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Posts Tagged ‘Bond’

Draghi – We Will Continue to Fight Until Everyone is Dead | ZeroHedge

Posted by satyrikon στο 28 Ιουλίου, 2012


A week ago I cut a EURUSD short position that was well into the money. (Link) I was concerned that “something” might happen that could make a mess. I listed a number of concerns that might have caused a flip-flop, but Mario Draghi talking, was not on my list. Of course, that is precisely what happened. I’ve read what Mario said a number of times, I think there is no substance to his words.

«The ECB is ready to do whatever it takes to preserve the euro. And believe me, it will be enough»

I’m reminded of an article I wrote more than two years ago titled, Sarkozy Will Get “Stuffed” (link). The occasion was a stupid remark made by then French President Nicholas Sarkozy regarding some new measures that would, once and for all, end the run on the bond markets of Europe:

“We will confront speculators mercilessly. They will know once and for all what lies in store for them.”

This didn’t work out so well for poor old Sarko. The speculators ended up crushing him, and he lost his job. Draghi will suffer the same result.

Mario must be saying to himself,

“If only I can just get the Spanish Ten-year back to 6%, all will be well again”.

I think he’s nuts. Spain’s problem is its competitiveness. The domestic economy will never recover without a currency devaluation (and debt restructuring). If Mario has his way, Spain will suffer from a decade of recessions with unemployment over 20%. How could he possibly call that outcome a success?

On Friday we got some clarification of what exactly Draghi has up his sleeve when he promised, “It will be enough”. From Bloomberg:


Bond buys? Rate cuts? New LTRO? That’s Draghi’s bazooka? These things have been tried in the past and have failed. These steps might buy the EU a few weeks (or hours?) of market relief, but they have no chance of turning the EU around.

There is still a market-based system that exists in the world of central bank manipulation. In the end, market forces always prevail. The outcome for the Euro will be no different. Draghi thinks he has the power to thwart the markets. He does not have that power. Draghi is either bluffing or lying, that or he is a blind as a bat.



FX Note:

An interesting outcome of the Draghi comments is that the Euro ended the week north of 1.2300 (up 1.5%). Whatever chance the EU may have, it is dependent on a weaker Euro exchange rate. In my book, Mario’s words have set the EU back, not forward.

A week ago I swore (Link) I would be out of FX until we got into late August. The silliness of the last few trading days changed my mind. I bet all of my recent FX gains on a short EURUSD option strategy. I missed a big blip that got the Euro above 1.2400, and ended up with a fill a bit over 1.2300.

My thinking is that someone in Germany is going to say:

“Sorry Mario, you can’t have our cake and eat it too.”

As if on cue, this article appeared in Germany’s Handelsblatt today:


μέσω Draghi – We Will Continue to Fight Until Everyone is Dead | ZeroHedge.

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Markel Majority Fades As Internal Revolt May Signal ‘Referendum’ | ZeroHedge

Posted by satyrikon στο 15 Ιουλίου, 2012

Merkel-citronpresser (Photo credit: hoppetossen)

Despite assurances that «we always get the majority we need» by Frau Merkel, the FT reports that the Bundestag’s vote this Thursday (expected to come down in favor of the bailout) will not gain the so-called ‘Chancellor’s majority’. While she retains an overall majority of 19 (from the ranks of her own Christian Democratic Union, its Bavarian sister party, the Christian Social Union, and the liberal Free Democratic party in her coalition), the recent ESM vote saw 26 of her supporters rebel (voting ‘Nein’ or abstaining) – though ended up being passed thanks to support from SPD and The Greens. While a ‘Chancellor’s majority’ is not required to approve the EUR100 billion Spanish bailout, «Anything other than a chancellor’s majority is a defeat, and a sign of the erosion of the power of the chancellor,» which leads us down the path we have noted previously of the inevitability of a referendum-like vote next year (which may just be the leave-the-Euro-coz-that’s-what-the-people-want ‘out’ Germany has been looking for). Certainly, the vote is no panacea (politically or economically) as Jens Weidmann notes that the bailout would be more effective ‘conditions’ were applied across Spain, adding that «It would have a positive effect on the bond market if investors saw that the conditions… went beyond the banking sector».

μέσω Markel Majority Fades As Internal Revolt May Signal ‘Referendum’ | ZeroHedge.

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Greece — What Matters And What Does Not | ZeroHedge

Posted by satyrikon στο 16 Ιουνίου, 2012

From Mark Grant, author of Out of the Box

Greece—What matters and What does Not

The bond market is heading East while the equity markets heads West because they have two totally different focuses at present. I have seen this often enough in my almost four decades on Wall Street and I am always amused when this differentiation takes place. It is really just a reaction to what either market is staring at that causes this phenomenon to take place and, eventually, one market proves to be correct while the other gallops along to catch up. The stock markets seem buoyed by the possibility of the more EU friendly government to win this Sunday’s election and they are taking comfort in the hope for support of the world’s major central banks and the possibility of more easing; a new or redefined QE3. The fixed income people are concentrating on the possibility of a systemic financial shock, the recession in Europe that will affect the United States and the plight of the European banks. In my experience the bond markets generally get it right and get there first and I expect nothing different this time.

Let us calmly consider the facts as we can ferret them out and change our focus to reality and not what we are spoon fed by the Europeans. Greece has a total debt of about $1.3 trillion. This is composed of their sovereign debt, which Europe counts, and then their $90 billion in derivatives, their Federally guaranteed regional debt, their sovereign guaranteed bank and corporate debt, their obligations to the EU and finally their loans at the other central banks. It is just simple addition and not my opinion; I am just counting all of the liabilities while Europe does not. Then if you take their GDP and divide it by their total debt you get a debt to GDP ratio of around 453%. You may claim, and somewhat correctly, there is value in some of their assets which would be an off-set in case of actual default but the problem here is that they are a sovereign nation so how one would lay claim to any Greeks assets would be quite problematical.

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Greek Stock Market Soars On Speculation Tsipras Bluffing | ZeroHedge

Posted by satyrikon στο 14 Ιουνίου, 2012

Something amusing happened in today’s global capital markets: while European bond markets, especially in the periphery, are sliding following the Spanish downgrade and the Italian bond auction, one market has soared: that of Greece, which is up nearly double digits (not all that meaningful when you are at 20+ year lows), and whose bankrupt and deposit-free banks are up 20%. Which in turn is pushing US futures higher despit the Spanish record yield. What has caused this spike? Nothing but more political rhetoric and jawboning. Specifically, overnight Kathimerini reported that «Stefanos Manos, the leader of the small liberal party Drasi, claims that leftist SYRIZA will not scrap Greece’s bailout if it comes to power because it is the only way it can guarantee salaries for its supporters in the civil service.» Well, yes. Tspiras never said he will scrap the bailout. He merely said that he will end the memorandum in its current format. The decision then, and as always, would lie with Germany and the ECB, what to do about this latest Nash Equilibrium defection. In other words, the ultimate decision-maker was never Tsipras, and in fact even ND’s Samaras has repeatedly said he would renegotiation the terms of the Greek bailout. But in this centrally-planned, robotically-traded market, confusion over cause and effect is to be widely expected.


“SYRIZA has taken over, mainly from PASOK, the patronage of the status quo created by labor groups,” he told party supporters during a rally on Wednesday night.


On Thursday, Manos repeated his position in an interview with Skai TV. «SYRIZA’s customers are the civil servants, public enterprise employees and academics. [Alexis] Tsipras has to ensure that he can pay their wages. I wouldn’t worry at all [about the bailout being rejected].»


Manos said that the real issue at these elections was not whether parties favour the memorandum or not. “The issue is restoring the balance between the rights and responsibilities of the privileged in the public sector and those without privileges in the productive sectors of the economy,” he said.


Drasi is cooperating with pro-business Dimiourgia Xana (Recreate Greece) and the Liberal Alliance for the June 17 elections.

So propaganda aside, what did Tsipras really say? Well, fast forward 2 hours in the same Kathimerini which reports


SYRIZA leader Alexis Tsipras says that if his party comes first in Sunday’s elections, it will signify the end of the EU-IMF memorandum but the leftist added that he is prepared to negotiate a new deal with Greece’s lenders.


In an interview aired on Antenna TV on Thursday morning, Tsipras said that voters, not SYRIZA would decide if the terms of Greece’s bailout should be cancelled. “The memorandum will be repudiated by the people’s vote, not us,” he said.


Tsipras said that he wants the policy of internal devaluation to stop but that he is prepared to discuss all these issues with Greece’s eurozone counterparts.

In other words, as explained over the past 2 months, the Greek politicians will likely send a bid for memorandum renegotiation in either case. What happens then is out of their hands. The bigger question is whether Germans will have the stomach for Greek bailout #3. If one judges by the comments after yesterday’s Die Ziet article, and by the emergence of the #StoppESM twitter hashmark, futures have much more to be worried about than what some C-grade politician in Greece has to say.


Greek Stock Market Soars On Speculation Tsipras Bluffing | ZeroHedge.

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Details Emerge About Spain’s Cramming Down «Bailout» Loan | ZeroHedge

Posted by satyrikon στο 10 Ιουνίου, 2012

The biggest problem, as Greece learned, is that once the priming begins, and the various sovereign debt classes start becoming subordinated, it doesn’t end, until the PSI. At which point the crammed down debt gets impaired and receives 20 some cents on the dollar recoveries… at which point Grey Wolf will tell you it is the «no-brainer trade» of the year.

Keep a close eye on Spanish sovereign bonds at the moment when the bond market understands what just happened, and once the euphoria over the very short-term bailout of insolvent Spanish banks passes. Because a month from today another €100 billion will be required, then another €100, and so on.

At that point even the officially acknowledged Spanish debt/GDP will surpass 100%.

via Details Emerge About Spain’s Cramming Down «Bailout» Loan | ZeroHedge.

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Spain IS Greece After All: Here Are The Main Outstanding Items Following The Spanish Bailout

Posted by satyrikon στο 9 Ιουνίου, 2012

Submitted by Tyler Durden on 06/09/2012

After two years of denials, we finally have the right answer: Spain IS Greece. Only much bigger. So now that the European bailout has moved from Greece, Ireland and Portugal on to the big one, Spain, here are the key outstanding questions.

1. Where will the money come from?

De Guindos, Schauble and the Eurogroup, all announced that the sole source of cash would be the ESM and/or the EFSF. The problem with this is that the ESM has yet to be ratified by Germany, whose parliament said previously it is sternly against allowing the ESM to fund a direct bank bailout, something which just happened. Thus, the successful German ESM ratification vote, whenever it comes, and which previously was taken for granted, now appears to be far more questionable.

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Fitch Follows S&P, Slashes Spain By 3 Notches To BBB, Only Moody Is Left – Step 3 Collateral Downgrade Imminent | ZeroHedge

Posted by satyrikon στο 7 Ιουνίου, 2012


Fitch Follows S&P, Slashes Spain By 3 Notches To BBB, Only Moody Is Left – Step 3 Collateral Downgrade Imminent

First it Egan-Jones (of course). Then S&P. Now Fitch (which sees the Spanish bank recap burden between €60 and a massive €100 billion!)joins the downgrade party of rating agencies that have Spain at a sub-A rating. Only Moody’s is left. What happens when Moody’s also cuts Spain to BBB or less? Bad things: as we explained on April 30, when everyone has Spain at BBB or less…

If all agencies downgrade Spain to BBB+ or below, the ECB could increase haircuts by 5% on SPGBs

The key aspect in terms of the Spanish downgrade(s) is the ECB’s LTRO. If all three rating agencies move Spain to BBB+ or below then under the ECB’s current framework it moves into the Step 3 collateral bucket which requires an additional 5% haircut across the maturities. In classifying its risk management buckets, the ECB uses the highest of the ratings to determine an asset’s position (unlike the sovereign benchmark indices which use the lowest rating, in general). Fitch and Moodys currently rate Spain at A and A3 respectively, with both having a negative outlook in place leaving only a small downgrade margin before Spain migrates to the lower ECB bucket.

Italy’s position is marginally more precarious in that it shares Spain’s A3 rating from Moody’s but is rated lower at A- by Fitch, and is similarly outlook negative from both agencies. One would hope ECB pragmatism would prevail and move to be more accommodative on its collateral haircut rules on sovereign debt.

The weakness of the eurozone’s growth outlook is undermining the efforts of many sovereigns to rein in budget deficits, thereby highlighting the self-defeating nature of the fiscal compact as currently defined. Including the political impact, this has potential to lead to further downgrades

via Fitch Follows S&P, Slashes Spain By 3 Notches To BBB, Only Moody Is Left – Step 3 Collateral Downgrade Imminent | ZeroHedge.

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