Greece begins the buyback process
Guest post by Sober Look.
Greek government debt yields hit another post-restructuring low (14.9%), as the government offered a better than expected price for the bonds. These bonds are now quite popular in the European markets – it’s not every day that one gets a buyback from a sovereign. The minimum price offered in the buyback program is 30 cents on the euro (on the longest maturity, most discounted bonds).
This steep discount is necessary in order reduce the amount of debt outstanding. It looks as though the bonds will trade in the 32-34 range. Greece expects to spend about €10bn of borrowed money in order to reduce the outstanding debt level by roughly €20bn (30bn of face costing 10bn).
NYTimes: – While the buyback had been expected, the prices offered by the government were above what the market had forecast, with a minimum price of 30 euro cents and a maximum of 40 cents, for a discount of 60 percent to 70 percent.
Analysts said they expected that the average price would ultimately be 32 to 34 euro cents, a premium of about 4 cents above where the bonds traded at the end of last week.
Quebec Welcomes Catalonia to the United Nations!
Guest post by Peter Tchir.
But Quebec Isn’t a Country? Exactly.
The Catalonian elections are interesting and shouldn’t surprise anyone. In stressful economic times people look for alternatives. They want someone to blame (“the other guy”) and like to be told how great they themselves are. If that wasn’t the case, it is unlikely that an angry megalomaniac with a toothbrush moustache would ever have ruled Germany.
At this stage, the elections and referendum movement remind me a lot of Quebec in Canada. Economic decline coupled with an identity lead to the belief that separation was a good way to go. For many of us outside of Spain it is hard to realize how long Catalonians have held a belief that they are different. I remember back in the 1980’s being corrected by a soccer player when I said he was Spanish, and he replied, with a bit of anger, that no, he was Catalonian.
Dumb Troika Plans for Greece
All basic math seems to have been forgotten in Greece. Whatever the Troika is trying to do, it lives in some world devoid of reality. Here, to the best of my knowledge is where the Greek government creditor payments go over the next 10 years (ignoring rollovers, etc.).
Millions Join Largest European Strike Ever
Europe’s Mediterranean rim trembled on Wednesday as violent clashes broke out following the largest coordinated multinational strike in Europe ever. In the hope to stave off decades of austerity, precarity and unemployment, European labor unions united for the first time since the start of the European debt crisis to organize strikes and protests in a total of 23 EU member states, with millions of workers walking off their jobs and marching on parliament buildings across the continent. Bloody street battles ensued across Spain, Portugal and Italy.
In Italy, over 300,000 protested in over 100 cities as workers observed a 4-hour stoppage in solidarity with Greek, Spanish and Portuguese workers. In Milan and Rome, scenes of street “guerriglia” were witnessed as thousands of students clashed with riot police, bringing traffic to a standstill and leading to dozens of injuries. In Sardinia, industry minister Corrado Passera and Fabrizio Barca, minister of territorial cohesion, had to be evacuated by helicopter after angry protesters besieged a meeting and started burning cars all around them.
Courtesy ZCommunications.
Greece Needs to go “Dirty Harry” On the Troika
Guest post by Peter Tchir.
Go Ahead, Make My Day
Greece has negotiated like the Clint Eastwood that spoke to an empty chair for 10 minutes. It is time to bring out the Dirty Harry. Point a magnum at the Troika and tell the “go ahead, make my day’!
Greece has been asking for money in some form or another for almost 3 years now. It begs and pleads. It is forced to do things to its people. Then it is back to begging and pleading. It is time to stop. The negotiations have been stupid. Not once has Greece come up with a credible alternative to more Troika money.
The Troika actually benefits as much, or more from supporting Greece and everyone would be better off if Greece was given real breathing room for a change. Since the Troika either doesn’t see it, or refuses to believe it, it is time to make the Troika see the error of the ways.
Defaulting Takes Planning
Defaulting, properly, is as much a process as anything else. You need to plan. You need to line up post default financing. You need a credible story of why investors should come to you post default. Sovereign defaults are particularly tricky since there are few rules to begin with, and enforcing those rules is tricky.
IMF & Euro Zone Clash Over Greece
Another day in Europe. Euro-area finance ministers gave Greece two extra years to wrestle down its budget deficit, pledging to plug the resulting financing gaps in order to keep the country in the single currency and prevent a renewed flareup of the debt crisis.
Video below.
Portugal shut out of OMT in order to keep Greece out
Guest post by Sober Look.
In late August JPMorgan argued that the ECB’s OMT (Outright Monetary Transactions) program should start with Portugal (see discussion). The prediction was wrong – the ECB disqualified Portugal from participating. But why? After all Portugal has complied with multiple troika reviews and the monetary transmission mechanism in Portugal has clearly been broken. The chart below shows that Portugal’s private sector has not benefited from the ECB’s liquidity injections (LTRO) and the lower overnight rate (prime example of broken monetary transmission).
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| Source: JPMorgan |
What’s particularly strange is that the whole justification for the ECB launching this sovereign bond buying program to begin with had to do with problems of monetary transmission (see discussion) in the Eurozone.
Time to Think
Guest post by Peter Tchir.
Last week was a feeding frenzy for algos and a disaster for those who were poorly positioned. Crowded complacent trades were pummeled, including, or especially, investment grade CDS. But now we have had some time to think about what happened and the markets seem calmer. On this bond market holiday, let’s just take a look at 5 simple things. These will be the drivers for the market.
Apple
If there was ever a case of people lamenting now owning a stock, swearing they would buy more if it ever came down, then dumping en masse when it did come down, this is it. Apple is unique in that it isn’t just a huge component of the indices (which it is) but it has become such an indicator of sentiment, that guessing Apple correctly is very important, if not critical. I like AAPL here. Sadly I started liking it at $570 but added some Friday morning. The sell-off seems overdone, at least for now. All those worried about paying taxes on their “big” gains, now need to worry about the gains. While everyone else was “amazed” by the great Apple products, I went to stores and found the iPhone 5 available on launch date, and remain confused about why the iPad mini which is either a small iPad or a big iPhone with no voice capabilities was such a big deal. But that was at $650 and above. Here I like it and it is oversold by many measures, including my personal favorite – RSI. I am also encouraged how many people were talking about the 200 day moving average. Many were investors who normally would demand you wash your mouth out with soap for saying such a naughty word. Finally, if they finally do something big with their cash, the multiple should look very attractive.
Whew what a week
Guest post by Peter Tchir.
First, today’s move seemed bullish to me. Yes we failed to hold the highs of the days. That isn’t good. But we didn’t break to new lows as we closed and that’s not bad given all the concerns about Europe. Even more importantly we didn’t completely give up when Obama made his sheech. I can’t be bothered to correct that typo because Obama was so disappointing.
I’m not sure that I would consider the election a strong endorsement of his policies. If anything I viewed the election as reasonably split and indicative of a divisive country. He definitely won, so he shouldn’t capitulate but seriously, isn’t it time for some for cooperation? Not that the republicans were any better. I can’t tell whether they are behaving as sore losers, or arrogant winners that somehow haven’t accepted they lost.
We need to do a few things. Work together to create a reasonable plan forward. It won’t make everyone happy but we need to do what is best for the economy, and to some extent, the market. I don’t agree with everything that Ben does, but while he is out there trying to promote growth through liquidity the politicians have been messing it up. I didn’t expect hugs and kisses on day 1 but the politicians need to understand the people aren’t happy, and the only real mandate, from those in the center, is to figure out some useful compromise.
A Lot to Catch Up On
Guest post by Peter Tchir.
Europe
Is Europe really going to let Greece go and risk a series of exits? That was my concern last week when I invoked quotes from Planet of the Apes. Nothing much has happened since then to change that view.
Greece has a vote that may or may not pass. If it doesn’t pass, the process of a nasty Greek exit and full default is likely accelerated. If they pass it, which I expect they will, then that process is likely just delayed. Until the “official sector” takes losses on all of its dumb purchases of Greek bonds and restructures the loans that were made that never had a chance of getting paid back, there will be no other course for Greece. The fact the European officials either don’t see it, or are just ignoring it is a major concern. Greece and the risk of a painful and chaotic exit for Greece that affects the other weak countries is a real risk. I expect a small pop when the vote is done and it “passes”. If it doesn’t pass I will quickly get very nervous about the markets, but history tells us it will pass and everyone will pretend this time it will work. At least for a couple of days we can live that fairytale.
Then there is Germany. The comments coming out of Germany are growing more hostile. Germany today mentioned direct influence on other country’s budgets. Draghi specifically tried to point out to Germany that the European debt crisis is hurting Germany already and will hurt it more. He is clearly trying to make it easier for Germans to get on board with some aggressive ECB action. If you are truly an optimistic, you can think Draghi said this as a warning shot before he acts “independently”. While not completely at the beck and call of Germany, the ECB is far less independent than our Fed. Draghi has already made it clear that the IMF would be a model for any new programs, so he has given away some independence. He won’t just act unilaterally and aggressively. That leaves us with the conclusion that he is pushing Germany, and that Germany needs to be pushed. Back in September, Merkel sounded downright dovish. She pointed out even to her own finance people that the ECB had to remain independent. That is not the message that came out last week when she appeared to backtrack on letting banks get direct bailout money, and that message was further diminished by today’s comments. Germany will be hurt by not supporting more aggressive action, but people know smoking is bad, and yet many still do.
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