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Latest Rumor Sees 16-17% Greek Bond Haircut, Sending European Stocks Soaring
The latest targeted leak in the European "stress" tests is that according to German bank sources, the discount on Greek debt will be in the 16-17% ballpark. This compares to an earlier rumor leak of a 10% discount on Greek debt which however did not sufficiently spike the market, leading to rumor #2 which so far has done a good job at pushing the AUDJPY (aka stocks) higher. The quid pro quo however, is to take not only German but now French bonds, will be out of the "stressed" picture. As Reuters reports: "The presumed markdown applied to French sovereign bonds will be 0.7 percent, one of the sources, both of which are based in Germany, added. "German sovereign bonds will not be stressed," both sources confirmed." Of course, with Greek bonds being stressed to market (which is where the discount actually implies they are tested), French bonds would would suffer a far greater markdown than 0.7%. But then again, the EU has already bought up a ton of Greek bonds, and little if any French. Can't have the bank pick and choose which country to bail out now, can it.
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HipHipHooray!! Its all over!! My 401(k) is saved!!
I'm going 100% US equities!! All is well!!
whatajoke
Crafty buggers, news like this makes me think the insanity can continue for much longer than most anticipate.
I agree. It can continue for a very long time. It's not the news that moves the market, but people who are willing to believe the news. Or at least anticipate other people believing the news.
People rarely move off their ideological soap box. So rumors such as these, which are intended to move the market in either direction, are simply floated to provide (false) hope and embolden one group over another for however long the momentum can be maintained.
A game of tennis, back and forth, back and forth.
simply floated to provide (false) hope and embolden one group over another for however long the momentum can be maintained
Exactly. The bulls needed some headlines to stack up on their side and the CBs provided and will continue to provide whenever necessary. It can be maintained as long as the casual observer still isn't forced to acknowledge his/her surroundings (Fall 2008).
I've been conducting annual meetings with some clients over the past few weeks and the meetings would best be described as surreal. While nearly everyone I've talked to fully expects things to get much worse, since things "seem" to be "not bad" or "no worse" everyone is sort of standing around wondering who will run first.
The best analogy I can come up with is living below a huge dam that's beginning to show serious cracks both in the dam itself as well as water infiltration under the foundation and from the rock walls it's anchored into.
While it's becoming increasingly obvious the dam is going to fail, because the (dam) workers continue to show up for work and the town's "leadership" spouts soothing words everyone feels it would be foolish to run when no one else is running.
The psychology of prior investment has everyone stuck in neutral. They've got too much to lose to be the first to leave, yet they don't wish to die. So everyone is waiting for someone else to make the first move.
Insanity. Or better yet, MAD as in Mutual Assured Destruction.
Good comment -- this is the Bystander Effect.
<http://en.wikipedia.org/wiki/Bystander_effect>
more accurately, "information cascade"
Dam Nation! Good idea for an image!
SAFETY IN NUMBERS:
http://williambanzai7.blogspot.com/2010/07/safety-in-numbers.html
That's all I see as well. It has taken me two months of constant badgering with data for my family to call their brokers and even start to take action for a worsening scenario even though they know things are bad.
CD,
+1000..
I call it the "DEER IN THE HEADLIGHT LOOK".
One commentator called it the "Jason Bourne market" - everyone's watching the exit, and thinking they are going to be able to make it there first.
People have been taught so long that the status quo is a constant bull market, houses are like ATMs and we can borrow our way to prosperity. Why should anything change? Everyone is a financial genius and you are just there to rain on their parade even though it is the sad ugly reality.
First step in any con is to read the mark. What will they believe because they need to believe it? Once you know that, just say it.
Nice succinct explanation. Our egos simply won't allow us to see that we are all hostages to our ingrained beliefs and biases.
For example, "I've lost too much money in the market already and with only a few years until retirement, I "need" the market to go up."
But once you see the manifold creation pathways for ego and how it functions you can begin to dissamble the old programming and change your personal paradigm.
Only if we want to. The pathway you suggest means lots of pain and emotional distress as we disassemble our denial, lies and insanity.
Or we can chug another diet Coke and turn on the boob tube. The choice is ours. Most will take the "lower" pain pathway, even if it means more pain later. It's the "later" part of the equation that's so appealing to our society.
And we wonder why our leadership kicks the can down the highway.
Crafty? Exactly what is crafty? ECB/Fed circulating news to "the market" is akin to a serpant eating its own tail
You don't find any creativity or ingenuity in their ability to plaster over reality?
Not really becuase it is the sound of one hand clapping. The only people left in the market are the ones perpetuating the levitation. Putting aside the 401K complex which has been locked in a defacto capital control or subsidy, take your pick. Is it a surprise that the sheep in the A/M and I/B community believe what they smoke? No, they get paid to do it.
So all us mere peasants get it clearly, yet the 'big guys' are fooled by the slightest BS rumors? Nah somethings wrong here I dont believe it can continue for as long as even the most pessimistic think it can.
Can someone explain to me the following sentence "French bonds would would suffer a far greater markdown than 0.7%" please?
Thanks!
Is another way of saying "If they really want to reflect the reality of the European bond market, they should have to use a greater discount than just 0.7%, for testing porpusses of French bonds" Or in simple terms "The Test is a joke for French Bonds"
It looks like the propaganda machine just killed all the hard work Tyler, Denninger, Keiser put into their charts. At least we know Adobe PS is in full vigor.
The haircut on the bonds of insolvent countries, and the effect thereof on insolvent banks causing a rally.
I love the spin cycle.
Lather, rinse, repeat.
How very domestic of you :)
Why the Euro Crisis Is Far From Over
Some problems that the politicians there don’t address:
1. Greece has a giant union problem. Aside from the government and its agencies, the Greek public sector includes a variety of enterprises in various sectors of the economy. Some of these concerns enjoy monopoly status, such as the Public Power Corporation, the Greek Telecommunications, and Olympic Airways, which alone operates domestic air travel. Other public-sector enterprises, most notably national banks and manufacturing companies owned by them, coexist with private firms in their field of activity. They need to be dismantled, not negotiated with.( All you wanted to know about the Greek public sector and unions.)
2. It is politicly impossible to make the budget cuts that are need for an “internal devaluation”, which is a code for deflation. If Greece is to stay in Euro they need to cut wages by 30%, and that includes the government sector.
3. The bond market doesn’t agree with the politicians, and as the last two years have shown the bond market is usually right. With a 10 year note at over 10%(!) And falling domestic demand no economy can survive. Businesses can’t borrow money to expand or even stay in business.
I could never understand why any bank would borrow Greece money in the first place. They have defaulted more times then I've had sex. Now I know that really doesn't say anything to anybody because you have no prior knowledge of my sex life, but let me put it this way.... A lot. Lately, not so much.
Are you trying to say "lend Greece money in the first place" rather than "borrow"?
CD, I'm not a smart man, but I think my main point was I'm not getting much sex anymore. I just didn't know how to casually bring it up on an economic blog.
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