May 15th, 2012
Earlier, we reported on media speculation that this was a done deal. We now get confirmation.
- GREEK FINANCE MINISTRY TO PAY EU435 MLN BOND
- GREECE SAYS TODAY'S DECISION DOESN'T PREJUDICE FUTURE DECISIONS - no, just those you have to COMPLY with
In other words, just as Zero Hedge predicted in January, non-Greek law bondholders, who did not comply with the PSI, had all the leverage. And again: congratulation to all those who were not Steve Rattnered into agreeing to the PSI, and held out: the 135% annualized return is worth it. Just keep this in mind when the PSIs of Portugal, Ireland, Spain and Italy take places next.
We suspect, when we look back on Europe some months from now, that we will see; a love affair gone badly due to conditions beyond anyone’s control and a separation that, while bound in great sadness, is what the Fates have determined for the actors in this grand drama. Extending the unreality, foillowing news that Greece will - as expected - hold new elections, today the new French President and the German Chancellor will meet for the first time. They will issue a statement promising cooperation, a brighter Europe, some vision of a grand alliance and an eternal pledge for the spirit of unity between the French and the German people. Believe none of it. The Germans are already targeting Vichy as the new place of government in France and there is an active search underway to find the decedents of Marshal Petain. There was an armistice between Germany and France in 1940 and there may be a new one announced today but the new one, like the old one, will be a short lived affair as the goals of France and the goals of Germany could not be further apart.
America may not sell many new homes (read - sales are near or at all time lows), but that does not prevent homebuilders from having a dream, or in this case confidence that soon, soon, SOON, things will finally improve. Sure enough, in May the NAHB homebuilder confidence soared to 29, from 24, on expectations of a 26 print. Of course, these numbers are completely meaningless, and only serve to get the algos ramping momentum in an upward direction. In the meantime, the reality of actual sales, can be seen on the chart below.
If there was one analogy we had not heard so far to the deplorable European situation, it was that to P.T. Barnum's infamous "Egress." Following this morning's Art Cashin note, that is no longer the case. Granted, since it references a museum exhibit, such as what the EUR, not to mention European socialism which recently ran out of other people's money, will soon be, it is about time...
In case anyone was wondering why such a fuss was made about a few far left and far right parties gaining ground in the Greek elections, here is the leader of the Greek Golden Dawn party - treating us to his world view. No commentary necessary.
- STRAUSS-KAHN FILES COUNTERCLAIM IN LAWSUIT BY HOTEL MAID
- FORMER IMF CHIEF SEEKS DAMAGES FROM HER FOR ALLEGED FALSE CLAIM
Time for the Onion to admit reality has bested it and graciously close down.
With the Greeks unable to hug it out and new elections (as per Venizelos and Kammenos) all but guaranteed, the probability that Greece will exit just went to 11 on the dial. Markets hiccupped and plunged, giving up all the German GDP gains and then some. EURUSD traded back below 1.2800 - trading 1.2780 as we post, S&P 500 e-mini futures dumped 13 points now below yesterday's lows, Europe's DAX took a dive, and all European sovereign bond spreads tore higher dominated by Portugal, Spain, and Italy (+38-48bps on the week now). Credit spreads are gapping wider in Europe and the US. Commodities, which had been limping a little higher - on weaker USD and growth-hopiness we suppose - have reversed those gains with Silver and Oil underperforming. Treasuries and Bunds in lockstep and notably lower in yield - to lows of day.
Wonder why the EURUSD is suddenly sliding? Here's why:
- GREEK ANTI-BAILOUT CONSERVATIVE KAMMENOS SAYS THERE IS NO DEAL ON GOVERNMENT -BBG
- KAMMENOS SAYS "THEY PREFER CREDITORS TO NATIONAL SOLUTION"
- KAMMENOS SAYS NEW ELECTIONS WILL BE HELD
Which means Syriza will win the June re-elections, likely with a strong majority, and what happens then is anyone's guess.
As either taxpayers or long-term JPM investors, we should be more grateful than sorry about the JPM CIO Ina Drew.
We bring you "baffle with bullshit" Tuesday edition, where retail Sales ex-autos miss consensus modestly, but the Empire Manufacturing beats by a mile.
Germany's Bundesbank confirmed yesterday that the German gold reserves are held overseas by the Federal Reserve, the Bank of England and the Banque de France. The German parliament, the Bundestag, has been examining the accounting of German gold reserves at the Bundesbank. The parliament's Budget Committee, one of the most powerful committees in the German parliament, had requested a critical report by the Federal Audit Office. "The decision has been unanimous," the paper quoted the Christian Social Union budget expert Herbert Frankenhauser. The newspaper report alleged "account cheating" regarding the German gold reserves. According to a Bild report, the federal auditing office complained of "inadequate diligence of the accounting of the gold reserves, which are stored in some foreign countries. Repatriation of the gold reserves is encouraged.” The Bundesbank confirmed that it, like many central banks, keeps part of its reserves in vaults at foreign central banks and said some of its gold is held at the Federal Reserve Bank of New York, the Banque de France and the Bank of England. It declined to say how much gold in total is held overseas or how much gold is stored with the Federal Reserve, Bank of England and Banque de France. The Bundesbank statement said it had complete confidence in the integrity of the central banks where the gold is held. "From these central banks, the German Bundesbank annually gets confirmation of the gold holdings in troy ounces as a basis for its accounting," the Bundesbank’s statement said.
European bourses are trading in modest positive territory ahead of the US open with early trade seeing moves higher across equities as Germany printed an expectation-beating 0.5% growth in their flash Q1 GDP. Elsewhere, Eurozone growth surprised to the upside somewhat, coming in flat against the expected contraction of 0.2%. However, as time passed, Greece garnered the focus of markets once more as they face a EUR 435mln foreign-law bond redemption today. Government source comments have somewhat reassured markets that the payment will be made, but participants await official confirmation. Further assisting the moves off the highs was a lower-than expected ZEW survey from Germany, with economists noting that the French and German elections have knocked confidence in the country over the past month.
Lots of stuff happening today.
- JPMorgan Said to Weigh Bonus Clawbacks After Loss (Bloomberg)
- Obama Says JPMorgan Loss Shows Need for Tighter Rules (Bloomberg)
- Greeks Try New Tack, Seeking Technocrat Slate (WSJ)
- Euro zone finance ministers dismiss Greek exit "propaganda" (Reuters)
- Romney’s business record under fire (FT)
- Tide Turning in Japan Deflation Fight, BOJ’s Top Economist Says (BBG)
- Euro Chiefs May Offer Leniency to Greece (Bloomberg)
- Portugal's Progress Won't Guarantee Funding (WSJ)
- EU Bank-Liquidity Bill Proceeds; U.K. May Protest (WSJ)
- Cameron pressed to boost enterprise (FT)
Update: the expected next step: "GREEK 2023 BOND PRICE FALLS TO 14.51 PERCENT OF FACE VALUE" - but it was a "no brainer" trade... a "trade of the year" trade... Tough break for Greylock. As we said "Um, distressed bond expert guys - the bonds you should have bought are the old UK-law bonds which may return par...at least you had some covenant cover." Oh well - at least it is "other people's money."
Back on January 22, (Subordination 101), we advised readers that the one virtually sure way to make a killing in the bond market is to i) buy up a fulcrum Greek piece of debt, i.e., international/UK-law bond with strong covenant protection ahead of the country's restructuring, ii) refuse participation in the cramming down PSI, which was nothing but a GM-type exercise in covenant stripping, and iii) sit back and enjoy the money trickle in. Back than the €450 million bond of May 15, 2012 traded at ~75. Today, that same bond is about to generate a 31.26% cash on cash return, or 135% annualized, as it is Greece that has blinked, and according to the FT, has decided to make a full bond payment on this issue to avoid an out of control sovereign default, even though by doing so, it reduces its cash holdings by a third to just over €1 billion as discussed yesterday, and risks pushing both the PSI participants and its citizens into a murderous rage, as instead of complying with its mouthing off during and after the PSI, that not one bondholder would get a par repayment (nor apparently use the cash for public proceeds such as paying salaries), the one entity who ended up having all the leverage was those bondholders, who went against the grain, and held to their covenant rights. Just as we suggested. End result...