Notes From Underground: When you point the finger at others, there are 3 pointing back at you

News out of Norway: The Norge bank left rates unchanged at 1.75%. While others may yawn at this, we deem it important as the NORGE was the first minor bank to increase rates as a signal that the global stress points were beginning to ease. The Norwegians joined the Aussie in pause mode as they wanted to see if the global signs of recovery are more than an illusion. What was interesting though was that the BANK announced that they would tighten collateral guidelines for commercial banks borrowing from the NORGE. This is a back door attempt to remove the ease of credit that was granted at the height of the crisis. This provides a clue as to how the world’s central banks are going to begin removal of monetary stimulus without solely raising rates. Maybe the FED will mimic this action besides halting the purchase of MBS’s and paying interest on reserves and, of course, the reverse repo experiment.

We are back to Europe this morning and the DEBT crisis that has now become the focus of the media. Yesterday, Greek Finance Minister George Papaconstantinou (who, going forward, we’ll refer to as Little Papa), pointed an accusatory finger at the European Union for Greece’s exploding borrowing costs. He accused the Greek financial system of being under attack by speculators gaining the upper hand as the EU dragged its feet in moving to help alleviate the crisis. Little Papa particularly pointed to other EU countries in trouble:

“Following Greece, there are other countries like Spain and Portugal. This is why the Greek issue,despite its particular Greek characteristics, is also a euro zone issue.”

The results of this finger wagging is that the Portugese 10-year note versus the German Bund widened out 21 basis points to 145 basis points. Spanish long rates backed up 5 basis points but that will begin to change as fingers continue to be pointed. We remind our readers: Markets act like water as they attack the weakest points, as money roars around the globe carrying the flotsam and jetsam of bad economic policy along with it. Remember Greece: As you point your finger, there are 3 fingers pointing back at you.

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2 Responses to “Notes From Underground: When you point the finger at others, there are 3 pointing back at you”

  1. scott Says:

    Yra, thank you for sharing your market insight and commentary with us.

    with the magnitude of ARM resets in 2010 and 2011 it would seem very risky to increase collateral guidelines. If the market breaks the price of bonds the damage to cash flow related to ARM’s would be a big deal. is a roll over in long bonds one of the high probability events for this year?

  2. yra Says:

    that is a very serious concern–which is why we need to keep our eyes on those reset deals and see how the treasury deals with them—especially with the 2nd liens—which makes certain banks vulnerable on all the HELCOS they wrote

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