Greek Debt Crisis – Apocalypse Later

Almost "shocking" to see a rationale market response.... ;-)

Fast "unheimlich" mal eine rationale Marktreaktion zu sehen... ;-)

Greek Debt Crisis – Apocalypse Later CFR

The difference between Greek and German government bond yields can be used to estimate the market’s view of the likelihood of a Greek default. The chart above shows these probabilities over different time frames on three different dates. On April 30th, no European plan was yet in place to address the ballooning Greek debt, and default was considered a real possibility in the short term. On May 11th, just after the European Stabilization Mechanism (ESM) was announced, markets sharply cut their view on the odds of default across all time horizons. However, the market’s analysis of the ESM has become much more nuanced since then. On September 1st, the market’s view of the probability of default within two years was lower than before the ESM was announced, but higher over longer time frames.

Greece will happily borrow from the ESM to avoid having to close its primary deficit (that is, excluding interest payments) too rapidly. Yet if Greece is successful in eliminating its primary deficit, its temptation to default will actually grow, as it can wipe out huge amounts of accumulated debt without any longer needing the financial markets to fund current expenditures. If faced with the choice between paying Greek debts and letting Greece default, its northern neighbors may, once their banks are on more solid footing, find it more attractive simply to let Greece default. This is the story line that the markets are now pricing into government bond spreads

Greece Default Risk Is ‘Substantial,’ Pimco’s Bosomworth Says

“Greece is insolvent,” Bosomworth, Munich-based head of portfolio management at Pimco, which oversees the world’s largest bond fund, said in a telephone interview today. “I see it as being quite a substantial risk that Greece eventually defaults or restructures.”

In a best-case scenario, Greece’s government debt will swell to 150 percent of gross domestic product, Bosomworth said.

“Debt servicing as a share of government revenue will increase substantially, particularly if current yield levels do not decline,” Bosomworth said.

Greece Sees €4 Billion (2%) In Deposit Outflows In July ZH

Outflow troubles continue for the time bomb in Europe's periphery, Greece, whose second default is approaching. The central bank has just reported that in July household and business deposits declined from €216.5 billion to €212.3 billion: so much for the ECB's presence inspiring confidence. So €4 billion a month in deposits taken out, and applying a fractional reserve multiplier, means Greek banks lost another €40 billion in monetary supply in July alone. Deflation + Austerity = Kaboom.

National Bank of Greece Greek debt warning FT Alphaville

The most denied cash call of recent times has finally happened. Late on Tuesday night National Bank of Greece announced a €2.8bn ‘Comprehensive Capital Strengthening Plan

NBG says the equity issue and disposal will ‘create an additional, sizeable capital buffer to face the macro-economic situation in Greece in the short-to-medium term’.

But what does that mean? Could it be that NBG is raising the money to cover a Greek government bond haircut? Very possibly.

GREECE: SOUNDING VERY LEHMAN-ISH Prag Cap

If you recall the early stages of the financial crisis there was one glaring trend from the various bank CEO’s and CFO’s – they just couldn’t wait to get on TV with their slogan:

“We are well capitalized.”

Of course, that turned out to be a lie as it’s now clear that most banks in the USA were woefully undercapitalized. Today, Greece’s finance minister is out with similar comments:

“Restructuring is not going to happen. There are much broader implications for the eurozone should Greece have to restructure its debt. People fail to see the costs to both Greece and the eurozone of a restructuring: the cost to its citizens, the cost to its access to markets. If Greece restructures, why on earth would people invest in other peripheral economies? It would be a fundamental break to the unity of the eurozone.”

In other words, “we are well capitalized”.

As i have said from the beginning, the entire bailout stunt wasn´t to help the Greek..... Combine this with the latest "Unlimited & Extended" action from the EU, ECB & the Joke Of The Day From ECB´s Smaghi "€ More Stable Than Deutsche Mark" is getting even more "funny".... ;-) Judging from recent IMF attempts to desperately broaden their "safety net" it´s almost certain that Greece won´t be alone......In this context headlines like IMF Sees G7 Net Debt At 200% Of GDP By 2030; 441% By 2050 should further boost confidence...."Pray & Delay" seems to be the top priority around the globe... The long term bull case for GOLD isn´t getting weaker on a daily basis....

Wie bereits seit Anfang der Krise gesagt ging es weniger um das Wohlergehen der betroffenen Griechen..... Wenn man zudem noch die letzten unlimitierten und zeitlich unbegrenzten weiteren Rettungsmaßnahmen der EU & ECB mitberücksichtigt wird der Witz des Tages von Smaghi das der "€ stabiler als die DM ist" nur noch witziger... ;-) Die neuesten Verrenkungen des IMF um das "Sicherheitsnetz" fast um jeden Preis zu erweitern können nur dahingehed gedeutet werden das wir in naher Zukunft etliche "Griechenländer" sehen werden...In diesem Zusammenhang sollte nachfolgende Meldung IMF Sees G7 Net Debt At 200% Of GDP By 2030; 441% By 2050 eine Erklärung geben warum sich die langfristigen Perspektive für GOLD tagtäglich trotz stark gestiegenem Kurs nicht gerade verschlechtern....

Most Impressive Sovereign Funding Official 2009 Award Went To Spyros Papanicolaou ( Greece )

You cannot make this up......Very hard to hide a big deal of SCHADENFREUDE when you keep in mind that the awards were determined by a poll of bankers and borrowers .... On the other side it´s too bad that exact these same so called "sophisticated" investors ( not speculators! ) got once again bailed out for their ( ongoing ) very poor judgement.....The following quote from John "Anti Spin" Hussman "Prostituting the fiscal stability of an entire nation for the benefit of bondholders who made bad loans ?"( Hussman is really "upset"..... ) & this must see clip :-)! are unfortunately spot on... Go and read the entire link !

Kein Aprilscherz......Wenn man bedenkt das dieser Preis in einer Abstimmung von Bänkern und Investoren vegeben worden ist kann man sich eine gewisse Portion SCHADENFREUDE einfach nicht verkneifen...... Gleichzeitig wird die Wut darüber, das genau diese Investoren ( nicht Spekulanten! ) trotz Ihres offensichtlich zum wiederholten Male vernebeltem Urteilsvermögen erneut über immer größer werdende Bailouts rausgehauen werden, tagtäglich größer ......Leider handelt es sich beim nachfolgenden Zitat von John "Anti Spin" Hussman "Prostituting the fiscal stability of an entire nation for the benefit of bondholders who made bad loans?" ( Wer den ansonsten sehr besonnenen Hussman kennt kann erahnen das hier einer ziemlich "aufgebracht" ist ...) sowie diesem wunderbar humoristischen Clip :-)! um eine treffende Bestandsaufnahme und um keine Übertreibung......Empfehlen allen den kompletten Link zu lesen !


WSJ

Beware the lessons of history—especially when they involve Greece. The winner of Euroweek's 2010 award for most impressive sovereign funding official richly deserved it: Robert Stheeman, head of the U.K. Debt Management Office, steered through a whopping £185 billion ($268 billion) of gilt sales in the last fiscal year.

But Mr. Stheeman might not want to look too closely at the award's history: Last year's winner was one Spyros Papanicolaou, the former head of Greece's Public Debt Management Agency.

Rough times for GILTS & the POUND ahead.....

Sieht ganz so aus als wenn es für GILTS und das britische Pfund demnächst ruppig werden könnte......

Glitch In The Matrix......

The "Wall Of Worry" is getting steeper...... Should the spreads remain elevated even after Greece has ""activated" the EU/IMF rescue package i think we could see the VIX spike to over 17.... ;-)

"Schockierend" .... ;-) Sollten jetzt selbst nach Aktivierung des EU/IMF Programmes die Auschläge nicht "merklich"sinken dürften mit hoher Wahrscheinlichkeit die nächste Stufe der Krise gezündet werden....

The Greek debt merry-go-round goes round again FT Alphaville

The 10-year Greek bond – German bund spread widened to 426 basis points on Thursday.

That’s up from 406bps on Wednesday — and nearing an 11-year high

Keep in mind that the bailouts are not to rescue Greece ( see Foreigners Holding 75 % of Greece’s Current Debt Stock & Bank Exposure To PIIGS / Chart ) .....

With everybody "Too Small To Fail" the prospects for a "GOLD-BUG" could be worse... ;-)

Nur zur Erinnerung, die teilweise wahnwitzigen Konstruktionen sind nur auf den ersten Blick zur Rettung der Griechen gedacht ( siehe Foreigners Holding 75 % of Greece’s Current Debt Stock & Bank Exposure To PIIGS / Chart ) ....

Da inzwischen weltweit die oberste Maxime selbst bei aussichtslosen Fällen "Too Small to Fail" ist dürften sich auf absehbare Zeit die Aussichten für einen "GOLD-BUG" nicht gerade verschlechtern....;-)

UPDATE: Fixing the Matrix........

IMF Prepares For Global Cataclysm, Expands Backup Rescue Facility By Half A Trillion For "Contribution To Global Financial Stability" ZH



EXTEND & PRETEND .......

Foreigners Holding 75 % of Greece’s Current Debt Stock

One of the main reasons why the "Smoke & Mirrors" ( excellent link via Yves Smith / NC ) Greece "Rescue" & a hidden bailout ( see the ECB U-TURN My Big Fat Greek Collateral Conversion ) has been orchestrated..... It´s still the number one goal to bail out banks & insurers ( see PIIGS Claims On European Banks: $1.5 Trillion; France Most On Hook In PIIGS Implosion & Ireland Stunned To Uncover "Truly Shocking" Information By Its Banks ).....Nobody is too small too fail....Sarcastically one can argue that in hindsight it seems the Lehman "incident" was one of the best things that could have happened to the industry......

Denke das wir hier einen der Hauptgründe für den "Smoke & Mirrors" ( fantastische Zusammenfassung via Naked Capitalism ) Rettungsversuch bzw die indirekten ( siehe die 180 Grad Drehung der EZB My Big Fat Greek Collateral Conversion ) Bailoutbemühungen sehen.... Es geht wie leider immer noch darum Banken und Versicherungen vor möglichen Schäden zu "beschützen" ( siehe PIIGS Claims On European Banks: $1.5 Trillion; France Most On Hook In PIIGS Implosion & Ireland Stunned To Uncover "Truly Shocking" Information By Its Banks )...... Keiner ist unwichtig genug um zu fallen...."Spitz" formuliert könnte man fast meinen das im Nachhinein Lehman für die Branche der bestmöglich anzunehmende Unfall gewesen ist......

The kindness of (bond market) strangers FT Alphaville

With foreigners already holding three quarters of Greece’s current debt stock, convincing them to buy even more becomes increasingly difficult. Here’s what Deutsche’s Gillian Edgeworth says:

"Euroland insists that the Greek sovereign continues to access the market if possible. The sovereign issuer will hope that foreigners remain keen buyers of bonds, though foreigners already hold 75% of the total debt stock.

In the absence of further foreign buying, local institutions will only likely be able to absorb government issuance if domestic banks continue to draw off [European Central Bank] liquidity facilities in size."

Lucky, then, that the ECB decided to revise its acceptance rules for the collateral pledged by Greek banks on Friday

Too bad for the "architects" that so far the spreads havn´t narrowed in a meaningful way.....;-)

Leicht problematisch für die Bailoutakrobaten lediglich das sich zumindest momentan die Spreads nicht wesentlich "eingeengt" haben...... ;-)

Greek debt – spreading like it’s 1999 FT Alphaville

It looks like Hellenic Republic bond spreads over German bunds are back at 1999 levels — when Greece first attempted to join the eurozone but failed because it didn’t meet the required economic criteria

No wonder Gold has been hitting a series of new ATH in € terms ...

Da verwundert es wenig das Gold seit Wochen eine Serie von neues Allzeithoch auf € Basis markiert.....

So Begin The (Serious) Sovereign Downgrades…?

A possible downgrade of Spain.......Shocking..... But i doubt we will see some serious action to under AA- ( besides minor countries ) on this front ( just watch the table with regulatory risk weitghtings & the impact on bank´s balance sheets) UPDATE: S&P lowers Greece rating to A- & an excellent Interactive graphic: Europe on credit alert ...... Why numerous countries are still able to get away with an AAA rating is beyond me. Main reason in my mind is the political pressure ( especially when it comes to the US )..... Too bad that countries like Greece, Italy and Spain cannot stimulate their economy with a weak currency like in the past before they joined the €.... It´s a safe bet that the Euro in the current form won´t last ( see also from the FT Could the eurozone actually split up? )? No wonder Gold in € is hitting new highs almost on a daily basis ( see Daily gold price in a range of currencies since January 2000 ) ?

Ein mögliches Downgrade von Spanien.....Schockierend.....Aber ich denke das wir von dieser Seite nichts richtig drastisches auf unter AA- ( abgesehen von einigen unbedeutenden Ländern ) sehen werden ( man braucht dazu nur einen Blick auf die Übersicht mit den risikowichteten Bilanzpositionen zu werfen um zu erkennen welch desaströse Auswirkungen das auf Bankbilanzen hätte ) UPDATE : S&P lowers Greece rating to A- & sowie eine erstklassige Karte der FT Interactive graphic: Europe on credit alert ..... Man muß sich ernsthaft fragen ob die Ratingagenturen überhaupt was aus dem kollosalen Versagen während des Kreditbonanzas gelernt haben..... Wie anders ist es zu erklären das noch etliche Staaten mit AAA bewertet werden? Schon bald peinlich wie noch immer behauptet wird das Ihre "Bewertungen" jenseits von politischen Einflüssen erfolgen ( ist besonders auf die Boni der USA gemünzt )..... Habe noch gut das Hohelied der "Unabhängigkeit" bei den Bewertungspraktiken der implodierten strukturierten Produkten in den Ohren ...... Für Staaten wie Griechenland, Italien, Irland und Spanien ist es natürlich nicht gerade hifreich das Sie sich nicht wie in der Vergangenheit über die Währung etwas Linderung verschaffen können. Ich denke die Aussage das dem € noch turbulente Zeiten ins Haus stehen dürfte untertrieben sein ( siehe auch aus der FT Could the eurozone actually split up? )...... Sicher kein Zufall das Gold in € momentan nahe der historischen Hochs notiert ( siehe Daily gold price in a range of currencies since January 2000 ) .

So begin the (serious) sovereign downgrades…? FT Alphaville

Not just developing world sovereigns either. From S&P today (emphasis ours):

Jan 12 - Standard & Poor’s Ratings Services today said it had placed its ‘AAA’ long-term foreign and local currency sovereign credit ratings on the Kingdom of Spain on CreditWatch with negative implications. A CreditWatch listing signals a potential but not inevitable change in a rating over the short term.

The ‘A-1+’ short-term ratings were affirmed.

“The CreditWatch placement reflects our view of the significant challenges facing the Spanish economy as it traverses a period of very weak growth, and a sustained period of deleveraging, which we expect to lead to a rebalancing toward traded sectors requiring real exchange rate depreciation,” Standard & Poor’s credit analyst Trevor Cullinan said.

In our opinion, the credit-driven nature of Spain’s strong growth performance in recent years has led to a build-up in imbalances, as evidenced by the sizeable current account deficit (around 10% of GDP in 2008).

> For more insights read Why Spain’s Economic Crisis Is Something More Than A “Housing Slump” from A Fistful Of Euros / Edward Hugh. Cleary worth a AAA rating.......

> Deutlich mehr Details bitte Why Spain’s Economic Crisis Is Something More Than A “Housing Slump” von A Fistful Of Euros / Edward Hugh lesen. Klarer AAA Kandidat.......

Due to the need for the private sector to restructure and deleverage balance sheets, we believe that the unwinding of the deficit increases the probability of a protracted economic slowdown… Despite a relatively strong starting position, we expect the Kingdom’s public finances to deteriorate markedly, with the general government deficit rising well above 3% of GDP until 2011, and peaking above 6% in 2009.

Now this is only a ratings watch action. No downgrade is necessarily forthcoming. It’s just a distinct possibility.

The spectre of which might go some way as to suggesting why CDS on a triple-A-rated sovereign should be a possibility. Something which has been discussed on FT Alphaville before.

Downgraded securities carry more onerous regulatory risk weightings under the Basel II ratings-based approach:

… unless you have a hedge in place. Such as a sovereign CDS.

That might go some way towards explaining why CDS contracts on Spain are some of the most heavily traded - and have the highest net notional levels - $13,489,091,873 according to the latest DTCC data.

Also up there with Spain: Italy. $158,198,385,126bn gross, $18,283,028,951 net.

If there are downgrades in the Eurozone, there could be some other rather nasty effects.

Country Default Risk Rises Across the Board Bespoke

Ireland, Austria, Greece, and the UK have seen default risk rise the most over the last month. All have risen close to or more than 100%. US default risk has risen the 8th most at 68%.

> Compare the table above from November 2008 with the latest news from last Friday and it looks like the "market" is once more way ahead of the agencies.....

> Vergleicht man die obrige Tabelle für den November 2008 mit der aktuellen Meldung von letztem Freitag sieht es ganz so aus als wenn die Märkte einen deutlich besseren Indikator als die Ratingagenturen abgeben..... Mal abwarten wann auch hier das Shorting verboten wird........:-)

FT Alphaville

On Friday, Greece and Ireland were also warned by the agency that their ratings could be downgraded as economic conditions worsen

> More evidence example that the market has lost total confidence in the rating agencies....

> Hier ein weiterer Beleg das der Markt zum Glück einiges an Vertrauen in die Methodik der ratingagneturen verloren hat

Credit-Default Swaps on Ireland, Spain Surge on Ratings Threat Bloomberg

Yields on the bonds of smaller European economies, such as Spain, Italy and Greece, have risen to the highest relative to German bunds since before the ECB was established a decade ago. Spanish 10-year notes yield 99 basis points more than bunds, up from 17 basis points one year ago. For Italian notes, the gap almost quadrupled to 141 basis points from 36 basis points.

> Needless to say that the US is of course a rock solid AAA..... For more AAA facts & charts read Deficits, Debt and Looming Disaster: Reform of Entitlement Programs May Be the Only Hope from the St. Louis Fed. I´m with Bill Gross ( see Ponzi meets treasuries bubble ) but am not willing to bet against bonds yet . Here is another very good summary on this topic ( On return-free risk and the bond bubble )It will be fascinating to see what happend to the bondmarket & the $ if the foreigners are finally waking up ( see Who Will Be Left To Buy US Treasuries...... ) I´m still fascinated how the US has manage to finance this ponzi game for years ( NO SARCASM!)....... UPDATE: Another must read via The Mess That Greenspan Made A deflationary spiral?? Not likely in the U.S

> Wie man bei den nachfolgenden Aussichten längerfristig ein AAA der USA rechtfertigen will wissen wohl nur die Ratingagenturen...... Für mehr AAA würdige Fakten und Charts bitte Deficits, Debt and Looming Disaster: Reform of Entitlement Programs May Be the Only Hope der St. Louis Fed lesen. Bin hier klar der Meinung von Bill Gross ( siehe Ponzi meets treasuries bubble ) traue mich aber noch nicht schon jetzt gegen die Bonds zu setzen. Hier kommt eine weiter sehr gute Zusammenfassung zum "Sratus" der US Staatsanleihen (On return-free risk and the bond bubble ) Ein Katalysator für den Shorteinstieg könnte sein wenn die Ausländer die ja den Großteil finanzieren sich aus den Auktionen zurückziehen oder was ja anscheinend keiner auch nur auf dem Radar hat aktiv anfangen Positionen zuverkaufen.Denke dann werden alle von einem "Black Swan" sprechen.( siehe Who Will Be Left To Buy US Treasuries.......) Bis dahin muß man den USA ehrlich Respekt dafür zollen das Sie es bisher geschafft haben Ihre Defizite zu diesen fast beispiellos günstigen Konditionen zu finanzieren. Das meine ich ausnahmsweise mal nicht sarkastisch. UPDATE: Hier noch ein echtes Sahnestück via The Mess That Greenspan Made A deflationary spiral?? Not likely in the U.S

Quote of the Day: S&P is Cool with U.S. Debt HT Infectious Greed

Quote of the day goes to S&P credit analysts for this comment while keeping U.S. credit at a “AAA” rating:

The rating (for the U.S.) was affirmed despite our judgment that fiscal risk has noticeably increased as we expect that the fiscal deterioration will be temporary.

Words to remember

Update / Hat Tip Credit Writedowns

New Zealand’s AA+ Credit Rating May Be Cut, S&P Says -

Bloomberg.com (The article sys “nations that have been downgraded from AAA previously include Japan, Sweden, Finland and Denmark. The rating company today affirmed Australia’s AAA rating.”)