Guest Post: Surprise! The Dollar Is Rallying... Or Is It?

If you have been wondering what is the real reason for the recent upswing in the US dollar, read on. I am very bullish on its future rise. This report follows our early December comments, which were appropriately called “The carry trade now in trouble.” Very clearly, we stated, “The carry trade as a barometer of things to come will show the unwind at the early stage. From my perspective it is here and now that the carry trade ends.” My recent enthusiasm is largely based on evidence gathered since 2007 of the loss of velocity in money aggregates. In other words, the money base is contracting or slowing down its expansion phase.

Goldman's Greek Budget Deficit Mea Culpa. On The Dot

As expected, following earlier protestation by the Greek finance ministry, Erik Nielsen recants (but not entirely). After all, who knows what else the Greek FinMin can disclose about GS swaps and other "financial innovation" exports, should this devolve to a full blown mudslinging competition.

Portugal Prices €3 Billion 10 Year Bond At 99.841, 4.823% Yield, 140 bps Over Swaps, 163.7 bps Over 2020 Bund

Portugal has managed to price the much anticipated €3 billion 10 Year bond.

Terms:

• Price: 99.841
• Yield: 4.823%
• Coupon 4.80%
• 140 bps over Swaps
• 163.7 bps over 10 Year Bund
• Ratings Aa2/A+ (ha ha ha ha)

Greece Finance Ministry Official Denies Budget Deficit Explosion, Says "Goldman Misunderstood Data"

Goldman is not making any friends today (to be expected - Greece likely does not need Goldman's creative swap accounting anymore - after all, they (Greece, not Goldman) are bankrupt right? Why else would they need a bailout). Earlier we first reported about Goldman's novel read of the "revised" Greek budget. It appears Greece is not too happy with this and is already blaming Goldman for data misinterpretation. We await Erik Nielsen's mea culpa.

Maastricht Treaty Article 103 (a)

"Where a Member State is in difficulties or is seriously threatened with severe difficulties caused by exceptional occurrences beyond its control, the Council may, acting unanimously on a proposal from the Commission, grant, under certain conditions, Community financial assistance to the Member State concerned. Where the severe difficulties are caused by natural disasters, the Council shall act by qualified majority. The President of the Council shall inform the European Parliament of the decision taken." - Maastricht Treaty, Article 103(a)2

Don't Expect A Formal Greek Annoncement Until Friday

For all Commodore 64 HFT setups expecting an imminent relief rally following a formal Greek bailout announcement, you may have to wait at least two more days. Dow Jones reports that a German official has said that finance ministers meeting this afternoon are "unlikely to make any decision and there is no aid for Greece on the agenda of Thursday's summit of EU leaders." Furthermore, "There doesn't exist any decision on such aid and it also isn't pending at present". Additional data points to the shape of the bailout: it appears a guarantee is the only, if any, way to go, after a source noted that a "refinancing of debt is not in Greek interest, as it would be seen as a default." With €3 billion in ten year notes set for auction by Portugal, we could be in for a very volatile day. The Portuguese 10 year Bund spread is currently 11 tighter to 137 bps.

Greece's 2009 Budget Deficit Was Just Revised From 12.2% To 16% Of GDP

Goldman's Erik Nielsen lands the bombshell that the Greek deficit mysteriously increased from €29.4 billion to a shopping €37.9 (keep in mind, this is not Bernanke notation where only quad- prefixes impress people at this point). This increases the (running) 2009 budget deficit from 12.2% to 16%! While certainly not the last time we hear of "prior revisions", the question of just how patient Germany will be, should this number approach, oh say, 50% once the artificial support of various Goldman swaps expires (and at 50% the BSDs like Goldman will surely round up to 100%), is very much open.