Remember Trichet? A default by Greece on its debt is out of the question
On the trustworthiness of those leading us out of this crisis.
A default by Greece on its debt is out of the question, European Central Bank president Jean-Claude Trichet.
Video below to refresh your memory.
Friday evening in Greece-Default
With many strangely enough surprised by the Greek credit event, let’s review the definition of a credit event. From Credit Derivatives:
1. Bankruptcy
Bankruptcy in the 1999 Definitions mirrors the wording of Section 5(a)(vii) of the ISDA Master Agreement. It is widely drafted so as to be triggered by a variety of events associated with bankruptcy or insolvency proceedings under English law and New York law, as well as analogous events under other insolvency laws.
ISDA is aware that the scope of the definition of Bankruptcy may be wider than insolvency-related events falling within the credit assessment criteria used by rating agencies. Certain actions taken by the reference entity, for instance, a board meeting or a meeting of shareholders to consider the filing of a liquidation petition, could be argued as being in furtherance of an act of bankruptcy and thus triggering a Credit Event, even though such act would not generally be considered a bankruptcy event in the context of credit assessment by a rating agency. Therefore, the inclusion of this Credit Event could provide credit protection ahead of such circumstances.
By contrast, a guarantee would not typically provide any protection against insolvency-related events ahead of an actual failure to pay.
Risk On and Off…
…depending on what you focus on. While the DAX is pushing higher, the Euro is pointing down. The metals are showing increasing signs of fatigue. Let’s see who’s right and who’s wrong, but last time (yesterday) the Euro traded here, the DAX was 150 points lower….Charts below.
Pyrrhic Victory
Open Europe on the not so great deal. Probably the best and easiest explanation of what’s going on in Greece. The conclusion says it all, from Open Europe.
Therefore, this deal may have sown the seeds of a major political and economic crisis at the heart of Europe, which in the medium and long term further threatens the stability of the eurozone.
Open Europe has responded to the agreement between the Greek government and its private creditors which laid out how much and under what format the country’s massive €360bn debt burden should be written down. The deal involved private sector bondholders agreeing to a 53.5% nominal write-down, while so-called Collective Action Clauses (CACs) will be used meaning that Greece is now technically in a state of default – precisely what EU leaders have spent two years trying to avoid. While marking a small step forward, Open Europe notes that the deal is unlikely to save Greece, and that the country is still on course for a full default in three years’ time, if not sooner.
The Greek deal, fixed…..
Comments on the Greek Deal. Courtesy Copper at BGC.
One of the 17 Eurozone countries has now defaulted (whatever the politicians and policymakers say)
E152bn of Greek law bonds were tendered for the debt swap, out of E177bn – a participation rate of 85.8%. Athens has triggered the Collective Action clause to force participation for the rest, therefore all the E177bn will be exchanged. Of the foreign law bonds, E20bn was tendered for the debt swap, a 69% participation rate. To try and persuade these holdouts to follow the herd and participate too, the Greek government has extended the deadline for acceptance (just for these foreign law bonds) until 23rd March. So the E177bn of Greek law bonds and the E20bn of foreign law bonds equates to a total of E197bn of bonds being swapped, or 95.7% of the total bonds outstanding. That meets the debt write down targets of the IMF and EU.
Dalio-Man and Machine
Simply the world’s best hedge fund manager, Mr Dalio. From the Economist.
“THE most beautiful deleveraging yet seen” is how Ray Dalio describes what is now going on in America’s economy. As America has gone through the necessary process of reducing its debt-to-income ratio since the financial crash of 2008, he reckons its policymakers have done well in mixing painful stuff like debt restructuring with injections of cash to keep demand growing. Europe’s deleveraging, by contrast, is “ugly”.
Mr Dalio’s views are taken seriously. He made a fortune betting before the crash that the world had taken on too much debt and would need to slash it. Last year alone, his Bridgewater Pure Alpha fund earned its investors $13.8 billion, taking its total gains since it opened in 1975 to $35.8 billion, more than any other hedge fund ever, including the previous record-holder, George Soros’s Quantum Endowment Fund. (Full article here).
For more on Dalio, check out the must read article by The New Yorker from last year, as well as Dalio’s priciples. Link here.
The Greek Deal
On the Greek “fix”, LTRO, haircuts and the new central bank tools. Video below.
Biderman Market Theory’s Two Bullish Distinctions
From Trim Tab’s Biderman.
The Biderman Market Theory has two key distinctions and both of them are bullish for US stocks over the near term. The first distinction is that all markets have two types of participants, the house and the players, and the house always has an advantage over the players. In the stock market the house are the public companies. The house, as evidenced by the 3000 largest US public companies, in February for the first time since we started tracking monthly float six months ago shrank the number of shares outstanding at a 1.3% annual rate, compared with a 1.3% share growth rate in January and a 3% annual growth rate in the number of shares last October. Video below.
News That Matters
Ft.com
The largest debt restructuring in history was heading for a successful outcome last night as Greece looked set to see a participation rate of close to 95 per cent for its €206bn bond exchange, the FT reports http://ftalphaville.ft.com/thecut/2012/03/09/915561/greek-debt-swap-support-close-to-95/
The London Stock Exchange is close to agreeing a takeover of LCH Clearnet, with an announcement possibly as early as Friday morning, the WSJ says. Talks between the two have been difficult and could still founder at a late stage. http://ftalphaville.ft.com/thecut/2012/03/09/915581/lse-close-to-lch-deal/
George Osborne is looking to raise taxes on the pension contributions of the highest earners in this month’s Budget, in a move which will release funds to help low earners escape the tax system but antagonise some Tory MPs, http://ftalphaville.ft.com/thecut/2012/03/09/915591/pension-tax-breaks-on-osborne%e2%80%99s-radar/
Deutsche Bank, whose chief executive decried the stigma of tapping ECB three-year liquidity last month, has borrowed at least €5bn and as much as €10bn from the latest LTRO, the FT reports. Investors briefed by the bank’s finance director and investor relations executives say it was persuaded by the economics of the financing to abandon its concerns. http://ftalphaville.ft.com/thecut/2012/03/09/915491/deutsche-tapped-ltro-cash/
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