Archive - Apr 2010 - Story

Here's one for the history books - this is what a semi-inverted yield curve looks like. The reason for the shaded area, and why the curve isn't inverted off the bat: the IMF has pledged your money, dear Americans, to make sure Greece can at least roll its immediately maturing debt. Americans, via the IMF and Ben Bernanke's Frankensteinian printing press are now guaranteeing the differential between 10% and 5% on Greek <1 year debt. And why? Is it going to prevent a Greek default in the end? Of course not, but at least US taxpayers can enjoy some of the the great moral gratification that being a part of the Komintern provides.

Informative report from Bloomberg which highlights that if you are a baker, waiter, hairdresser, or radio presenter in Greece you qualify for early retirement. Taxes optional along the way. Oh, and throw in the most generous pension system in Europe: 11.6% of GDP goes to pension coverage, and one can see why every IMF involvement will bring the country closer to civil way. Why are Greece bonds not yielding 300% again? Oh yeah, cause between pensions and interest, you should see about 100 times GDP paid out to fund interest expense and retirement each year.

To all Goldman clients - our condolences: "Unfortunately the Eur was not able to squueze higher to our sell target of 1.3475 , so we have had to stick with the core rather than build an increased position . Eurostat 2009 estimates suggesting bigger budget defecits for Greece and other peripherals have accelerated the move out in Greek and other spreads . This in turn has led the euro lower but FX still has some way to go to catch up with the move in cds . As we sit here at 1.3335 the risk I think is still weighted to the downside . The chance of a test and break of the years low (1.3267) ahead of the weekend is high and I would still advocate playing from the short side . Resistance to the topside should now be strong between 1.3425/50 indeed given the current pressure a recovery back above 1.3400 would be disappointing . Any further fresh negative news or indeed a break of the lows could lead to an acceleration to the downmove and the prospect of a move to 1.30/1.31."

Move along, Greece is still "contained." There's probably 5 corporate names in all of the US that are yielding that much right now. And to add jet fuel to the flames, Handesblatt reports that a German party member says Greece should institute "further austerity measures or leave the eurozone." Goodbye euro.

All hell is breaking loose in Europe on the just released EuroStat report which presents an "objective" look at various countries' realistic debt and budget deficit pictures sans governmental propaganda and lies. And while Greece is getting pounded for good reason, another country where the discrepancy between estimates and reality was even worse is Portgual, whose deficit EuroStat disclosed at -9.4%, on expectations of a -8% number. In the meantime Goldman is reaping a veritable bonanza trading 1 Year Greek CDS (which is at 900 bps) which now has a 200 bps bid/ask spread! Other entities getting bushwhacked as a result include Ireland, which is 23 wider at 173 bps (nothing flattering about the Irish in the EuroStat report either), and Banco Comercial Portugues SA which is 38 bps wider to 297. PIIGS are officially in freefall after the truth has finally set them free.

WSJ reports that Isreal is investigating a pre-dawn launch of "at least one Katyusha rocket which landed near the Jordanian port of Aqaba." Jordan notes the report with passing indifference, and goes back to buying ES and AMZN using Redi and Sigma X.

Yesterday we found out that North Korea had, as everyone was well aware, in fact attacked South Korea by sinking its ship using a submarine torpedo, heating up geopolitics in the peninsula. Today we find out that Iran's Revolutionary Guard has started large-scale war games in the strategic Straits of Hormuz via Reuters. Surely, Israel will note this with passing indifference and go back to buying US consumer retail and REIT stocks in bulk, especially after watching Steve Liesman's latest "breaking" expose on Goldman by Goldman.

• Asia stocks decline, Yen gains on concern over Obama financial reform plan.
• Greek bond yields surged to new crisis highs, a move that coincides with a slump in volumes.
• Massive fire on an oil rig in the Gulf of Mexico left 11 workers missing.
• Russia, Egypt seek to raise $8.5B in return to overseas bond market.
• Singapore to review Hedge, PE funds rules as regulators increase oversight.
• Altria Group's Q1 earnings rose 38% to $813M on market share gains. Revs up 27%.
• AMR Corp.'s Q1 loss widened to $505M on higher fuel costs. Revs up 4.7% at $5.07B.
• AT&T's Q1 profit fell 21% to $2.48B, largely on a health-care charge. Revs flat at $30.65B.

Moore Capital, which was recently blamed for being a CDS "speculator" by Greece and the EU, discloses that it is in fact net long Greek duration (and its P&L is suffering as a result), according to a fund letter obtained by MarketWatch. It is thus not surprising that the fund is lamenting the botched Greek rescue, and the end of the EMU and hopes an effective bail out will soon be instituted. After all most leading hedge funds have been buying up Greek cash debt on the way down (and this certainly includes Paulson) without CDS hedging; they need it to avoid having the embarrassment of explaining to their LP how the only bet on global moral hazard so far this year has not panned out.

The finance minister has failed to convince Conservative MPs to approve his chosen tactic to get the financial help package for Greece fast through parliament. The finance minister had planned to "attach" the financial help to a draft law that had already passed most of the usual parliamentary hurdles. This plan, however, has now been rejected by the Conservative MPs who demanded a specific stand alone law. This may significantly delay the whole process of parliamentary approval. There is the possibility of fast track legislation that would take only about two weeks but the opposition would need to approve this. All this does not imply that the financial help will not be approved by parliament in the end, but it has significantly increased the possibility that the German part of the package will be disbursed only later. - Erik Nielsen

We warned you (here and here). EuroStat reports that the Greek budget was really 13.6% of GDP and the Debt/GDP is more like 115.1%. Greek bond spreads explode to a ridiculous 562 bps on the news, 3 years are at 870, and 5 Year CDS is at 565.

RANsquawk Breaking News: Greek Fears Re-Ignited And RANsquawk European Morning Briefing - Stocks, Bonds, FX 22/04/10

RANsquawk Breaking News: Greek Fears Re-Ignited

RANsquawk European Morning Briefing - Stocks, Bonds, FX etc. – 22/04/10

In a stunning revalation, Reuters reports that according to South Korean intelligence, the Cheonan ship sinking in late March is due to a torpedo fired by a North Korean submarine. The Kospi is down just 1% right now: we have a feeling it won't stay that way for long once this news is digested. After many had thought that South Korea was clearly covering for what was an overt North Korean act of aggression, this news is sure to take the Pacific Rim market to the edge. If Seoul is overtly accusing North Korea, it can only mean that South Korea will demand direct or indirect retaliation against the North as its government has already come out looking like both incompetent and cowardly. What kind of retaliation by the North this would in turn generate is completely unknown and could potentially escalate into full out conflict. According to South Korean intelligence and the US military, North Kora is now stepping up "drills to infiltrate a submarine south of the naval border, and wage a surprise attack against the South." Next stop - war? It may even cause the S&P to end on a downtick in tomorrow's session. On the other hand, global thermonuclear warfare surely is a victory for the gamma radiation scraper bulls.