Notes From Underground: What Do Greece and the Federal Reserve Have in Common?

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.

The sad truth is that in EUROPE there is no real sources of information or credibility because every politician and technocrat has an agenda. That is the rationale behind the noise pollution. It appears that the same thing is happening at the FED under the guise of TRANSPARENCY.

FED PRESIDENTS PLOSSER AND FISHER were opining how unlikely another round of QE would be and that it is basically a Wall Street fantasy. It seems that the two FED policy makers failed to read Bernanke’s speech on HOUSING delivered in Atlanta February 10. That speech expressed concern about the softness in the housing and was read in a manner that suggested the FED will be vigilant in doing all it could to keep rates ultra low to aid new home buyers.

Besides, Chairman Bernanke is very concerned about the credit crisis in EUROPE undermining the nascent recovery in the U.S. Plosser and Fisher seem to speaking GREEK when it comes to interpreting the FED chairman’s desires, especially now that the Japanese have entered the fray. If anything, the two FED “HAWKS” ARE OUTLIERS AND CAN BE LABELLED BLACK SHEEP. To paraphrase the WIZARD OF OZ: Pay no attention to the people behind that microphone for the FED‘s policy is being set by the chairman and he has the votes to prove it.

***THE CHINESE ARE, AGAIN, MAKING NOISE ABOUT COMING TO THE AID OF EUROPE BY BUYING PERIPHERAL DEBT DIRECTLY OR THROUGH THE EFSF. MR. ZHOU, the GOVERNOR OF THE PBOC, said that the BANK is ready to step in and buy EUROPEAN SOVEREIGN AND CORPORATE DEBT for it is in the best interest of China to support its largest market. The Chinese will provide a type of VENDOR FINANCING to provide money to sustain the EURO economy.

This rumor has gone on for more than two years and when it finally comes true it will mean that the Chinese have made enough money manipulating the markets with these rumors that the funds are now available to provide debt financing. The bonus for the Chinese is that they will be able to buy the DEBT at much cheaper prices.

When China decided against buying the initial tranche in December 2009, GREEK YIELDS were substantially lower so the Chinese have made a very wise decision. The ZHOU statement originally put a bid to the EURO and all risk assets but by day’s end the market seemed to realize that it had seen the ACT before.

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5 Responses to “Notes From Underground: What Do Greece and the Federal Reserve Have in Common?”

  1. c Says:

    Where can you find 2 year rates on Sovereign debt?

  2. yra Says:

    C—bloomberg .com is my go to page when I am not at the exchange but I am sure there are others.Any readers with better info please add to the knowledge base

  3. Danny Says:

    Yra, Hope all is well. I have been enjoying every post but just haven’t made the time to post coments/questions.

    If the EU/Greece actually come through with an agreement on Monday, what would you expect the reaction to be in the Eurodollar market or other interest rate markets?

    On Japan…if the Nikkei started performing on the back of BOJ currency intervention it seems like that would result in capital flocking to JPY which could potentially work against the BOJ efforts? Are those contradictory outcomes or am I missing something?

    I am also interested in what your coaching tips are for handling a winning position…particularly when you catch a great short term opportunity and there is a legitimate longer term thesis at play in which you have to balance short term gains vs. significant PnL potential on the table if you have a longer time horizon?

    Thanks as always,


  4. yra Says:

    danny–sunday will get you an answer–this is a very thoughtful post and needs serious consideration—-Thanks.

  5. yra Says:

    Danny–On the issue of how do you let a winning trade run I have struggled with that for my entire trading career.I err on always taking a position in after a solid move—recent cad/yen and then try to look for key support levels to buy it back.Sometimes it works and sometimnes I remain sidelined as the momentum proves to be very robust and the corrections are not enough to entice me back.If you find breakouts and can define very critical levels of support then you can use that level but if a winning trade turns into a lose it is painful.Again, I trade to make money on my analysis so at the end of the day I am still here after 35 years–so I may hit many doubles the home runs are for others.My thought process is long term but my trading is income based–problematic for catching an entire move.The problem with the long time horizon is that I have seen many traders hold losing trades as they “MORPHED FROM A TRADER TO AN INVESTOR”—do not be that trader.
    The NIKKEI performed as I thought and it an important indicator for the moment for BOJ/MOF effectiveness.Will foreign inflows into the NIKKEI force the YEN higher–not necessarily so because it will depend on how much money flows out from the Japanese insurers and Mrs.Watanabe in search of higher yields as the global risk profile from caution to a green flag–this is not an easy question to answer because so many different variables are in play—right now the weaker YEN has prompted a higher Nikkei and rumor has it that exhausted foreign managers are using the recent rally to unload long held bullish positions.If the BOJ is successful in creating inflation the outflow from JGB’s will dwarf Nikkei money so maybe the Nikkei long versus JGB short—or the ultimate widow maker.
    For the outcome of the Greek dilemma,a short term solution will be a positive for the short end of the market but an EQUITY rally will neutralize the impact—2/10 curves in Europe will be important and of course all main barometer—the Italian Bond futures versus the BUND as the true arbitor—so much has already been baked in that any move in the Eurodollars ought to be short lived

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