The banks were able to pile all of their bad loan debts onto the backs of tax payers by claiming that it was all a liquidity crisis. The basic rationale was that current market conditions were problematic because of illiquidity not insolvency. This by God was the greatest slight of hand since the devil let us all know he didn't exist.
The prices for the sludge on bank balance sheets became temporally and artificially depressed by themselves along with investors trying to sell into a very illiquid market. As a result, these prices are erroneous and no longer reflect their true value. That if the government bought these assets much needed liquidity would be restored and credit markets can go back to screwing end users. OK. I put that last part in there, but you get the picture. The banks wanted to convey a message that liquidity was the problem. This way they can transfer crap to the tax payer and receive fresh dollars to lever up the system again. Then they can proceed to rape mark to market accounting.
http://tradersutra.blogspot.com/2010/04/living-dream.html
http://tradersutra.blogspot.com/2009/05/fasb-redux.html
http://tradersutra.blogspot.com/2009/04/financial-follies.html
http://tradersutra.blogspot.com/2009/04/great-financial-illusion.html
We all know that the credit crunch was an insolvency crisis. It was never about liquidity. The recession we just had and we continue to have is a balance sheet recession, not the inventory recession that the media seems to be obsessed with. Insolvency can't be fixed with short term subsidies. Insolvency is rectified by debt reduction, debt elimination, asset appreciation, greater capital levels, lower leverage, and time.
Short term subsidies like TARP, TLGP, and POMO only transfer credit risk from the banksters to the taxpayer and in the process the banks just continue their predatory parasitic behavior. The only reason the markets and asset prices have rallied is that the banks have shed their losses and transferred them to the taxpayer. Its the most epic moral hazard trade in the history of the world.
Greece is about to default. Europe is about to collapse, and equity markets keep rallying? The only way I can explain it is that investors have come to the understanding that government will always bail out financial institutions when they get into trouble. The primary dealers who are on both sides of the market collecting tolls, fees, and rebates just move equity prices higher incrementally. They pocket the gains and pay out huge bonus's. As long as markets keep rallying all is good. When markets unravel?
Voila!
The Fed lowers rates.
The Fed floods the market with dollars.
The Fed continues to buy worthless securities to soak up excess supply.
If things truly the fan? Don't worry. Government will be there to take the losses. This is the current situation in both European and US Markets.
When will the markets go back to normal? This question is best tried to answer by figuring out what normal actually is? Your guess is good as mine? Why aren't secondary markets being afforded the ability to stabilize markets? Because primary dealers are the secondary markets and they don't want to take losses. Isn't this what government is for?
This would be the best way for us to get back to a true normal market. Let the secondary markets try to figure out the true value of assets are. We will quickly figure out what the true values are, and the inference is that every single financial institution is insolvent. Most of the assets are truly crap. When markets do reboot we will know for sure. But currently banks are in a desperate race to the bottom trying to squeeze out the last drop of juice that's left in the lemon that is the US Economy. In the meantime the banks are still trying to uphold the status quo of little transparency, no regulation and or reform, massive accounting fraud, and general deviant financial behavior. Its preposterous to think under current market conditions that the market can fend for itself without government intervention and guarantees. Investors know this and most importantly Wall Street Institutions know this.
The world (INVESTORS) has no clue how to value companies anymore. There is no credible way to examine bank balance sheets. Accounting fraud along with government guarantees have made it next to impossible to do even the basic analysis that is needed for informed investment decisions. The world doesn't have the faintest clue how to manage and gauge risk. Any financial analyst or investment banker who can accurately tell us what is going on should be immediately brought to the nearest 7-11 to pick the lottery numbers.
There is so much distortion currently that it borders on the insane. We are in the Bizarro world where every single risk asset moves in the same direction. Correlation = 1. The only risk currently is the risk of not being on the bid side of the market. It should no longer be called the BERNANKE PUT or the GREENSPAN PUT, it should be replaced with the GREENSPAN/BERNANKE PUTZ! All this policy really does is to create bag holders out of tax payers. The only thing the Put ever created was obscene risk taking. The use of leverage has magnified the level of distortion that is out there.
When the market goes down for a day or to, its only a brief moment of clarity in the Bizarro World. Once the sane people are put back to sleep, the nutty people are free to run the asylum.
It seems that everyone is on the same side of the risk trade. Its a crowded elevator. Where are we in the building is the $23T question? I have said when market correlations are the same for every risk asset we are all in trouble. This is what the case is today. Gold up - Dollar down? No way. Stocks up - Bonds down? No way. Crude up - Stocks down? No way. This is a serious flaw in risk appetite. Markets sometimes go down as well, this is hard to believe for 25yr old algo programmers, but it does happen. What will happen when everyone goes to sell at the same time? The machines along with the quants control the market similar to 2007. Then we had the quant quake of August 2007.
http://tradersutra.blogspot.com/2009/07/markets-evolve-uncoilget-used-to-it.html
http://tradersutra.blogspot.com/2009/03/how-ltcm-enabled-sub-prime-meltdown.html
I foresee similar problems for this market. LTCM used unheard of amounts of leverage in complex trades. This only increased non linear distributions when those trades blew up. Its these non linear and asymmetrical components that are embedded in all financial markets that are being precisely minimized by not only the media but by the primary dealers themselves at the moment. Leverage by itself exposes itself to non linear distributions. This makes the system inherently flawed and skewed to crashes at given intervals.
Friday, April 23, 2010
Thursday, April 22, 2010
Living The Dream
Now that we have seen quarterly earnings from the big banks BOFA, JP, Wells, and Citigroup. Does this mean we all can go back to living the dream? Hardly. From reading the earnings releases and various other outlets you realize that as of today the gap between reality and full blown dementia is at its greatest in history. That the banks which are enabled by governmental regulators continue to perpetuate, endorse and legislate the worst of all accounting frauds. Most of the upside earnings from Citigroup were market to market adjustments on the toxic sludge which is their balance sheet. Of course analysts will tell you that Citigroup has stabilized. What else would you expect from the same ones that by and large missed the 95% move downwards? This is why Wall Street financial analysts are completely useless. You don't need them. In bull markets they cant be trusted to give you an honest opinion and in bear markets they are so shell shocked at their obvious incompetence, they give you nothing except excuses why they have you in a stock that is down 95%. Thrown them along with their financial models in the garbage.
I have stated before that the only thing other than the obvious (Tax Payer)that saved the banks pork was relaxing FASB accounting rules. "Relax" means accounting fraud in the real world. "Relax" in the real world gets you a jail cell next to Bernie Ebbers. But "Relax" means something totally different on Wall Street and the CRE world. You add in millions in lobbyist campaign money to the traitors in DC and we all get a dose of what "Relax" really means.
But don't be fooled. The truth is if the FASB were showing the real world value of MBS/CRE assets on bank balance sheets, not one financial institution on the face of this planet would be solvent. The two core industries (Finance & Real Estate) that are also the most predatory in the USA would effectively be bankrupt. If the US regulators were to require banks to mark their residential MBS exposure to market, the housing sector would immediately go into free fall again. If the regulators forced the banks to value their CRE holdings anywhere near market value, the REIT sector would go into a tailspin. What we effectively have is the government endorsing accounting fraud that would make Enron, Worldcom, and Adelphia look like boy scouts. All in an effort to preserve a predatory rotten to the core system that should die a miserable death as soon as possible.
Citigroup, BOFA, JP, and Wells all have their hands dirty with accounting fraud. They all released great earnings on the surface. They say lower credit losses helped results. What they fail to mention is that they all would be nuclear waste if there was one single ounce of honest financial reporting left in this country.
What we have in this country is a welfare state at the bottom and even larger social safety net at the very top.
After the Goldman Potemkin story gets extinguished and there is no more middle class left in this country, I am pretty sure we will see massive epic lawsuits centered around these banksters.
Just think about it....
....All in an attempt to push things under the rug. Extend and Pretend. Kick the can. Hoping against hope like a degenerate gambler at OTB that all of these shenanigans will rekindle past bubbles via animal spirits.
I have stated before that the only thing other than the obvious (Tax Payer)that saved the banks pork was relaxing FASB accounting rules. "Relax" means accounting fraud in the real world. "Relax" in the real world gets you a jail cell next to Bernie Ebbers. But "Relax" means something totally different on Wall Street and the CRE world. You add in millions in lobbyist campaign money to the traitors in DC and we all get a dose of what "Relax" really means.
But don't be fooled. The truth is if the FASB were showing the real world value of MBS/CRE assets on bank balance sheets, not one financial institution on the face of this planet would be solvent. The two core industries (Finance & Real Estate) that are also the most predatory in the USA would effectively be bankrupt. If the US regulators were to require banks to mark their residential MBS exposure to market, the housing sector would immediately go into free fall again. If the regulators forced the banks to value their CRE holdings anywhere near market value, the REIT sector would go into a tailspin. What we effectively have is the government endorsing accounting fraud that would make Enron, Worldcom, and Adelphia look like boy scouts. All in an effort to preserve a predatory rotten to the core system that should die a miserable death as soon as possible.
Citigroup, BOFA, JP, and Wells all have their hands dirty with accounting fraud. They all released great earnings on the surface. They say lower credit losses helped results. What they fail to mention is that they all would be nuclear waste if there was one single ounce of honest financial reporting left in this country.
What we have in this country is a welfare state at the bottom and even larger social safety net at the very top.
After the Goldman Potemkin story gets extinguished and there is no more middle class left in this country, I am pretty sure we will see massive epic lawsuits centered around these banksters.
Just think about it....
....All in an attempt to push things under the rug. Extend and Pretend. Kick the can. Hoping against hope like a degenerate gambler at OTB that all of these shenanigans will rekindle past bubbles via animal spirits.
Tuesday, April 20, 2010
Business As Usual
Goldman Sachs reported record earnings this morning. In the immortal words of Derrick Coleman - "Woopti Dam Doo!" The expectations from the talking parrots were between $4 bucks a share to $4.15. Goldman did a Costanza ("Smoked him I say") coming in at $5.59. Frankly, I though the Jerkstore would come in higher than that, but its still a nice number. The stock is rallying a buck or so at the moment. But actually running a business is secondary at the moment on Broad Street. Its all about "Fabulous Fab" and A-BACK-US. It's sure nice that the media has something to talk about in between how dominating the Yanks are and how pathetic the Mets are, but lets be honest, most of the ones commenting are talking out of their backsides, most are not lawyers even though they might be sleeping with one. Lets get this clear with a little help from Tom Cruise. Its not what the facts are or even what the truth is, its what can be proven in a court of law that matters. The last time I checked we do somewhat live in a society ruled by law. I am not naive to think its a fair system, but everyone is entitled to their day in court. If we all convicted people and or corporations on the basis of blogs and or public opinion, Exxon would have been liquidated after they ruined the ecosystem in Alaska, OJ would have gotten the needle, John Delorean would be sharing a cell with the Unibomber. There was ample evidence, maybe overriding evidence of immense guilt in all of these cases, but at the end of the day, it was decided in a court of law with flashy lawyers that they they either were not guilty or just not as guilty as previously seen. I personally think that this doesn't even go to court. Goldman will pay a fine. The cost of doing business. They will neither admit guilt or innocence. The SEC will tell everyone that in between watching trany porn on the Internet they were able to get a "conviction." Obama will surely praise the legal system that it does work for everyone. Well of course not for IKB or ACA, but you get the picture.
Its all an immense scam. Its the SEC telling people that they care about securities fraud. Please! Fraud is at the heart of Wall Street from the beginning of time. Fraud and Wall Street go together like Ginger Rodgers and Fred Astaire. How are they going to clean up a rotten to the core system? It's impossible. This is why people look the other way and just participate in it. This is a play to placate the masses into thinking that the powers that be actually believe in truth and honest fair play. Its the same thing all through out history. Huge scandals unfold under the watchful eye, sometimes even helped out by the regulators, the regulators have to save face and this is all that it is at the moment. Back in the 20's and 30's, the mafia ruled the streets. They paid off law enforcement and judges to look the other way. Its no different today, except the methods are more complicated and covert. What needs to happen is a Elliot Ness moment when someone who is not entrenched into the fabric of Wall Street decides to take them down. We all know that Obama, Geithner, Bernanke, and Congress are not up to snuff. Obama doesn't have the stomach to take on Dimon and the Blankfein, because the money that flows is so intoxicating. I can't blame Obama. The yellow stripe painted on his back was already there before he took office.
Back to Goldman....
We all know that Goldman trades against their clients interests. The proof is in the earnings release this morning where 61% of their revenues come from trading. As a former trader I can tell you that there was questionable activity going on here. What is breathtaking and numbing is that people are shocked at it. When you step off the airplane and on to the strip at Las Vegas, don't be surprised to find gambling going on. Fraud is highly expected and downright forgivable on Wall Street. Goldman couldn't care less about its reputation behind close doors. Publicly they will tow the line, but privately they know they got the system by the jewels. Investors know this. If you want to drink the water, you might have to go to the bathroom to quench your thirst.
We all know that these Synthetic CDO's were only created for:
1-To minimize their existing RMBS exposure and to outright get short residential housing.
2-Fee generation.
3-Because clients wanted RMBS exposure on both sides of the market. S-CDO's are the prefect vehicle as its a zero sum binary investment.
4-Because this is what Goldman does. They create complex hard to calculate unicorn structured products. The more complex layers that are embedded the more difficult it is to get them with their hands in the cookie jar.
We all know what their motives are and were.
The question is:
Is it convictable in a court of law?
Is there ample evidence of fraud?
Is the SEC going to take on the Boys Of Broad Street?
Are the gloves coming off?
We all should be smart enough by now to know the answers. The bigger macro question is will this be a springboard to real reform/regulation of the financial markets? To answer this very fundamental question. Has Obama given us any indication he has wiped off the yellow paint on his back?
Its all an immense scam. Its the SEC telling people that they care about securities fraud. Please! Fraud is at the heart of Wall Street from the beginning of time. Fraud and Wall Street go together like Ginger Rodgers and Fred Astaire. How are they going to clean up a rotten to the core system? It's impossible. This is why people look the other way and just participate in it. This is a play to placate the masses into thinking that the powers that be actually believe in truth and honest fair play. Its the same thing all through out history. Huge scandals unfold under the watchful eye, sometimes even helped out by the regulators, the regulators have to save face and this is all that it is at the moment. Back in the 20's and 30's, the mafia ruled the streets. They paid off law enforcement and judges to look the other way. Its no different today, except the methods are more complicated and covert. What needs to happen is a Elliot Ness moment when someone who is not entrenched into the fabric of Wall Street decides to take them down. We all know that Obama, Geithner, Bernanke, and Congress are not up to snuff. Obama doesn't have the stomach to take on Dimon and the Blankfein, because the money that flows is so intoxicating. I can't blame Obama. The yellow stripe painted on his back was already there before he took office.
Back to Goldman....
We all know that Goldman trades against their clients interests. The proof is in the earnings release this morning where 61% of their revenues come from trading. As a former trader I can tell you that there was questionable activity going on here. What is breathtaking and numbing is that people are shocked at it. When you step off the airplane and on to the strip at Las Vegas, don't be surprised to find gambling going on. Fraud is highly expected and downright forgivable on Wall Street. Goldman couldn't care less about its reputation behind close doors. Publicly they will tow the line, but privately they know they got the system by the jewels. Investors know this. If you want to drink the water, you might have to go to the bathroom to quench your thirst.
We all know that these Synthetic CDO's were only created for:
1-To minimize their existing RMBS exposure and to outright get short residential housing.
2-Fee generation.
3-Because clients wanted RMBS exposure on both sides of the market. S-CDO's are the prefect vehicle as its a zero sum binary investment.
4-Because this is what Goldman does. They create complex hard to calculate unicorn structured products. The more complex layers that are embedded the more difficult it is to get them with their hands in the cookie jar.
We all know what their motives are and were.
The question is:
Is it convictable in a court of law?
Is there ample evidence of fraud?
Is the SEC going to take on the Boys Of Broad Street?
Are the gloves coming off?
We all should be smart enough by now to know the answers. The bigger macro question is will this be a springboard to real reform/regulation of the financial markets? To answer this very fundamental question. Has Obama given us any indication he has wiped off the yellow paint on his back?
Thursday, April 15, 2010
Strategic Defaults = Higher Consumer Spending
I have posted in the past about strategic defaults.
http://tradersutra.blogspot.com/2010/01/moral-question.html
http://tradersutra.blogspot.com/2010/02/hypocrisy-on-sterioids.html
Any wonder why American consumers are back to conspicuous consumption patterns? Could it be that they are not bogged down in underwater mortgage payments anymore. Why keep paying your mortgage when the property you are living in will never get back in the black?
Most banks are not even foreclosing on defaulters as they can't keep up with them. They just ask the homeowner to pay the property taxes and mow the lawn. So what we have in America is millions of homeowners who have stopped paying their mortgages, living free of charge and having a good time doing it. Of course the media spins this as something that is positive for the economy.
No one is talking about the divergence of foreclosures and delinquencies.
http://tradersutra.blogspot.com/2009/11/foreclosures-vs-delinquencies.html
http://tradersutra.blogspot.com/2010/03/principal-mortgage-writedowns-not.html
My dad's next door neighbor stopped paying his mortgage 5 months ago. Bank Of America is not foreclosing on him because they:
1-Don't want to pay the property taxes
2-Don't want to maintain the property
3-Don't want anymore homes on their books.
So this neighbor who has not paid his mortgage in 5 months just bought himself a brand new 50" inch Plasma from Best Buy. This is why retail sales is up in this country, because homeowners have all of this excess cash to spray around.
Did I also add that foreclosures surged to an absolute record?
http://www.realtytrac.com/contentmanagement/pressrelease.aspx?channelid=9&itemid=8927
http://www.realtytrac.com/foreclosure/repo/repossessed-homes-advantages.html
This announcement will tack on another 100 points to the DOW by midday.
http://tradersutra.blogspot.com/2010/01/moral-question.html
http://tradersutra.blogspot.com/2010/02/hypocrisy-on-sterioids.html
Any wonder why American consumers are back to conspicuous consumption patterns? Could it be that they are not bogged down in underwater mortgage payments anymore. Why keep paying your mortgage when the property you are living in will never get back in the black?
Most banks are not even foreclosing on defaulters as they can't keep up with them. They just ask the homeowner to pay the property taxes and mow the lawn. So what we have in America is millions of homeowners who have stopped paying their mortgages, living free of charge and having a good time doing it. Of course the media spins this as something that is positive for the economy.
No one is talking about the divergence of foreclosures and delinquencies.
http://tradersutra.blogspot.com/2009/11/foreclosures-vs-delinquencies.html
http://tradersutra.blogspot.com/2010/03/principal-mortgage-writedowns-not.html
My dad's next door neighbor stopped paying his mortgage 5 months ago. Bank Of America is not foreclosing on him because they:
1-Don't want to pay the property taxes
2-Don't want to maintain the property
3-Don't want anymore homes on their books.
So this neighbor who has not paid his mortgage in 5 months just bought himself a brand new 50" inch Plasma from Best Buy. This is why retail sales is up in this country, because homeowners have all of this excess cash to spray around.
Did I also add that foreclosures surged to an absolute record?
http://www.realtytrac.com/contentmanagement/pressrelease.aspx?channelid=9&itemid=8927
http://www.realtytrac.com/foreclosure/repo/repossessed-homes-advantages.html
This announcement will tack on another 100 points to the DOW by midday.
Saturday, April 10, 2010
Abercrombie & Fitch is Hot Hot Hot!
Abercrombie & Fitch (ANF) is on a tear, it broke 50 today on the heels of an analyst upgrade. This company is raking in profits as more and more docile unimaginative teens with no life flood its stores in earnest for $100 t-shirts with nothing more than the logo Abercrombie & Fitch emblazoned on them. What kind of name is Abercrombie and Fitch anyway? Sounds more like a name of an insurance company or credit union.
Their flagship store on Fifth Ave in New York is more than a store it's a landmark. Tourists from other states and eurotrash from across the pond actually line up around the block like cattle to go to this shop! I'm not kidding! There is a velvet rope behind which people have to stand (some even with their parents!) as they are ushered in by BOUNCERS. I see it every time I walk past there in disbelief and entirely bemused. ANF's surprisingly successful marketing campaign of incorporating club culture the way MTV real world intended it could only work when confronted by an army of mindless consumers who lack any individuality and have no creative capacity of their own.
ANF stock is performing so well, why? for the sole reason that people are completely off thier rockers and stupid beyond belief. A great way to keep the cogs of the machine turning. A lucrative business model and paragon of efficacious brand building. Brainwashing people to be mindless conformists while they are still young and impressionable. Way to go Abercrombie! This stock is a buy buy buy!
Tuesday, April 6, 2010
Bizaro World
Is it just me or does April 1, 2010 keep happening over and over again? Listening to the Federal Reserve is like experiencing Groundhogs Day every day.
Thus today's ludicrous headline of the day:
http://finance.yahoo.com/news/Fed-keeps-eyes-out-for-apf-3930377589.html?x=0&sec=topStories&pos=main&asset=dc0f6968c8c32a0c87af5ef10bfe8c10&ccode=mp
Can someone please wake me up and tell me that every day is not April Fool's day?
"With rates at record lows, Fed officials are watching out for new speculative bubbles"
Earth to Fed! The entire global capital markets are a massive bubble! You created it! You don't have to search for long, just pick a sector. The entire planet has to shift money to riskier assets because reinvestment rates are ZERO! You the FED created and perpetuated this risky behavior.
Questions and Answers.
When will the markets stop going up? When the Fed takes away the punch bowl.
Who controls the markets? The simple answer is the Primary Dealers! Its BAC, GS, MS, Citi, and other hot shots that are gunning the market. The primary dealers are effectively trading with themselves on both sides of the markets with money borrowed from the Fed at zero rates. No one else is really trading. The machines are doing all of the work.
If and when the Fed decides that a ZIRP is no longer feasible will be the day the market stops going up.
This could be next week or next decade. I personally think that the bond markets have already tightened and is doing the heavy lifting for the reckless Fed. When will the Fed actually do their jobs is anybody's guess? Last month's Discount Rate hike was probably just a little window dressing for a major change in Fed policy in the coming months. The Fed is under the gun and in the cross hairs, they can't sit back and watch another low rate propelled stock market/asset price explosion. This types of markets always unwind and unravel viciously to the downside.
Thus today's ludicrous headline of the day:
http://finance.yahoo.com/news/Fed-keeps-eyes-out-for-apf-3930377589.html?x=0&sec=topStories&pos=main&asset=dc0f6968c8c32a0c87af5ef10bfe8c10&ccode=mp
Can someone please wake me up and tell me that every day is not April Fool's day?
"With rates at record lows, Fed officials are watching out for new speculative bubbles"
Earth to Fed! The entire global capital markets are a massive bubble! You created it! You don't have to search for long, just pick a sector. The entire planet has to shift money to riskier assets because reinvestment rates are ZERO! You the FED created and perpetuated this risky behavior.
Questions and Answers.
When will the markets stop going up? When the Fed takes away the punch bowl.
Who controls the markets? The simple answer is the Primary Dealers! Its BAC, GS, MS, Citi, and other hot shots that are gunning the market. The primary dealers are effectively trading with themselves on both sides of the markets with money borrowed from the Fed at zero rates. No one else is really trading. The machines are doing all of the work.
If and when the Fed decides that a ZIRP is no longer feasible will be the day the market stops going up.
This could be next week or next decade. I personally think that the bond markets have already tightened and is doing the heavy lifting for the reckless Fed. When will the Fed actually do their jobs is anybody's guess? Last month's Discount Rate hike was probably just a little window dressing for a major change in Fed policy in the coming months. The Fed is under the gun and in the cross hairs, they can't sit back and watch another low rate propelled stock market/asset price explosion. This types of markets always unwind and unravel viciously to the downside.
Monday, April 5, 2010
Greece Will Default
I am not mincing any words here. What ever has been discussed by the powers that be in Europe is all fluff delaying the inevitable.
The IMF has already released their results on the Greece situation last year. Nothing has changed in the interim.
http://www.imf.org/external/pubs/ft/scr/2009/cr09244.pdf
From the IMF report, its safe to surmise the following:
-After joining the EU, the income gap between Greece and the EuroZone fell because of lower interest/funding costs. The demand boon that resulted directly benefited from these lower rates. During this boom, Greece's fiscal deficit stayed at 95% of GDP. Bond spreads widened considerably during this period which caused credit downgrades. Most of the debt in Greece is centered (Surprise) around government and financial services, as private debt is low. As output dropped, Greek real wages remained high. The quality of assets on Greek balance sheets kept on eroding as household and corporate credit growth vastly slowed down. They simply were not able to keep the giant ponzy scheme going. As bond spreads widened, higher interest costs for new debt issuance was painful. This caused giant government shortfalls.
The IMF is projecting uncertain and negative growth throughout 2010. Of course the EU which owns very much most of the bad Greek Debt has much rosier projections.
European policy makers can talk all they want about bailouts and IMF support. Its all talk. The Greek policy makers know they can't put that type of austerity measures on their society without revolt. The crushing level of debt is too much of a burden for Greece.
Currency markets have raised their negative bets against both the Euro as well as Cable(GBP).
As well as this graphic from Reuters Credit Views.
As you can see, Greece needs to roll much of this debt over in the short term.
There seems to be a fight between the CDS players and bond market participants. As we have seen, the EU policy makers phony bailout templates have hit the market. From this CDS rates have come down as bond yields have widened. The CDS market has reacted to the bailout news as many speculative players have sold or closed out positions. But many bond market players are long term players who seem to think that all is not right. So who is right? THE CDS players or the cash bond guys? Has the CDS market overreacted, or is the bond market slower to process the credit risk? Any way you look at it, both curves are not anticipating any magic bullet to save Greece. What we are seeing is the beginning of a strategic default of Greek debt as all that Greece has to show for their troubles so far is even higher interest costs mounted on existing debt with even more billions of issuance on tap.
The endgame here is either debt repudiation via inflation or default. I say the later is in order.
The IMF has already released their results on the Greece situation last year. Nothing has changed in the interim.
http://www.imf.org/external/pubs/ft/scr/2009/cr09244.pdf
From the IMF report, its safe to surmise the following:
-After joining the EU, the income gap between Greece and the EuroZone fell because of lower interest/funding costs. The demand boon that resulted directly benefited from these lower rates. During this boom, Greece's fiscal deficit stayed at 95% of GDP. Bond spreads widened considerably during this period which caused credit downgrades. Most of the debt in Greece is centered (Surprise) around government and financial services, as private debt is low. As output dropped, Greek real wages remained high. The quality of assets on Greek balance sheets kept on eroding as household and corporate credit growth vastly slowed down. They simply were not able to keep the giant ponzy scheme going. As bond spreads widened, higher interest costs for new debt issuance was painful. This caused giant government shortfalls.
The IMF is projecting uncertain and negative growth throughout 2010. Of course the EU which owns very much most of the bad Greek Debt has much rosier projections.
European policy makers can talk all they want about bailouts and IMF support. Its all talk. The Greek policy makers know they can't put that type of austerity measures on their society without revolt. The crushing level of debt is too much of a burden for Greece.
Currency markets have raised their negative bets against both the Euro as well as Cable(GBP).
As well as this graphic from Reuters Credit Views.
As you can see, Greece needs to roll much of this debt over in the short term.
There seems to be a fight between the CDS players and bond market participants. As we have seen, the EU policy makers phony bailout templates have hit the market. From this CDS rates have come down as bond yields have widened. The CDS market has reacted to the bailout news as many speculative players have sold or closed out positions. But many bond market players are long term players who seem to think that all is not right. So who is right? THE CDS players or the cash bond guys? Has the CDS market overreacted, or is the bond market slower to process the credit risk? Any way you look at it, both curves are not anticipating any magic bullet to save Greece. What we are seeing is the beginning of a strategic default of Greek debt as all that Greece has to show for their troubles so far is even higher interest costs mounted on existing debt with even more billions of issuance on tap.
The endgame here is either debt repudiation via inflation or default. I say the later is in order.
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