributor
    Comments (9598) | Send Message
     
    This new "ESM" treaty is frighteningly like a fascist dictatorship; it's above the law, without reproach, and can not be revoked. It can legally bankrupt any EZ country within seven days. If this gets signed into law, Euro-soveriegnty will be gone. Poof!

     

    Here's a 3 minute YouTube video with subtitles I highly recommend everyone to give a gander:

     

    http://bit.ly/zjR9P6
    28 Feb 2012, 12:04 PM Reply Like
  • H. T. Love
    , contributor
    Comments (17304) | Send Message
     
    Sounds like some ... "dictatorships" we've seen in the past.

     

    One thing for sure, those bankers are sure self-confident.

     

    HardToLove
    28 Feb 2012, 12:42 PM Reply Like
  • robert.b.ferguson
    , contributor
    Comments (10803) | Send Message
     
    H.T.Love: Greetings. I would be confident as well if I were them. They all work for the Vampire Squid which has also installed it's own executives as heads of state in a few EZ supposedly "Sovereign." nations. They may extend their reach before this is all over. http://bit.ly/y8S8Hn
    28 Feb 2012, 12:51 PM Reply Like
  • Jon Springer
    , contributor
    Comments (4152) | Send Message
     
    More versions...

     

    (English) - http://bit.ly/zZ48hD

     

    (German only original?) - http://bit.ly/wPlUEi

     

    (English subtitled in Czech) http://bit.ly/wnCFUy

     

    (German subtitled in English - most viewed). http://bit.ly/zjR9P6

     

    ... found at least 6 with 50,000+ hits total FWIW.
    28 Feb 2012, 01:40 PM Reply Like
  • Mark Bern, CFA
    , contributor
    Comments (4771) | Send Message
     
    What is needed are a couple dozen with millions of hits each. 300,000 hits (how many from outside the EZ?) may not be enough to turn back the tide. That is really scary stuff!
    28 Feb 2012, 02:00 PM Reply Like
  • H. T. Love
    , contributor
    Comments (17304) | Send Message
     
    K202: Considering the percentage of the population that is likely even aware of what's been going on, those may be quite respectable numbers.

     

    HardToLove
    28 Feb 2012, 02:02 PM Reply Like
  • Mark Bern, CFA
    , contributor
    Comments (4771) | Send Message
     
    I realize that the numbers are respectable but will they be enough to stop what's going on? I doubt it. The important nation in all of this is Germany, imo. If they go along without a fight I will be amazed.
    28 Feb 2012, 02:05 PM Reply Like
  • Mayascribe
    , contributor
    Comments (9598) | Send Message
     
    OyGee wrote me back about that youtuber vid, "Financial Blitzkrieg!"
    28 Feb 2012, 02:07 PM Reply Like
  • robert.b.ferguson
    , contributor
    Comments (10803) | Send Message
     
    It's not as if there were no warning signs. The Vampire Squid installing heads of state. Secret deals among central banks, IMF World Bank and specific financial firms like AIG and large bank holding companies acting as conduits for covert transactions. All of that is very very troubling. Just think of all the things that haven't seen the light of day yet. K202 is right. Be afraid be very afraid. Could it happen here?
    28 Feb 2012, 04:19 PM Reply Like
  • siliconhillbilly
    , contributor
    Comments (2100) | Send Message
     
    OK, I realize this is Off Topic.
    But think of Greece as the critter in question and tell me you didn't laugh :-)

     

    http://bit.ly/z1pj0H
    28 Feb 2012, 05:24 PM Reply Like
  • FocalPoint Analytics
    , contributor
    Comments (5804) | Send Message
     
    Author’s reply » (March 4, 2012) ECB Says Greek PSI Participation May Fall Short. Meanwhile, Troika Expects Third Greek Bailout. From: Zero Hedge by Tyler Durden.

     

    Despite all the media fanfare, and threats from former Goldman / JPM bankers, the hedge funds will likely 'just say no' and courtesy of basis packages hold out for par recoveries in court [Basis Packages are when someone has bought credit protection (CDS) and owns the bond against it.]. Greek CDS soared to a record 76 pts on Friday - so people are buying more than selling CDS positions.

     

    To wit from Bloomberg: "Greece may fail to garner enough investors to participate in a voluntary write down of its debt, Der Spiegel magazine reported, citing unnamed officials at the European Central Bank. A second Greek bailout is partly tied to investors’ agreeing to the write down by a March 8 deadline." Remember that Germany has made it very explicit that if the PSI fails, the bailout is off.

     

    [I would think it does not really matter because of the Collective Action Clauses CAC that will force all bond holders into the deal. Bloomberg has to know this, so why did that say that?]

     

    Meanwhile, from Spiegel:

     

    Troika expects third rescue package for Greece:
    The financial controllers of the EU Commission, European Central Bank and the International Monetary Fund hold a third rescue package for Greece to be necessary. They quantify the extent to SPIEGEL information on up to 50 billion Euros.
    http://tinyurl.com/6vs...
    ---
    The certain need for yet more Greek funding is the result of the previously reported Deus ex machine report that notes the probability of achieving a return to competitiveness (i.e., GDP growth) while also reducing debt is very small. The massive austerity they are implementing will drive Greece into a depression and cause massive reductions in taxable revenues. Hence the need for yet more funding, and more funding, and ....

     

    =====
    (March 4, 2012) My Big Fat Greek Restructuring - The Week Ahead
    By Peter Tchir of TF Market Advisors, posted on Zero Hedge.

     

    There is a strong likelihood that we will get a Credit Event on CDS in the next 2 weeks. The most obvious way is that the PSI participation comes in around 90% and Greece chooses to use the Collective Action Clauses to force all bond holders into the deal. Using the Collective Action Clauses would be a Credit Event.

     

    Of the $3.2 billion of net CDS outstanding, virtually all of those short Greece via CDS have the basis package at this point, and almost all are held by hedge funds. Hedge funds will hold out since that is the strategy anyone using the basis package HAS to employ. Holdout and either get a Credit Event or get paid at par.

     

    Separate from the PSI which has a deadline, there will be continued headlines around the bigger bailout. Is Greece implementing the new programs fast enough? Is Germany happy with Greece. Is Greece happy with German presence? Are other countries getting sick of the whole fiasco? How do Portugal and Ireland react when they see their bailout buddies receive some nice big debt forgiveness? This is far from over and we will likely see a mix of headlines, but without PSI, there will be no deal, so reacting appropriately to PSI related headlines will be a key over the next two weeks. http://tinyurl.com/6rw...
    ----------
    I have doubts that the ISDA will declare a credit event. The people that vote on that are the people that provide CDS insurance. It's not in their interest to declare a credit event which will cost them billions unless... unless there is a pre-arranged bailout from the FED which is of course controlled by many of those same banks on the hook for the CDS insurance payouts. In that event, the banks would make money and the bankers would get bonuses, the hedge funds would make money, and the only people getting it in the neck would be the US taxpayers. Sounds about right.
    4 Mar 2012, 03:52 PM Reply Like
  • Jon Springer
    , contributor
    Comments (4152) | Send Message
     
    Draghi Bazooka has not yet stopped Club Med money collapse
    by Ambrose Evans-Pritchard
    http://tgr.ph/z0phwS
    4 Mar 2012, 04:31 PM Reply Like
  • Mercy Jimenez
    , contributor
    Comments (1889) | Send Message
     
    Excellent insight FPA and Jon. Here is a bit of a drill down on the potential market movers to watch this coming Thursday and Friday.
    http://seekingalpha.co...
    4 Mar 2012, 04:56 PM Reply Like
  • Mark Bern, CFA
    , contributor
    Comments (4771) | Send Message
     
    MJ - Good article. Thanks for the link! I especially liked the comment stream. There was some good back and forth in there and all the possibilities seemed to hashed out and exposed.
    5 Mar 2012, 04:53 PM Reply Like
  • FocalPoint Analytics
    , contributor
    Comments (5804) | Send Message
     
    Author’s reply » Hmmmm....

     

    According to Bloomberg and reported on Zero Hedge "Private Investors Holding About 20% of Greek Debt to Join Swap...

     

    The 12 members of the creditors’ steering committee that said today they would join in the exchange have debt with a face value of about 40b euros ($53b), compared with the 206b euros of Greek bonds in private hands, according to data compiled by Bloomberg from company reports."

     

    If so, this means that a whopping 80% of the bonds subject to exchange are unaccounted for, and more importantly, it means that the likelihood of a major blocking stake having organized is far greater than even we expected. http://tinyurl.com/76m...
    ------
    Could be accurate, could be BS. No way to know. It's all spin until the last minute when the music stops. Than we will know, at least until the start of the next game. That will probably be around the time when Portugal and Ireland decide they want a deal to cut their debt as well. Of course we still have the ever-popular game when its suddenly determined that no way in hell is Greece's economy going to be magically growing in 2013.
    5 Mar 2012, 08:08 PM Reply Like
  • H. T. Love
    , contributor
    Comments (17304) | Send Message
     
    I suspect that the other 80% may be on edge about the CDS issue: I know that I would be because of who constitutes the committee that must declare an event.

     

    'Course, those folks that must declare an event likely have a lot of the 80% as their customers. So that would put them in a nice conflict-of-interest bind.

     

    I wonder if Andrew Ross Sorkin will write a book about how this turns out.

     

    HardToLove
    6 Mar 2012, 04:48 AM Reply Like
  • robert.b.ferguson
    , contributor
    Comments (10803) | Send Message
     
    Soros owns a chunk of that which he purchased when MFG collapsed. I wonder what he's doing bhind the scenes? He couldn't care less about the well being of the EZ, the Euro or anyone else for that matter.
    7 Mar 2012, 01:18 PM Reply Like
  • Mayascribe
    , contributor
    Comments (9598) | Send Message
     
    Suggestion for all to read John Mauldin's latest piece titled "Unintended Consequences."

     

    http://bit.ly/we0V2Z
    5 Mar 2012, 08:53 PM Reply Like
  • Mark Bern, CFA
    , contributor
    Comments (4771) | Send Message
     
    Maya - Thanks for the link. I subscribed and it was worth the time to read.
    6 Mar 2012, 11:27 AM Reply Like
  • magounsq
    , contributor
    Comments (971) | Send Message
     
    Maya...very interesting JM piece...now...will the USA wake up?
    7 Mar 2012, 10:35 AM Reply Like
  • FocalPoint Analytics
    , contributor
    Comments (5804) | Send Message
     
    Author’s reply » (March 9, 2012) Greece Issues Statement On PSI, Says €172 Billion Of Bonds Tendered In Swap. From: Zero Hedge, by Tyler Durden.

     

    * Greece says eu172 bln of bonds tendered in swap

     

    * Greece gets tenders, consents from holders of 85.8%. This means that €25 billion in Greek law bonds have not - these are the hedge funds that could not be forced into participating, and will now sue Greece for par recoveries.

     

    Greece says 69% of non-greek law bondholders participated. This is also the number that ISDA will look at to determine if, in conjunction with the implimentation of forced collective action clauses [CAC], means a credit event has occurred. http://tinyurl.com/7vn...
    ---

     

    There are two basic types of bonds here. One is under Greek law, the other under English law. If the participation rate of English law bonds is less than 70% and CACs are enacted, that should force the ISDA to declare a credit event.

     

    To avoid that, the Greeks have extended their deadline to March 23rd to entice that extra 1%. In the event that they can't get the extra 1% and the ISDA does not declare a credit event, expect the CDS market to fall off a cliff.

     

    Meanwhile:
    The new debt that replaces those old bonds is currently trading at 20% of face value! Why are the new bonds so weak? Subordination has something to do with it. But the primary factor is probably the following:

     

    The previously reported -7.0% contraction in Q4 GDP has just been revised to -7.5%. "Greece's gross domestic product (GDP) contracted by 7.5 percent year-on-year in the fourth quarter of 2011, the country's statistics office said on Friday based on seasonally unadjusted provisional estimates.[Reuters] http://tinyurl.com/7cq...
    ----
    As I said before, all of these cuts have to have an adverse effect on Greek GDP. No way are they gong to achieve that -1.0% GDP target in 2013 as per the IMF's downside case. This is why the NEW Greek debt is trading with an implied re-default probability of 98%. Every time the GDP goes lower, it means less revenues. That means they are going to need an additional loan to pay off those new bondholders, or another large haircut on those replacement haircut bonds.
    ---
    9 Mar 2012, 10:29 AM Reply Like
  • Mercy Jimenez
    , contributor
    Comments (1889) | Send Message
     
    Many thanks FPA -- provides answers to several detailed questions I had.

     

    mj
    9 Mar 2012, 10:35 AM Reply Like
  • H. T. Love
    , contributor
    Comments (17304) | Send Message
     
    Excellent, and helpful in understanding!

     

    Thanks!

     

    HardToLove
    9 Mar 2012, 10:38 AM Reply Like
  • H. T. Love
    , contributor
    Comments (17304) | Send Message
     
    Per CNBC now, credit event declared, . ~E$3.3B to be paid out.

     

    EDIT: Now reported that only ~ 50% covered by CDS - so payout over time is about half, if correct.

     

    HardToLove
    9 Mar 2012, 02:51 PM Reply Like
  • FocalPoint Analytics
    , contributor
    Comments (5804) | Send Message
     
    Author’s reply » This is based on remarks from Mark Grant, author of "Out of The Box and onto Wall Street". The comments were posted in Zero Hedge - http://tinyurl.com/6tj...

     

    Key issues, questions:
    CDSs?
    Given the ISDA ruling how will $75Bn in the CDS contracts going to be settled, and what institutions are going to be hurting because of this?

     

    Other clauses triggered?
    Typically, when a country is placed in default, it triggers all kinds of other clauses in other contractual obligations. For the sovereign there are $90B in derivative contracts outside of the CDS contracts that may have trigger language depending upon the ratings agencies.

     

    We will also see what happens with Municipal contracts and then as the Greek banks will most probably follow and be placed in “Default” we will see what securitizations get triggered, what collateral agreements get unwound, what inter-banking lending agreements misfire and what securitizations at the ECB get returned to the banks of origin.

     

    Total Greek Debt dropped with the Haircut – right?
    Buzzzzz.... The debt of Greece has been increased with the new loan irrespective of the haircut.

     

    Greece and the EU handed private holders $138B in write-offs but with the addition of the new loan, $171B, the gross debt for Greece increased [!!!] by $33B, and this is IF all of the legal challenges favour Greece. This is what happens when one of the big holders [the ECB] declares it can’t be given a haircut. You can’t get out of debt by bowering more money.

     

    The total debt of Greece (sovereign, municipal, corporate and bank) just increased from $1.20 Trillion to $1.233 Trillion and all accomplished by this so called “bailout” that did nothing except to tag private investors, and make all investors secondary to the ECB after the fact while increasing the net debt load for the country.

     

    Take this and add in the austerity measures and an economy that is sinking with surging unemployment and you conclude that more Greek loans will have to be forthcoming. If no new loans, than a full default on everything, including the ECB bond holdings. Given that the level of debt has gone up after the so called “bailout” it becomes clear that that notion that the Greek economy will have a –1% GDP growth rate in 2013 is utter fantasy. The most recent GDP growth rate is –7.5%.

     

    Who’s Next in the EU?
    Watch Portugal. Very poor economics that are worsening. Watch Spain. They are the first country to publicly tell the EU to “Shove It” as they are sticking to their 5.8% deficit and refuse to adhere to the EU mandated 4.40% number as the maximum debt allowed. They have also refused additional taxes and additional austerity measures as several other European nations have cried "foul" and threatened to demand penalties and fines for the country.

     

    Watch France with elections looming on April 22, run-off on May 6. Sarkozy appears to be the loser and the most likely winner, Hollande, supports economic and financial policies that are in direct opposition to the policies laid out by the German Chancellor.
    10 Mar 2012, 06:40 PM Reply Like
  • H. T. Love
    , contributor
    Comments (17304) | Send Message
     
    Thanks for that FPA! Very informative.

     

    ISTM that the critical issue with this increased is the interest rate.

     

    If the interest rate has been lowered sufficiently (I have now idea ATM what it is), it could still help Greece *eventually* possibly get into shape at the interest service might be much lower.

     

    Does anyone know if the numbers support that?

     

    HardToLove
    10 Mar 2012, 07:04 PM Reply Like
  • Mercy Jimenez
    , contributor
    Comments (1889) | Send Message
     
    FPA, thanks for this great insight from Mark Grant. His follow-up comments today 3/10 were even more sobering and in fact suggests insight into HTL's question re: Greece's new debt servicing levels: http://bit.ly/xcAPjL

     

    Grant points out that many more cross-defaults are now going to be triggered and provides a great chart of the other types of bonds that were not part of last week's forced lower rate bond swap:

     

    " Detailed below are some of the “OTHER” sovereign obligations of the Greek government which have now been submitted to the ISDA ... there are bank bonds, Hellenic Railway bonds, Urban Transportation bonds et al that are guaranteed by Greece. You will also note that there are bonds tied to Inflation, Floating Rate Notes, Asset-Backed securities and a whole mélange of other structured products with a Greek sovereign guarantee. What we all thought was fact is now clearly fiction and default will now bring “Acceleration” one could reasonably bet in all kinds of these securitizations and in all kinds of currencies. This could come from the ratings agencies placing Greece in “Default” or it could come from the CDS contracts being triggered depending upon each indenture and you will also note that a great many of these off balance sheet securitizations are governed by English Law and not Greek Law. You may also wish to consider the fallout to the banking system as the lead managers of all of these deals could find themselves behind the eight ball as various clauses trigger and as the holders of these securitizations line up at the judicial bench [ZH note: there is a reason why Allen & Overy is getting paid $1500 an hour to indemnify ISDA with a plethora of exculpation clauses - they know what is coming] The ISDN numbers are on all of these securities ... The curtain just lifted and the show is about to get way too interesting!"

     

    It now appears to me that the few weeks/months of relief from the Greek drama everyone started anticipating during the last 2 days -- may turn out to be fiction. The potential fallout to the banks as lead managers on these deals boggles the mind.
    10 Mar 2012, 10:11 PM Reply Like
  • Stilldazed
    , contributor
    Comments (2097) | Send Message
     
    MJ,
    Thanks for the post. Looks like the real show is about to start in this soap opera. If I read this right we are about to learn how exposed the US banks are to euro debt (OK, maybe a little over simplified). Am I wrong in thinking that this is the first domino to fall in a long interconnected string?
    10 Mar 2012, 10:49 PM Reply Like
  • Mathieu Malecot
    , contributor
    Comments (966) | Send Message
     
    it has to happen sometime in my mind. it's (been) about time. i hope VIVHY gets attractive to me.
    11 Mar 2012, 12:02 AM Reply Like
  • H. T. Love
    , contributor
    Comments (17304) | Send Message
     
    Thanks Mercy!

     

    The real question seems to be how they will weasel this one to avoid killing all the big financial vested interests that control the system.

     

    Since multiple courts in multiple jurisdictions may be involved across jurisdictional lines, a *very* long and slow train wreck seems to be the way it must play out.

     

    Which taxpayers will bear the brunt of *this* iteration of the "financial crises"?

     

    It appears to me this ends up being a zero-sum game with the "little" folks losing big-time again.

     

    MHO,
    HardToLove
    11 Mar 2012, 07:16 AM Reply Like
  • Mercy Jimenez
    , contributor
    Comments (1889) | Send Message
     
    Stilldazed,
    I know very little about sovereign cross defaults. But if my interpretation of what Grant is saying is right, I think your analogy of dominos is an apt one.

     

    He is referencing many off-balance sheet securitizations in his chart, and the one example of an OFF-BALANCE sheet securitization I am very familiar with in the US are the GSE MBS with the past "implied" and now explicit government guarantee. And based on that comparison I can just imagine how "interesting" things would get with a sovereign default on this type of instrument (sovereign investors, foreign private investors, different currency denominations, etc. etc.). Last Friday I read that Greece was getting ready to amend their covered bond legislative structure in light of the new legislation enabling the Collective Action Clause (CAC) on bonds. I couldn't quite believe that the sanctity of ring fenced assets in covered bonds was now going to be violated (retroactively?) With Grant's explanation of what's coming down the pike -- my worries on CBs was just the tip of the iceberg.

     

    I am not seeing in other media Grant's expose yet, and as HTL suggests there are likely lots of ways to weasel out of this one -- especially since the very ISDA members http://bit.ly/xkjBQ4 who decide whether a financial event is a default triggering CDS are the very same players who were lead managers in these deals.

     

    Staying very alert (daily) for the unexpected is the only way I know to play this. As we have learned the music can keep playing for a very long time -- until it doesn't.

     

    Looking forward to seeing thoughts/interpretation from others.
    11 Mar 2012, 08:33 AM Reply Like
  • LT
    , contributor
    Comments (4600) | Send Message
     
    Who’s Next in the EU?

     

    This has always been the deal, Never much to do with Greece except try to set a precedent for the rest of the EZ. Austerity measures are probably done, MerKozy milked all they could on that. It's always been about Italy & Spain. They are the 800 lb. gorillas.

     

    Greece could have cut their debt 50% by going back to the drachma, but the powers did not want all the CDS to trigger. The EZ could have easily bailed out and made Greece & Portugal solvent and solid too. But they can't do it on Italy & Spain because it's trillions of $$$$.....and when they trigger the CDS, the mass destruction begins short of declaring them null & void before hand.

     

    The entire CDS mkt, is $400-700 trillion USD. That's why Buffett called them "Weapons of Mass Destruction"
    11 Mar 2012, 03:12 PM Reply Like
  • Stilldazed
    , contributor
    Comments (2097) | Send Message
     
    MJ,
    Thanks for the well thought out response. I can imagine the ISDA making excuses and maybe minor payouts, but to me it looks like they are between a rock and a hard place. Do nothing and it looks like the buying of this insurance has all the aspects of buying a pet rock, do something and go broke.
    11 Mar 2012, 11:01 PM Reply Like
  • robert.b.ferguson
    , contributor
    Comments (10803) | Send Message
     
    Spain has abandoned it's fiscal targets but promises to do better next year. Here comes act II of the Greek tragedy. Round and round and round she goes where it stops is financial armageddon spreading out from the EZ. As we have discussed in past episodeds of this soap oppera Greece defaulting would be a nonevent by it's self. These weapons of mass financial destruction about to be unleashed globaly is the real problem and the ball we need to keep our eye on. http://bloom.bg/xon7Xh
    13 Mar 2012, 10:37 AM Reply Like
  • DRich
    , contributor
    Comments (4429) | Send Message
     
    >robert.b.ferguson ... Wouldn't it have been nice if we, the US, put these CDS back into their regulatory box 3 years ago when we had the chance. Better yet, never let them out back in 1988, 1999 or 2003. Everyone knew the damage they could bring on but "private profit, public liability" is the marching song.
    13 Mar 2012, 10:45 AM Reply Like
  • robert.b.ferguson
    , contributor
    Comments (10803) | Send Message
     
    DRich: Greetings. Never having let them out would indeed have been the optimum nonevent. Unfortunately they were created for risk mittigation which quickly turned into a brand new "Financial instrument." for sale to all. Purchasers didn't and still don't have to have an insurable interest in the Instrument being insured. That practice alone nearly garauntees abuse as investors buy shakey bonds then insure them or just insure them betting on a default.
    13 Mar 2012, 11:16 AM Reply Like
  • jakurtz
    , contributor
    Comments (1909) | Send Message
     
    This might be a dumb question but why wouldn't those insuring the bonds just say, "No, we are not insuring those risky assets."? Or at the very least charge an exorbitant amount to insure them. Wouldn't that be a quick fix to the CDS issue? Don't the insuring entities want to make money?

     

    I suppose this might be where the bailout's came in. The insurers don't worry about making money on the business of "insuring" they make their money off the initial transactions and then relied on solvent governments to bail them out when the payouts became too much for them to bare.

     

    That being said while bailouts may have worked in the past surely they will not work again and we should naturally see these CDS's become more obsolete. You can fool the people once with bailouts but it would be suicide to attempt it again.

     

    Does that sound right? I am still trying to get my head around this four year-old debacle.
    13 Mar 2012, 12:09 PM Reply Like
  • Mercy Jimenez
    , contributor
    Comments (1889) | Send Message
     
    Jakurtz, IMO your thinking is quite clear. Think about minimal regulations or reserve requirements on CDS - and the profit making potential for the 2B2F surfaces. You may recall the valuation/balance sheet games that were played when mark-to-market valuations had fewer restrictions? That analogy pops into my mind with CDS. And when you layer in the CDS exposure on off-balance sheet liabilities which are more off of the radar (discussed in my comment earlier) -- I am challenged to compute the potential bad scenarios before us. But as you say, as long as the profits are there even those who think they are weapons of mass destruction keep playing the game.
    13 Mar 2012, 12:32 PM Reply Like
  • jhooper
    , contributor
    Comments (5347) | Send Message
     
    This is why gov regulations are so fraudulent. There are too many political pressures for gov regulations to be made for economic reasons. The regulations will always be made for political reasons, which is why we are always complaining about them not being there when they should have been there.

     

    Without the insurance, the number of buyers of gov debt would have been less. With less buyers, the price (yield) would have gone up. That means debt would have been more expensive for govs, and they would not have been able to issue as much as they did, which means the politicians could not have bought as many votes as they did. So why would a politician write a regulation that limits the chances of the politician being in power? Politicans write regulations for political purposes, not economic purposes.
    13 Mar 2012, 12:33 PM Reply Like
  • DRich
    , contributor
    Comments (4429) | Send Message
     
    >jakurtz ... You make the logical mistake of thinking that CDS's are an insurance instrument. They are not. There is no reserve requirement backing them. They are designed to be a zero-sum game with no rules about who (or what) can be included in a swap. To further make this insanity more insane, the banks that write them both regulate and act as sole arbitrator of contract terms & conditions.

     

    Everything is fine as long as it remains zero-sum. Fees are collected for writing CDS's. Because there are no reserves banks have been allowing more risk to creep in by leveraging the fees paid to other investment and the eligible base to expand. Today the failure risk stand somewhere around 4-6% on a liability of $25.7 - 62.5 TRILLION ... no one knows for sure. That leave $1.3 - 3.2 of real liability that might need covering but the danger is if one of the major principals fail the whole market fails and I'll leave it to you to guess how high the payouts go.

     

    The stupid part of this game is the deregulation and how the banking sector has laid-off the risk to the US taxpayer & EU sovereigns as a better solution than deleting these instruments and bankrupting the banks. After all we can't have our present crop of rich people taking losses like that. It's much better to have the poor, working classes & future generations take the hit & suffer the inflation while real assets accrue to those that "deserve" them instead of reorganization. Too messy that.
    13 Mar 2012, 12:41 PM Reply Like
  • LT
    , contributor
    Comments (4600) | Send Message
     
    MJ requested that I post this article here too:
    Simple article to understand the CDS mkt. by Felix Salmon: and I'm going to stick my neck out and say by the time the worlds debt crisis is over, that the CDS mkt. will basically cease to exist...as it doesn't work. The banksters will try to rewrite the rules, but I doubt with as much gov't intervention that they will be able to succeed....maybe a blessing in disguise as these "weapons of financial destruction" cause the tail to wag the dog and include enormous risk to stability.

     

    http://seekingalpha.co...
    11 Mar 2012, 02:18 PM Reply Like
  • LT
    , contributor
    Comments (4600) | Send Message
     
    Here is the link again.
    http://seekingalpha.co...
    11 Mar 2012, 03:05 PM Reply Like
  • magounsq
    , contributor
    Comments (971) | Send Message
     
    LT...trouble with link...
    11 Mar 2012, 02:58 PM Reply Like
  • H. T. Love
    , contributor
    Comments (17304) | Send Message
     
    I think this is the one Magounsq.

     

    http://seekingalpha.co...

     

    HardToLove
    11 Mar 2012, 03:05 PM Reply Like
  • magounsq
    , contributor
    Comments (971) | Send Message
     
    Thank you gentlemen!
    12 Mar 2012, 12:46 PM Reply Like
  • FocalPoint Analytics
    , contributor
    Comments (5804) | Send Message
     
    Author’s reply » I added a new chart to the header of this instablog that shows the current unemployment rate for EU citizens under age 25 in Spain, Greece, Portugal, and the overall all Euro-Zone.

     

    "(March 10, 2012) Europe's Scariest Chart Just Got Scarier. From: Zero Hedge, by Tyler Durden. http://tinyurl.com/7mo..."

     

    Unemployment for individuals less than 25 rose to 51.1 %, twice as high as three years ago as budget cuts imposed by the European Union and the International Monetary Fund as a condition for dealing with the country's debt problems have caused a wave of corporate closures and bankruptcies.

     

    Of course, we also have to consider that the Greek pension funds were forced to invest in Greek bonds by the so called Greek government. Those pension funds have just been vaporized by the forced haircut.

     

    History tells us what is going to happen next...
    11 Mar 2012, 06:53 PM Reply Like
  • Mathieu Malecot
    , contributor
    Comments (966) | Send Message
     
    xenophobic politics?
    11 Mar 2012, 09:50 PM Reply Like
  • Jon Springer
    , contributor
    Comments (4152) | Send Message
     
    Albeit, all those unemployment rates are calculated with varying degrees of truthfulness and under variable systems.

     

    My friend who works for the unemployment office in the U.K. told me that if a person is unemployed and offered a job of 16 hours per week (or more if they're lucky), they have to take it or fall off the unemployment rolls. No one's going to pay rent real well on 16 hours...

     

    In other countries: second jobs are illegal, work week hours vary, et cetera.
    11 Mar 2012, 11:46 PM Reply Like
  • FocalPoint Analytics
    , contributor
    Comments (5804) | Send Message
     
    Author’s reply » I got this link from Maya who suggested I post this here. As always, my comments are contained in brackets [ ].
    ---

     

    (March 10, 2012) There Will Be Contagion.
    From: Business Insider, By John Mauldin
    http://tinyurl.com/7ax...

     

    Take your pick from scores of quotes from various EU leaders: "A Greek default has no real impact on the rest of the Eurozone. No other countries are at risk." Or: "The contagion 'domino effect' from Greece no longer threatens the rest of Europe, according to Marco Buti, the director general for economic affairs at the European Commission. In addition, Portugal and Ireland were said to be 'in a much better place,' while the credibility of Spain and Italy had 'increased.'"

     

    The headlines are about Greece, but the real story is not Greece but who is next. European leaders were right to be worried only a short while ago about contagion effects of a Greek default to the entire Euro system, which of course they now say doesn't exist. This week we look at Europe, and sort through the ever more fascinating implications of the news in today's headlines.

     

    Sarkozy: Problem Solved, Or… Germany to Sarkozy: It's Not Over
    Greek is having an "orderly" default. The taxpayers of Europe are in theory going to lend €130 billion to Greece to pay back €100 billion in Greek debt that is owed to private lenders. Greece has to pass several difficult tests in order to get the money. €100 billion of debt to private lenders will be written off. Thus the net effect will be that they owe €30 billion more. How does this help Greece, except that they get €30 billion more they cannot pay?

     

    [By the way, the presumed goal of the bailouts was to decrease the GDP to debt ratio. Because the bailout increased the Debt load by 30b, they just INCREASED the GDP to debt ratio.]

     

    The "new" debt Greek bonds are currently trading at over a 71-79% discount, depending on the length of maturity. Note this is AFTER the 53% haircut already imposed. [from Bloomberg, courtesy of Dan Greenhaus of BTIG. ]

     

    That reads to me like the market value of original Greek debt is now between 12 and 14% of the original face value. Didn't I write in this letter early last year that Greek debt would ultimately get a 90% haircut? Let me suggest to my critics that what was pessimistic back then may prove to have been optimistic at the end of the day.

     

    Over 90% (some unconfirmed reports of as much as 95.7%) of Greek bondholders offered their bonds in the swap. The remaining bond holders will be forced by the Greek government to take the deal under a collective action clause, or CAC. But that 90%+ participation rate of bond holders willing to take their lumps may be suspect, according to Art Cashin, writing this morning:

     

    "Some savvy (but very cynical) traders think the heavy participation may have been structured. They posit that in order to keep the deal from falling apart, some banks, on government instructions, may have paid a premium to the 'reluctant' participants. That would get them out of the way and allow for more tenders by the buyers. No proof – just conjecture." [In other words, as mentioned by me in a previous post, there were probably some under the table deals made].

     

    Greece is in free fall. The "benefits" of austerity have not become apparent, as the Greek economy saw growth rates of:
    -0.2% in 2008,
    -3.3% in 2009,
    -3.4% in 2010,
    -6.9% in 2011
    -7.5% in fourth quarter of 2011.
    (Data from John Mauldin report)

     

    [In the fantasy report “Greece: Preliminary debt Sustainability Analysis" dated February 15, 2012 which I referred to as the "Deus ex machine" report one of the EUs key economic assumptions was that Greek GDP growth in 2012 would be -4.8% and -1% in 2013.

     

    I plotted the Greek GDP data and projected the GDP values for 2012 and 2013 based on the current data - See the bottom of the header of the concentrator for a new chart containing the trend projections based on the data from 2008 - 2011.

     

    I also plotted the Greek GDP projections from the Deus ex machine report - blue line. if you project an abrupt directional change in a trend, you are required to explain why such a change in trend would occur. Yes, they are decreasing costs, but what about revenues? Look at the unemployment data. ]

     

    Do you see a trend here [see my chart for the trend]? The Greek economy is down by almost one-fifth in less than five years. Unemployment has risen to 20%, and 50% among young people, many of whom are leaving the country. Resentment has grown among ordinary Greeks over the austerity medicine ordered by international creditors, which has compounded the pain. Greek papers are full of stories blaming Germany for their problems.

     

    By any standard, what will soon be a 20% drop can be classified as a depression. There is nothing on the horizon to suggest things will turn around any time soon. The country's public debt-to-GDP ratio currently stands at 160% of nominal gross domestic product, AFTER the debt restructuring. If Greece can find someone to lend them more money, it will only get worse.

     

    The current agreement with the EU will not improve the economy, but require even more wage cuts, government spending cuts, and higher taxes and unemployment. The problem is that if Greece leaves the euro, those problems do not go away, they just take a different form. There is still a great deal of economic pain for Greece as a consequence of past decisions. It is sad, but there is no other choice, unless the rest of Europe or the world, through the IMF, simply gives Greece all the money they want. But then where do you stop?
    -----------
    [There is a wealth of other information in this article, so its worth the read. Here are my comments on the Contagion issue:

     

    One Mechanism of Contagion:
    John Mauldin is 100% correct. Contagion refers to the idea that financial crises may spread from one institution to another, or from one country to another, as with sovereign defaults. When the failure of one particular financial institution threatens the stability of many other institutions, this is called systemic risk. So the root of Contagion concerns the spread of the perception of risk. You control contagion by controlling the spread of risk.

     

    When the ECBs bond purchases were given precedence over other bond investors, and the bonds the ECB bought were given immunity to haircuts, this effectively subordinated all other bond holders to the ECB. This meant that the conditions that defined the risk that sovereign debt bond holders purchased under were changed retroactively.

     

    Perceived risk is directly related to price. When the ECB was made immune to haircuts and effectively given senior debt status, the EU broke the European sovereign debt bond market. Subordinated loans typically have a much higher rate of return than senior debt loans. The higher the risk, the higher the return.

     

    In other words, you can't offer a bond with two different levels of risk with the same return and equal prices. You can't expect the perception of risk to remain constant if the rules under which bonds were purchased can be modified retroactively at any time.

     

    What this means is that the elevation of the ECB to senior debt status over other bond holders increased the risk to the other debt holders. The ECB would be first in line in the event of a default, and the ECB debt is not subject to haircuts. If the ECB was made immune to haircuts in Greece, then they are likely to be immune to haircuts anywhere else. So that one act subordinated all other sovereign debt holders, and effectively increased the perceived risk for non-ECB sovereign debt holdings. That is Contagion.]
    12 Mar 2012, 07:42 PM Reply Like
  • tripleblack
    , contributor
    Comments (13444) | Send Message
     
    Some thoughts...

     

    Though Mark is correct that Greece's aggregate sovereign debt went up slightly as a result of recent events, the truth is that a far more dire situation was about to occur otherwise. Due to the increase in interest rates and the destruction of the Greek government's credit rating, the required minimum for follow-on debt had mushroomed - meaning that they would not be looking at $1.3trillion now, but something well over $2trillion (assuming they could possibly attract buyers under such conditions, which of course is simply impossible), and at interest rates about 4 times higher.

     

    Greek pensions have, indeed, received severe haircuts, and will have to be directly taken over by the government. We have a similar plan which backs private pension plans in the United States, and therefore in a roundabout fashion the haircuts just rebound upon the Greek government (which also explains some of the zero sum math which results).

     

    This sort of situation also tends to start folks wondering about ALL bonds linked to Greece, though in most cases there is more on the line than just the "good faith and confidence" in the quasi-sovereign Greek government. Railroad bonds have huge infrastructure and physical assets backing them, and even public utility bonds do as well. True, they ALSO enjoy protection from the government, or perhaps even layers of government (ie, some might be issued by cities, but backed by provincial and national governments as well). We have seen the same unease with the various proclamations of doom for "muni's" here in the States, so there is every reason to keep an eye on the same events elsewhere, and particularly Greece... But this is a comparison of apples and oranges (and one reason Mark filed them as a sidenote rather than an overt commingling of his prime subject).
    13 Mar 2012, 08:35 AM Reply Like
  • robert.b.ferguson
    , contributor
    Comments (10803) | Send Message
     
    Mish weighs in on the global financial situation. http://bit.ly/x8chHE
    13 Mar 2012, 12:53 PM Reply Like
  • FocalPoint Analytics
    , contributor
    Comments (5804) | Send Message
     
    Author’s reply » New Instablog here: http://tinyurl.com/86j...
    13 Mar 2012, 03:08 PM Reply Like
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