Moody’s, the major seers of economic events, has done it again. The Greek sovereign debt rating was lowered and rates on 2-year Greek notes increased to more than 15 percent. Rates on Greek 10-year debt rose to more than 12 percent, yet this is not an inverted curve that one would wish to buy. The group at Moody’s is awakening to the coming dreadful effects of the “NEGATIVE FEEDBACK LOOP.” The more the economy is squeezed, the less tax revenue is collected and that results in a further deterioration of the GREEK BUDGET. The Greek government is going to have to go back to the EU/IMF bailout gurus and ask for further assistance in preventing the next round of financing from causing a greater drain on Greek Government coffers. Imagine the deleterious effects of the Greek polity having to refinance its DEBT at current market rates rather than the considerable lower rates offered through the European Financial Stability Facility (EFSF).
Archive for the ‘Sovereign Debt’ Category
Notes From Underground: MOODY’S Downgrades Greece again, and yet the DOLLAR fails to gain strength
March 7, 2011Notes From Underground: Healthy and Happy New Year to our Readers
December 30, 2010It has been a great privilege to share my thoughts and market insights and allow me to occupy some of the highly prized real estate on your electronic devices. I can unequivocally say that I learn much from my readers and derive great benefit from synthesizing my thoughts and putting them into trades. The basis of NOTES is to make sense of the global political and financial fabric and then try to succeed where I believe the econometric and financial markets fail. It’s never easy to review one’s ideas and see where the failure to act has taken place.
Notes From Underground: Fed Feeds Europe More Dollars; China Offers to Buy European Debt (Yet Again)
December 22, 2010The FEDERAL RESERVE announced it was extending the DOLLAR SWAP loans it has in place with several central banks. Earlier in the week, the market reported a shortage of DOLLARS in Europe as people were exchanging EUROS for DOLLARS and the commercial banks were caught short sending EUROBOR rates higher. BEN BERNANKE is nervous that a debt crisis in EUROPEAN banks will cause U.S. banks with exposure to the PIIGS’ sovereign debt major problems in the overnight lending facilities.
Notes From Underground: What goes down must come up, spinning wheel got to go round
December 1, 2010Okay, a new month arrives. Where November went out like a lamb, December roared like a lion. The equity markets across the globe put on a stellar performance as the ECB was rumored to have reversed course and began buying the BONDS of the peripheral European nations. The amount purchased was unknown but whatever the total it was enough turn around the damage done on Monday and Tuesday. German BUNDS were sold and Italian, Irish, Portuguese and Spanish were bought, but the Greeks barely moved. Spanish bonds were 18 basis points lower; Italy, 15; Ireland, 29; and Portugal, 30bp lower. The newfound support for PIIGS’ debt was enough to lift the gloom that has weighed upon EQUITY … at least for a day.
Notes From Underground: Oh bailouts, where is thy sting?
November 30, 2010It is without doubt that the HUBRIS of George Bush’s arrogant landing of a plane on an aircraft carrier and declaring “MISSION ACCOMPLISHED” has been the operative model for the political elite of Europe. The European DEBT crisis has been in full bloom for the last year and everything the immediate elements of the crisis have been dealt, the news release basically gives a tip of the hat to MISSION ACCOMPLISHED. European leaders have continued to proclaim victory over the markets only to be punished for their early exuberance. The true measure of the debt crisis is measured in BOND DIFFERENTIALS and of course the price of credit default swaps on sovereign debt. Contagion has spread to the PIIGS as speedy as most swine flu epidemics.
Notes From Underground: The Irish have another package worth 85 billion euros (and the NEGATIVE FEEDBACK LOOP CONTINUES)
November 28, 2010Another weekend and another emergency meeting in Europe as the EU attempts to stem potential DEFAULT in the PIIGS. The language that emanates from these meetings is difficult to analyze because it is so convoluted. The eurocrats make decisions and then the markets attack the intended recipients and drive the yields on sovereign BONDS higher, which prompts another meeting. This has been going on for a year as the markets have gained the ascendency over the politics. Frau Merkel has repeatedly said that politics must gain the upper hand but for now that is only rhetoric.
Notes From Underground: Slow news weekend = no stress ’til next weekend
July 18, 2010There has been very little news this weekend in regards to the financial markets. Reuters reported that the IMF will delay aid to Hungary as the new government is perceived as dragging its feet in installing the fiscal reforms that are needed to meet IMF demands. We don’t think this is a major event yet, as the Hungarians are trying to buy some time for domestic political reasons and the situation is not dire at this time. Also, the IMF has requested another $250 billion in additional commitments in order to boost its lending resources to $1 trillion. IMF officials want to build a larger safety net so it’s prepared to help head off future global crises.
Notes From Underground: The Swiss National Bank meeting today resulted in the Swiss Franc getting a bid … why?
June 17, 2010The Swiss National Bank held rates steady today at 25 basis points and yet the Swiss currency found the policy statement to be bullish. The market read the release as a softening of the Swiss bank’s stance on intervening to weaken the Swiss Franc againt the EURO. The head of the SNB, Philipp Hildebrand, noted that tensions in the finacial markets and the fiscal crisises in the World “have increased the downside risks to the economy.” He added,
“Should those downside risks materialize and, via an appreciation of the Swiss Franc, lead to a renewed threat of deflation,the SNB would take all the measures to ensure price stability.”
Notes From Underground: Today’s financial fashion statement was RISQUE
June 15, 2010The markets settled down and launched an assault on the long-term moving averages in an attempt to arouse the prurient interests of capital in its quest for fertile returns on capital that has been teased far too often with risk-based returns. The S&Ps and Dow joined the Nasdaq and closed above the 200-day moving average. Only time and consolidation will tell if it is to be sustained so as to entice money back in after the rape of May 6. As risk was in vogue, all the other risk elements joined the party and a good time was had by all.
Notes From Underground: Greece shakes; Spain rattles; and German Government threatens to Roll
June 14, 2010Get the air sick bags as we are back in Europe and it truly is ad nauseam. The equity markets were poised for risk when mid-day news caused the S&Ps to lose its early gains. The markets started to lose its nerve when rumors started swirling that Spain would have to go to the European Funding mechanism. Then Moody’s downgraded Greece’s debt rating four notches to junk status.