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rffrydr
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Joined: 30 Oct 2005
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Location: Sunny California
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 Posted: Tue Apr 27, 2010 9:09 pm Post subject: |
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Mark-to-Moody's-Market, the squeaqal! Now is time we put to the test what we've learned these last three years, boys and girls. There is a flush of panic over the idea that funds who's bylaws prohibit owning junk are forced to dump at the same time the borrower is pushed back onto the field.
Well Pimco for one has explicitly changed its bylaws to accommodate this kind of purchase and I seem to remember more than few pensioners who managed to make an exception. And I think many of the Ratings standards in muni regs have already been relaxed. It has now passed the point where Germany gets any advantage other than the Rhrine Westphalia election.
So this gets worse before it gets better but there is still a chance of making a big positive out of it. --Or, Russia could make its move. 
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HenryTo
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Location: Los Angeles, California
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| Posted: Tue Apr 27, 2010 8:23 pm Post subject: |
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Bridgewater's take:
| Quote: | | The situation in Europe continues to deteriorate as spreads again hit new wides in Greece, Portugal, Spain, and Italy on Tuesday while S&P downgraded both Portugal and Greece. While we have discussed the unsustainable level of debt in Peripheral Europe, this downgrade of Greece to BB+ places Greece one step closer to being ineligible for ECB funding potentially causing a liquidity crisis. Current ECB guidelines for collateral eligibility allow for collateral to be pledged to the central bank as long as one of the big 3 rating agencies rates the debt BBB (or the equivalent rating). If Moody's and Fitch were to follow S&P, Greece would fall below this threshold, forcing the ECB to either cut Greece off or again lessen the ratings criteria. Cutting Greece off would force Greece to find another source of financing for the euro 60 billion that is currently pledged to the ECB. In the current market environment, a cut off of ECB funding would force Greece to default, or need to be bailed out. And even with access to the ECB, Peripheral European countries have been getting margin calls from the ECB due to the recent decline in the prices of their bonds. The ECB, like other repo lenders, marks its collateral to market on a daily basis. Greek bonds are down 1520 points (and Portuguese bonds are down about 10 points) in the last several weeks, causing Greek bonds to come up with another euro 1012 billion in collateral since the beginning of April. |
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rffrydr
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Joined: 30 Oct 2005
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| Posted: Mon Apr 26, 2010 11:17 am Post subject: |
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Greek Bonds aren't really bonds at this point, they're handicaps of IMF action and/vs. haircuts. Figure 1/4 odds of 1/4 haircuts and you've got about what the "spreads" are now reflecting. Meanwhile the buying pressure this 2% of eurozone country is putting on the 15 trillion US Treasury market is giving the whole world a sweet liittle fig of stimulus.
It's surprising to me that more hasn't been made of the fact that this tiny little nation of Onasises controls one-seventh of the hottest emerging market industry going, shipping. Maybe they should change their name to DRYs. 
Certainly room for tax revisions here:
http://www.reuters.com/article/idUSLDE60R2P020100401?type=marketsNews
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HenryTo
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| Posted: Mon Apr 26, 2010 8:36 am Post subject: |
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Greek bonds plunge again as Germany voices its concerns over Greek's austerity measures. Most probably just political posturing ahead of the May 9 elections, though:
http://www.bloomberg.com/apps/news?pid=20601087&sid=aunwbCNVdaGo&pos=2
| Quote: | German Chancellor Angela Merkel said she won’t release funds for a Greek rescue until the country shows it’s got a “sustainable” plan to cut its budget deficit and a final decision may be in a “few days.”
Greek bonds plunged today as Germany delays approval of a $60 billion rescue plan that would be co-financed by the euro region and the International Monetary Fund. The extra yield that investors demand to hold Greek 10-year debt over German bunds rose 65 basis points to 625 basis points.
Merkel, speaking to reporters in Berlin, said there would be no decision on aid for Greece until the International Monetary Fund works out a plan of cuts with Greek government. She said Germany would assist Greece only after it agrees to take “tough” measures for the next several years. |
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rffrydr
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| Posted: Fri Apr 23, 2010 9:07 pm Post subject: |
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Markets forcing the IMF hand....which it is more than prepared to take. They're covered 'til 2013 and by then....
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HenryTo
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| Posted: Fri Apr 23, 2010 7:49 pm Post subject: |
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Markets still not convinced. "Real money" investors not buying Greek bonds, and hedge funds are getting shut out. Meanwhile, there's no consensus on the seniority of the EU bailout package. Voters obviously want seniority, but if the existing Greek bonds were made junior to EU and IMF funds, that does not solve any of their long-term borrowing problems:
http://www.bloomberg.com/apps/news?pid=20601087&sid=a0q2VxMaQ9fw&pos=5 |
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HenryTo
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| Posted: Fri Apr 23, 2010 12:36 am Post subject: |
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Don't forget that NBG declined another 6% yesterday. Here's GaveKal's short take on the situation:
| Quote: | | Yesterday, Moody's downgraded Greece to A3 and Greek 10-year bond yields moved above Indonesia's (a country still rated non-investment grade). This reaction was triggered by the news that the Greek budget deficit for 2009, which just two weeks ago had been released at -12.9%, actually turned out to be closer to -13.6%. Eurostat further stated that "uncertainties over Greek data" could lead to further revisions and a final tally of closer to -14%. On the back of this news, the Euro broke through year lows and the 2-to-10-year Greek yield curve became inverted (this is a first for us: an OECD country's yield curve inverts without any central bank tightening!). So, European and IMF rescue plans aside, we now seem to be entering the "crescendo" phase of the Southern Europe credit crisis, when investment banks start to openly discuss the possibility of a debt default and when investors get reminded of the Palmerston Doctrine, named after the mid 19th century British PM whose administration stated "If investors chose to buy foreign bonds with a yield of 10 per cent rather than British government bonds with a lower yield, they should not expect as a matter of right that the British government would intercede on their behalf in the event of a default." So, as the Greek Crisis continues to unfold, what are the main lessons that we can draw? |
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rffrydr
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| Posted: Thu Apr 22, 2010 9:22 am Post subject: |
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It already done. Today the German Opposition has successfully scuppered the parliamentary avenue. But IMF boots are on the ground. The commitment is there. And in the end the germans can just write a check.
Tax and labor are ways the euros can re-balance and are being used successfully now in Ireland and Poland...and Spain. Milton Friedman's postulate that Europe could not survive it's first recession is still on the table but Greece, in my opinion, is serving to restrain and determine its limits, not its viability.
"Europe" was intentionally planned as a process not an end in itself. Look for France to surprise in the end. They don't like german fantasies of self-reliance. 
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HenryTo
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| Posted: Tue Apr 20, 2010 3:15 am Post subject: |
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Yes, the prospects of a successful "bailout" are getting more remote by the day:
http://www.bloomberg.com/apps/news?pid=20601109&sid=aUVO1k0f_v8c&pos=12
| Quote: | | While the German finance ministry has said it will probably put any aid requested by the Greek government to a parliamentary vote, the FDP has no draft of a proposed bill, Homburger said. |
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diesel
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Location: Australia & New Zealand
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| Posted: Tue Apr 20, 2010 2:57 am Post subject: |
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Well, the Greek government and all the EMU governments are at the behest of the bond markets in terms of the yields they have to pay to borrow. That is an intrinsic outcome of the way the EMU is organised. They have no exchange rate flexibility and they have no fiscal redistribution mechanisms within the zone. They are financially constrained and have to tax or borrow to cover their spending.
If the Germans really want to avoid a Greece bankruptcy they need to reform the monetary union. Austerity packages will only buy time .....
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HenryTo
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| Posted: Tue Apr 20, 2010 12:18 am Post subject: |
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Courtesy of Bloomberg:
| Quote: | April 20 (Bloomberg) -- Wolfgang Schaeuble, the German finance minister, said Europe must not permit “the bankruptcy of a euro member state like Greece to turn into a second Lehman Brothers,” Der Spiegel reported, citing an interview.
A national bankruptcy would have “incalculable” consequences, the magazine cited the minister as saying. “Greece is just as systemically important as a major bank,” he said, according to Der Spiegel. |
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HenryTo
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| Posted: Mon Apr 19, 2010 9:29 am Post subject: |
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Hi Diesel - evaluating it.  Hope you had a great weekend.
Here's a good take of the gravity of the situation:
| Quote: | A Bailout Will Still Leave Greece Struggling With Debt
A Greece bailout nears. But a growing body of opinion maintains that it will not be enough to see Greece through its debt crisis. That would mean a debt restructuring or default will sooner or later follow.
Even optimists recognize that large as it is —€30 billion ($41 billion) with perhaps another €15 billion from the International Monetary Fund—the bailout is only buying time for Greece. The reason there are so many pessimists is because of the scale of the task that Greece faces in the time that the bailout has bought.
According to Greece's 2010 economic plan, Greece needs to wipe four percentage points from last year's budget deficit that neared 13% of gross domestic product. That kind of budget pruning has been tough to achieve wherever in the world it has been tried.
But as Peter Boone of the London School of Economics and Simon Johnson, a former IMF chief economist, point out in their Baseline Scenario blog even a cutback of this magnitude leaves Greece seeking to raise more than €50 billion this year, money that will finance interest payments and expand its borrowing by a further 4%. So its debt is still growing: the economists' think Greece's debt could, even under relatively benign assumptions, expand from 114% of GDP today to 150% of GDP by 2012.
Servicing that would absorb 9% of Greek incomes in 2012, most of which would be transferred to German, Swiss and French bondholders abroad. This will happen as the Greek economy is shrinking dramatically as real incomes fall. Many Latin American economies struggled during the debt crisis of the 1980s to transfer a fraction of those resources overseas. The worst year for the region, 1984, saw net resource transfers of 4.6% of GDP.
Carl Weinberg, chief economist at High Frequency Economics in New York, is one of those arguing that the bailout won't be enough. Athens needs to raise €240billion in the next five years, €150billion to pay back maturing bonds. This shows, he said this week in an opinion piece in The Wall Street Journal, that the bailout represents "just a drop in the bucket."
His proposed solution harks back to Latin America in the 1980s. What's needed, he argues, is a multi-year restructuring arrangement like those that Mexico and others put together to ease their debt burdens. That would consolidate loans maturing over several years into a single loan with a maturity of, say, 25 years. With the terms he proposes, it would cut Greece's debt by 60%, or €140 billion, over the next five and a half years.
What Mr. Weinberg doesn't mention is that these multi-year restructuring arrangements, negotiated between government borrowers and banks with the IMF holding the ring, were not enough to overcome Latin American governments' debt problems. In fact, they were devices that helped battered international bank lenders to preserve the fiction that they would still be repaid in full while they bought time to rebuild their battered balance sheets. Once the banks had recapitalized, by the late 1980s, the Brady Plan found a way for the Latin American governments to undertake an orderly default and impose explicit losses-haircuts-on the bank lenders.
By some measures, Greece has a heavier debt load than Latin America. Developing country borrowers-Argentina, Ecuador, Mexico, Turkey-have defaulted with debt burdens as a proportion of GDP of a fraction of that now being carried by Greece. (Unlike most of the European Union, many would have met the EU's debt and deficit limits even as they defaulted.)
This heavy burden is one reason why pessimists think a Greek default is likely. Messrs. Boone and Johnson have three scenarios. The first, the non-default option would require a brutal economic contraction, difficult for any government to preside over, and even then it requires at least another two €30 billion bailout packages to guarantee its financing needs for the next three years.
A second option would be to default and stay in the euro, requiring an estimated debt write-down of perhaps 65% of face value and a lot of austerity. Or Greece could default and give up the euro, which they say will result in a sharp devaluation but potentially, as when Argentina abandoned its link with the dollar in 2001, a quick move to a budget surplus (because its debt servicing burden falls), current account surplus (because its goods and services become very cheap to foreigners) and a fairly quick pick-up in growth.
Many people are not ready to accept that the choices are as stark as this. Bond investors may decide the risks are not what they thought they were and give Greece more breathing space than it currently appears to have. Uri Dadush, a former senior World Bank official now at the Carnegie Endowment in Washington, says: "I suspect they do need a rescheduling." But he adds it is not just a matter of arithmetic. "There's a lot of psychology in this," he says. |
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diesel
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| Posted: Mon Apr 19, 2010 2:39 am Post subject: |
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If I was Greece I would pull an Argentina [break its peg to the Euro] and leave the EMU. Let the Germans eat cake!
Yin without yang was never going to work as the coming wave of defaults in the Euro region will show. How bout that $USD/EUR long again Master H?
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HenryTo
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| Posted: Sun Apr 18, 2010 9:37 pm Post subject: |
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This reminds one of the untimely death of NY Fed Governor Benjamin Strong in October 1928 - someone who not only could've provided strong leadership for the Federal Reserve, but who would've arguably tighten monetary policy much sooner in early 1929 and could've loosened monetary policy much more (and initiate a plan to rescue failing banks) as we head into the Great Depression. The projected two-day delay is an eternity in the financial markets:
http://online.wsj.com/article/SB10001424052748704508904575191961384072050.html?mod=WSJ_hpp_MIDDLENexttoWhatsNewsSecond
| Quote: | "Due to the difficulties in international air [travel] and with the cancellation of flights, the consultations between the Greek government, the European Commission, the ECB and the IMF have been delayed a few days," Greece's finance ministry said in a statement. "If circumstances permit, the new planned starting date for the consultations will be Wednesday, April 21."
The delay is not seen as a serious hitch in the disbursement of the loan, but it could further weigh on already nervous markets, which have been fretting about the time it would take other euro zone members to approve emergency financing for Greece should it be requested.
On Saturday, Greek Finance Minister George Papaconstantinou told reporters during an EU finance ministers meeting in Madrid that it could take some euro-zone governments up to two weeks to approve the plan. Germany and other governments have said they would need to seek parliamentary approval first before they could extend any money to Greece. |
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HenryTo
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