On November 19, 2012 I wrote a blog post about France getting a yellow card from Moody’s. In that post was another item about a Reuters story, “Germany Floats Idea of Greek 25-cent -on Euro Debt Buy Back.” Well, the importance of looking back is because that Reuters LEAK from Germany was virtually the agreement that was reached by the European policymakers in a short-term resolution to assuage the IMF and other Greek creditors. It is another example of the necessity of paying attention to official sources and leaks. I will re-post that NFU in its entirety with the link to the Reuters article. Preparation is the key to successful trading and investing.
Archive for the ‘Greece’ Category
As the sun sets on the Greek drama, the most predicted outcome has indeed taken place as the IMF/EU and ECB/EFSF/ESM have come to an agreement about bringing the Greek debt load to a robust level of 124% debt-to-GDP ratio by 2020. There was no way the TROIKA was going to risk the entire EURO project on a mere 44 BILLION EURO payout to the Greek government. The game was played out to the 11th hour–oh those drama queens in Brussels–and although the OFFICIAL SECTOR did not take an official haircut, the core nations of the European financial system do stand to take a bath. IMF Director Lagarde was able to save face as the Greek debt levels will reach the previously promised levels of 120%. Madame Lagarde can now go to the IMF Board and report that all previously agreed to conditions have been ratified by the EU and await the signing of the memorandum of understanding with the Greek leadership. The IMF needed to get Greece out of the way so it can figure out the role it will play in the Spanish bailout and/or Italy.
Well, Moody’s downgraded the France’ sovereign rating from AAA in what was an obvious bow to reality. MOODY’s, WHAT TOOK YOU SO LONG? This will really be a bitter pill for President Hollande as it was only last week that the “French cock” was crowing about how well the bond markets were evaluating his performance as the leader of France. I reminded readers that the recent performance of the French debt had more to do with Mr. Draghi’s aggressive actions than any policy put forward by the Hollande government.
The Financial Times headline played up the report from the International Energy Agency (IEA) that by 2017 the U.S. will become the world’s largest energy producer. The use of fracking and other newly developed technologies has enabled the exploitation of previously uneconomic carbon deposits. In 1974 I sat in an economic geography class in which the professor claimed that the U.S. was full on shale oil and gas and its development was merely a matter of price. Being a know-it-all about the Club of Rome studies on the limits of growth, I entered into a lively debate with the prof about why he was wrong and the effects of the energy crisis was going to lead to the demise of Kapitalism. If I could remember his name I would send an appropriate apology.
First and foremost: To all of my readers, friends and their families in the path of the hurricane that has wreaked havoc on so many lives, my thoughts and prayers are with you as you strive to put your lives back together. For you I am “Waitin’ On A Sunny Day.” The markets will do their job of assessing the damage to property and the economic impact that follows such devastation. Hopefully lost lives were kept to a minimum. For those trying to measure the economic impact I warn to be careful with all the flotsam and jetsam that will be filling the airwaves about how the repairs of the storm battered region is certain to be a form of economic stimulus.
When the Greeks under Papandreou suggested a referendum on the GREEK AUSTERITY plan, the Greek PM was met with great consternation by the ruling elites in Brussels. A giant don’t-you-dare-call-a-referendum greeted PM Papandreou and basically forced his abdication. I warned then that the idea of a referendum on any issue of economic austerity was anathema to the EUROCRATS for the denizens of Brussels were/are fearful of testing the “PUBLIC WILL.” Every time a referendum was held it resulted in a decision opposite of the elite’s will: Another referendum was called until the “correct” result was realized. (It was usually preceded by warnings that all financial and budgetary agreements would be rendered null and void.)
The financial markets have been suffering the whiplash that resulted from the uncertainty of the Greek elections. It is no surprise to the readers of this blog that politics would provide a problem for those “WHO ASSUMED A CAN OPENER.” The eurocrats and European financial elite are so vested in the EURO and the politics of the EU project that they assumed all citizens of Europe would fall in line. Every referendum that did not pass was reissued under threat of a curtailment of Euro funds from Brussels. Now that the bill is coming do for all the promises. The angry electorate is saying NEIN to more AUSTERITY through the ballot box and financial markets and Europe’s bankers are quaking.
It seems that the Greek politicians know that the fear of GREECE not “honoring” its previous commitments is a powerful tool to use in negotiations with the powers in Brussels. GREECE HAS NOTHING TO LOSE IS THE OPERATIVE MINDSET OF THE SYRIZA AND ITS LEADER, ALEXIS TSIPRAS. It is the BANKS, ECB and IMF who are on the hook for a great deal of money. It is the ultimate moment of the PRISONER’S DILEMMA.
Yes, the GREEKS know they owe a great deal of money, but your banks own the paper. Also, if the Greeks were to turn violent at the continued threats from the ECB and the GREEK election results were overturned through the impact of interference from Brussels, there would be fallout from the other European nations searching for relief from austerity. I warn all readers to be leery of the nonsense that continues to be written about the politics of Europe as the SYCOPHANTS WANT TO PAINT A BETTER POLITICAL PICTURE.
A danger to the Greeks leaving the EURO would be that the drachma would be reinstated at a very depreciated level, leading to a massive resurgence in Greek tourism and other service industries, which would come at the expense of the Spanish and French tourism industries. A “liberated” Greece has the potential to create all types of economic turmoil for the other periphery nations. Just threatening the Greeks is not as simple as many optimists want to believe.
Today, Bloomberg ran a piece by a noted Financial Times journalist, Clive Crook, “Hollande Must Betray His Supporters to Save Them.” The writer notes that Mr. Hollande cannot betray the left until after June’s Parliamentary elections but then, “Whether it’s sooner or later, Hollande will be forced to acknowledge reality, and the disillusionment of the French left will be terrible.” Here again, the elite want their wishes to prevail over any sense of the PUBLIC WILL. Mr. Crook goes on to say, “Wisely, Hollande’s campaign was more about posture than specifics. We know he’s against austerity and for taxing the rich–but he hasn’t drawn up a budget.”
This is the view of the status quo within the EU at all costs camp, but if the Greeks play their HAND OF NOTHING TO GREAT ADVANTAGE THE POLITICS OF EUROPE WILL BECOME VERY VOLATILE. This afternoon it was learned that Greece will receive its next TRANCHE OF BAILOUT MONEY tomorrow. See, NOTHING CAN BE A VERY GOOD HAND.
The problem for the policymakers in Brussels is that all the other debt-stressed nations are watching closely to see if the banks and the EURO GROUP cave in for fear of a CREDIT CRISIS emanating from the Greek’s decision to soften the BAILOUT AGREEMENT. Crook ends his article with this warning: “But Hollande can’t be a good thing without letting his supporters down. That’s a hard truth to contemplate in your first week in office.” This is a major dilemma for the financial and political elite of Europe. Let’s ASSUME A CAN OPENER.
Quick Hitter: The two-year Schatz dropped to a record low 6 BASIS POINTS. Again, the rush to safety added to China’s need to invest its EUROS is playing havoc with the world’s DEBT MARKET. Finnish two-year notes dropped to 18 BASIS POINTS and the Netherlands to 28 BASIS POINTS. The demand for safety and the need for quality collateral is causing massive dysfunction in credit markets. PRICE IS NOT A BAROMETER OF QUALITY POLICY. This is causing many hedge funds to place bets on the short side of the DEBT MARKETS. They are right that the risk/reward is certainly a temptation. It will just depend on your time horizon.
A CAVEAT FOR CHAIRMAN BERNANKE: BEN, you are opening up the Pandora’s box of the FISCAL CLIFF. The world’s financial markets and commodities are starting to be very concerned about the FISCAL CLIFF that Bernanke warned about at his last press conference .This is a problem as he has alerted investors that CONGRESSIONAL and presidential failure to deal with the fiscal problem can result in a 2 1/2% to 5% negative impact on GDP in 2013. Added to this is the possibility of an increased tax on dividends. The S&Ps and DOW are nervous as a major hit to the U.S. economy coupled with the EUROPEAN MORASS can send the GLOBAL ECONOMY into a massive deflationary spiral.
THE PORTFOLIO BALANCE CHANNEL IS BEN’S BABY, SO CHAIRMAN BERNANKE you had better gain control over the FED GOVERNORS AND PRESIDENTS who are pushing for a near-term rate increase. Bernanke and Geithner have been silent on Europe, but the phone lines are burning as U.S. policymakers are pushing Europe into a greater stimulus plan for if Europe implodes America will more than sneeze. Sometimes a walk to the FISCAL CLIFF RESULTS IN A PEEK INTO THE ABYSS.
A final note: The Portuguese 2/10 curve has exploded out to 414 BASIS POINTS. Being that the Portuguese 10-year is still yielding 11%, somebody is aggressively buying the Portuguese two-year note. It could be the use of LTRO money by private banks in an effort to enhance return but it may be the ECB adding to its purchases of sovereign debt. It is important to stay attuned to yield curve moves that indicate some action from authorities or very large investors. Could it be China chasing higher short-term yield to offset the ridiculous rates on the Schatz? Chinese buying of Euros has to be invested somewhere.
The discussion is over–ha, ha, ha–and another 3 a.m. decision is made. The Greeks will get their funding and the banks are off the hook for another short period of time. There are so many stipulations involved that it will take time to understand what really took place in the wee hours of another EUROPEAN meeting. It seems certain thought the Greeks will deposit money in escrow to assure all the “DONATING” parties that the CITIZENS OF GREECE WILL ADHERE TO THE FISCAL AUSTERITY TO WHICH THE GREEK TECHNOCRATS AND POLITICIANS HAVE AGREED. THIS IS SIMILAR TO A YOUNG ADULT HAVING TO AGREE TO CERTAIN STIPULATIONS IN ORDER TO RECEIVE THEIR TRUST FUND CHECK, or what is known as a TRUSTAFARIAN.
As rumors about Greece run rampant, it is apparent that Greek FINANCE MINISTER VENIZELOS has stepped to the fore to try to influence his hand as the leader of Greece. THE COURT-APPOINTED LUCAS PAPADEMOS HAS BEEN QUIET OF LATE AND IT IS VENIZELOS LASHING OUT AT GREECE’S EUROPEAN “BENEFACTORS.” The fact is that there are so many microphones in EUROPE in search of an expert that all the media reports prove to be worthless. Timelines of action are void as soon as they are presented yet the markets continue to be affected by random noise.