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Super 8: Debt Boogeyman Overdone?
Had
dinner with a buddy last night and then we hooked up with another friend
to watch Steven Spielberg's Super 8. Hadn't been to the movies in a
long time and didn't know what to expect. It started off slow, but when
the action scenes hit the screen, I started getting into it. Won't
give away the plot, but the theme of the movie plays perfectly into my
latest topic, the debt boogeyman.
Tim Kiladze of the Globe and Mail reports, Greece weighs on Canada’s debt market:
Europe’s
debt crisis is thousands of kilometres away, but it’s helped to bring
Canada’s market for fixed-income financings grinding to a halt.
Even
though borrowing costs fell sharply in June, the volume of new debt
offerings by Canadian companies slid to its lowest level this year, as
investors’ anxiety about the possible implications of a Greek default
rose to new heights.
Typically, companies like
taking advantage of low rates, but they haven’t been able to this time
around because investors are too nervous to put money into new
corporate bonds, fearing that any negative news could send the value
of their new purchase plummeting. Should this hesitation continue,
issuers could be in trouble because many must borrow to fund their
growth strategies.
For the moment, the fears have been kept in
check. Greece’s parliament approved an austerity package last week,
and hopes that the European crisis is moving closer to a resolution
have helped to push down the spreads on Canadian provincial and
corporate bonds. Spreads are the extra yield that issuers must pay
above safer government bonds to compensate for added risk.
But
any sign that the European crisis isn’t contained could trigger a new
avalanche of worry. New financings were virtually non-existent in
Canada last week, with only one deal coming to market, and no new offers
have popped up since the long weekend. Plus, rating agency Moody’s
cut Portugal’s debt rating to junk status on Tuesday, which could
further hamper the fixed-income markets.
“People are
very, very cautious,” said fixed-income analyst Jean-François Godin at
Desjardins Securities. “You don’t need much of a story to make
investors shy or request higher spreads.”
Many investors seem content to park themselves on the sidelines and watch.
“Look how fast the sovereign crisis spread [between] Ireland, Greece,
Spain,” Mr. Godin said. “People know that if you buy at the wrong
time, all of the spreads can blow up in your face” – meaning yields
would move higher. Higher yields on bonds mean lower prices.
At
Alberta Investment Management Corp., which oversees $70-billion in
pension and other funds, chief executive officer Leo de Bever has even
started pressing to reduce the province’s exposure to bonds. Citing
problems like those in Greece, Mr. de Bever worries that systemic
changes could be under way, such as investors beginning to view
corporate bonds as a less risky product relative to sovereign bonds.
With such unpredictable outcomes, AIMCo would rather be less exposed to
the asset class.
Because investors are so skittish,
they are now demanding that corporations pay bigger spreads for new
issues, Mr. Godin said. While Greece’s troubles are far away, the
capital markets are so interconnected that European fears quickly
spread to Canada and investors have adopted a risk-averse mentality.
Even though yields are lower, corporate issuers have balked at paying
those higher spreads because they believe their risk hasn’t increased,
and that has contributed to the dearth of new issues.
However,
Greece isn’t the only culprit. A slew of companies financed from
January to March because they expected the Bank of Canada to hike
interest rates. Those firms have already raised their funding
requirements.Plus, Canadian banks typically dominate
new issues and they were particularly active during the first quarter,
as many home-buyers looked to borrow in advance of new, tighter rules
on mortgages. To fund the mortgages, the banks had to finance in the
public markets.
Following those two trends, the market has only
gotten shakier. “I think it’s wrong to attribute the decline in
yields to the worry about Greece alone,” said fixed-income strategist
Mark Chandler at RBC Dominion Securities. “Equally there was concern
about the weakness in some of the economic statistics” that started
coming out in April, he said.
In
response, investors started heading to the sidelines. Corporate
issuance of new bonds fell in April to $8.9-billion and has plummeted to
$4-billion in June. For the quarter, $20-billion was raised, versus
$32-billion in the first quarter.
But that doesn’t mean
all is lost, said Mr. Godin. “We had a very, very strong first three
months and obviously we could not support that kind of pace.”
The
trend also isn’t exclusive to Canada. South of the border, corporate
bond issues totalled $58.5-billion (U.S.) in June, the lowest total in
over a year, according to Bloomberg.
While there are
some signs of a turnaround, there are also fears that the market for
new issues will stay tight during the summer, when fixed-income
issuance is typically slower. That means companies may have a hard time
borrowing all the way until Labour Day.
Still, corporate
issuers appear ready to strike as soon as confidence shores up. “I
think there are a couple of deals, at least on the corporate side, that
are waiting to be brought back to the market once the crisis fades,”
Mr. Godin said.
This entire "debt crisis" is
starting to get on my nerves. Turn on the television and all you hear is
about how another country got downgraded to junk status by those
corrupt ratings agencies, the latest being Portugal. The timing of
these announcements is extremely fishy.
How corrupt are ratings agencies? Enough for Europe to issue a
full-throated assault on credit ratings agencies on Wednesday, saying
there were signs of bias against the European Union after Moody's downgraded Portugal's debt to "junk" status.
Moreover, according to Bloomberg,
European lawmakers called for restrictions on traders' use of
credit-default swaps to profit from defaults on sovereign debt they
don't own:
The European Union Parliament in
Strasbourg, France, also voted in favor of a ban on short selling of
government bonds in the EU unless traders have at least “located and
reserved” in advance the securities they intend to sell.
“Today we are sending a very strong political message,” Pascal
Canfin, a French lawmaker who is responsible the legislation in
Parliament, said after the vote. Negotiations on the measures with
governments in the 27-nation region will continue next week, he said.
Politicians including German Chancellor Angela Merkel and French
President Nicolas Sarkozy have claimed that naked short- selling and
credit-default swaps worsened the euro area's sovereign-debt crisis,
and have called for EU curbs. Michel Barnier, the EU's
financial-services chief, said last year such trades may lead to
“disorderly markets and systemic risks.”
The Parliament is seeking tougher curbs on short selling and sovereign CDS than those supported by most EU governments.
The assembly called for a ban on the buying and selling of
credit-default swaps on European Union nations' debt, unless the buyer
either owns the underlying security or another asset whose market price
moves in close tandem with it. That would allow investors to take out
insurance if they know that a default would harm their non-sovereign
holdings such as shares in companies in the defaulting nation.
Greek Crisis
Greece's fiscal crisis shows “how urgent and necessary legislation
in this field is,” Canfin said in an e-mailed statement. “Traders
dealing in Greek CDS are throwing oil on the fire, with their only goal
being that of making money.”
The Alternative
Investment Management Association, which represents hedge funds, has
warned that a naked CDS ban could “push up government borrowing costs.”
Finance ministers from the 27-nation region agreed in May that
traders should be allowed to short sell government bonds and stocks if
they have a “reasonable expectation” that they can obtain the
underlying securities. They also rejected calls from Germany for a ban
on sovereign CDS.
Here are my thoughts on this. Normally, I would agree that these
regulations will only drive up interest rates and thus government
borrowing costs, but the reality is that large hedge funds and bank prop
desks have profited enormously from speculative activity via naked CDS.
In other words, they're talking up their books, which is why they
loathe regulation in this area. (While they're at it, regulators should
also enforce the law and ban naked short selling in the stock market!).
All this to say
that the Europeans are finally waking up to the corrupt nature of
ratings agencies and their hedge fund masters. They work together to
make enormous profits. This whole debt crisis has been blown way out of
hand so that the financial oligarchs can engorge themselves as they
collect 2 & 20, claiming they're delivering true alpha. Remember the
story of the bankers going to Louis the XIV to tell him that France was
insolvent. I have a feeling my buddy is right, today's bankers and
hedge fund "royalties" are pushing the limits and they will suffer the
same fate.
That's why I'm not overly concerned with the debt
boogeyman and remain long risk assets, realizing that while train wrecks
make great movie scenes (see below), in the real world, there isn't
going to be a massive debt derailment unless you give speculators
and rating agencies free reign. It's high time regulators cut off the heads of ratings
agencies and greedy speculators who are wreaking havoc on global credit
markets and causing irreparable damage to the real economy.
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Die already leo, you sociopathic sack of shit.
Just .... die.
Hahahaha! Never, I can take you and all the fleas here on in my sleep!!!
Yes, but you have an unfair advantage --- being unable to feel fear, what with your lack of a cerebral cortex. Or wait, that emotion is processed down in the reptilian brainstem, isn't it? Right along with all those other "animal spirits".
Leo is busy making money, swimming and tanning in Montreal while ZH bitchez whine on-line! Here, let me throw them a bone...
"unless you give speculators and rating agencies free reign..."
The Big Picture
In the old days, pop expected his kids to learn to take care of themselves, by studying hard, working hard, and standing up to individual bullies in their way, or catch hell. Pop allowed others to take advantage of him somewhat, because he didn’t care what stupid people and their stupid kids did, which pissed off his family to no end, and if an authority figure bullied his kids, he didn’t say anything; he paid a visit to the authority figure and that was the end of it.
These days, pop is retired, having raised a brood of hard-working, intelligent kids, who all understand respect, social responsibility for individual privilege, and he sits in his rocker on the porch of a non-descript house, watching life go by, but don’t be lulled into a false sense of security. If dad has to get up out of that chair, there is going to be hell to pay, but dad is not the one you have to worry about.
Technology is not good or bad. It’s a tool, and its use depends on the operator. Its availability depends upon the designer, and the best designers seek God, on the event horizon, which is why they always appear to be at the right place, at the right time, with the right tool, and just enough force to get the job done.
At the aggregate level, Caesar has a big army, a bigger navy, nuclear bombs, and computers watching everyone. The only people that pass the security posted at the door are servants. Pop walks in, tells Caesar to leave his kids alone or lose the kingdom and all its toys.
Caesar made the mistake of f***ing with the old man by making intelligence unlawful, subject to imprisonment, and hell is on the kingdom’s horizon, while his servants watch re-runs of previous exploits on tv, in a castle, behind a levee, built for the purpose. That’s it; keep building shovel-ready bridges, dams and levees in China, to extend the long arm of the law.
The façade of derivative details change, but the integral system does not. Contrary to popular mythology, the protons are not the core of the system. They are gravity placed for a purpose. When the purpose is complete, the illusion collapses. Being angry at Caesar and his minions is like yelling at a rock. Employing a tool out of purpose is an error, but that is how we learn. Understanding relativity is a function of intelligent patience. Don’t make the same mistake twice and expect a different conclusion.
Rolling debt over as it approaches 0%, in a rigged lottery system, enabled by pension promises, with no expectation of reprisal is...
...the definition of insanity and/or hubris. so be it. don't fuck with pop.
Leo, your proposal to ban naked shorting of CDS and Equities is quite foolish, as that would drive up the costs of hedging. The real problem here is when we allow punters to take positions without allocating capital: the best example of this is AIG, writing CDS and not setting aside any reserves for the losses that would inevitably occur at some point.
Finally, you don't seem to understand the magnitude of the losses that the system is still hiding. For example: look at the BOA countrywide settlement ($8.5b now; another $5.5 or so later). The press release concerning the settlement states that the losses on just this batch of RMBS securitizations was $200b. How many more batches are there of this size, with this magnitude of losses? Probably 10x as many. So the losses here are $2 trillion. The banks, insurance companies and pension funds that are going to have to eventually recognize these losses will need to be completely recapitalized. This is a tidal wave coming; don't be fooled by the waters that are initially receeding.
This reads like propaganda. I mean, shit, an "opinion piece" is one thing, but there isn't any meat on these bones AT ALL.
Leo, I would love for you to provide some math, ANY MATH, that backs up your assertions. I am all for contrary opinions, but your guest posts here have become nothing but puerile flame-bait.
I kind of hope it is...for his sake.
Leo's articles have become psychological not financial pieces. Maybe that's why ZH posts them. There are a lot of people who just can't face this despite whatever fiduciary duties they may have, bills they must pay or children they must raise.
Leo thinks that CDS and short sellers are the problem. So he wants them to go away. Who are the horrible folks who are selling these bonds? Can we string them up?
Leo tells us who (some of them) are. They are his best buds:
At Alberta Investment Management Corp., which oversees $70-billion in pension and other funds, chief executive officer Leo de Bever has even started pressing to reduce the province’s exposure to bonds.
“People are very, very cautious,” said fixed-income analyst Jean-François Godin at Desjardins Securities.
So leo, just who are these evil folks you want to lock up? I think they are just folks trying to do their job. They are trying to protect the interest of their investors.
It's the same guys you love to quote.
Do you really think that putting a margin squeeze on Portuguese collateral would make a difference? Maybe for a week or a month. But when you do these stupid things no investor in their right mind would want to invest. You will create a very dirty float.
I'm continuosly surprised that you don't see the conflict.You write about everyday, but seem not read your own words.
He doesn't understand Bastiat's basic premise of the seen and the unseen.
When you're invested in the Ponzi, you PR the ponzi. Can't blame LK...when the Ponzi goes, no more pension funds. No more pensions. Good.
Indeed.
leo clings to the Matrix like a baby clings to its blanket --- or like a drunk clings to his bottle.
Yes, leo's absurd argument is just an analogue of the cynical, disingenuous and/or ignorant Establishment aparatchik blaming the "speculators" for the rises in prices of commodities that are the direct result of governmental currency creation and value dilution ("inflation"), or the many other financial distortions caused by governmental meddling and interference in the economy.
If the EU were really concerned with naked shorts they could kill them in an instant. Take a puny, spare $50B and go long on EU bonds. Throw the money at them in a series of puts and get the fears of the naked shorts into a fever pitch. All at once there will be a rush for the exits and Randolph and Mortimer Duke will be ruined. It's the easiest way to tax the rich.
I don't think most of them even understand what shorting is or how a CDS works. It's in their nature to defend by looking for a scape goat to persecute.
Why don't they call out the fucking European banks on their hedge trades?
'Long risk assets????'
About 10 days ago you were all cash. When did you get long???
Don't even try to figure out the illogical, irrational and contradictory statements of leo --- such an intellectually Herculean task would drive any man insane.
it would be like trying to untie the Gordian Knot. With one hand. Blindfolded. On a pogo stick.
One question, are you wearing a cape when you comment on Leos posts ;-)
Yes, you nailed me William! And sometimes a mask too.
My cape is bright green, and has a large "L" in a circle, with a diagonal line through it.
I am ..... Anti-Leo Man!
Defender of truth, justice, and the ZeroHedge way!
Faster than a speeding Federal Reserve printer!
More powerful than the latest QE program!
Able to leap tall piles of leo's Keynesian bullshit in a single bound!
LOL!
Bingo!
Leo:
No one is concerned by the debt issue. Other wise risk assets would not be rallying given that defaults of some sort are a given. Incidentally, the total amount of debt in question in Greece is about two years profits of European banks.
The entire system is being held hostage because the banksters do not want to lose an year of bonuses. It would be much better if they take their hits and cleanse the system. Moody's action was very appropriate. It came AFTER the Greek bailout confirmed a selective default. Once it was clear that the troika is supporting it, the rating agencies are duty-bound to warn investors of the risk; isn't that what they are for?
##
in the real world, there isn't going to be a massive debt derailment unless you give speculators and rating agencies free reign
###
Leo , my not so subtle friend, :))
sorry to bring you bad news, but THAT KIND OF NEWS WILL FOR NEXT 5-10 YEARS..
its been Greece for last 2 years, not its Portugal.. how do you like 2yy yeilding 17%..? I guess local businesses will like it a lot there ..
but wait there's an Ireland too, then Spain and Italy.. did you check 10yy for Italy .. its 5%.. red flag..
but leo its small fish.. wait for 2012-2013, real shit is going to hit fan.. ITS CALLED FUCKING GREAT BRITAIN..
10YY FOR guilds is 3.3%.. its a joke.. BOE PRINTS FUCKING 10% OF GDP FOR 3 YEARs IN ROW.. thats scary..
but wait for REAL BIG KAHUNA ITS CALLED USA.. by 2014 us debt will be 20 trln $$.. thats a fucking nuclear..
#2
leo, my helplessly not so smart friend..
DID YOU EVER TAKE DIRECT POSITION IN GOV BONDS ? i doubt it..
you called them speculators but in reality they're prudent investors.. why?? cause THEY FUCKING REFUSED TO BUY GREEK/IRELAND BONDS ANYMORE.. thats why bond rates are so high..
on contrary if you would buy greek 2yy bond yielding 27%, you would be fucking speculator cause you 'd speculate somehow Greece debt problems would disappear .. sorry pal,, wont happen..
GAME IS OVER FOR EUROPE, IN 1 YEAR IT WILL BE OVER FOR USA
alx
Up to now Leo's Greek pandering has been tolerable and understandable given his Greek heritage. With this post he loses all credibility. Someone should revoke his posting privileges.
Someone should have revoked leo's posting priviledges over a year ago, back when he was frequently making his absurd and disgusting pro-Bernanke, pro-debt, pro-corruption, pro-central bankster, pro-EVERYTHING-status-quo comments here on ZH --- and routinely having them, rightfully and justifiably, junked into oblivion by dozens of outraged ZH members. It is not for no reason that he rarely ventures in the comment sections any longer, as he knows he is just going to have his egregiously and rabidly statist, pro-Establishment propaganda sound-bites junked until they die again and again.
I have asked this many times before, and I DEMAND that you, Tyler, answer me now: Why is this idiotic, Keynesian son of a bitch Leo Quislingasskiss even allowed to sully your website and post his vile and ridiculous crap here, in opposition to EVERYTHING that ZeroHedge otherwise advocates, supports and stands for?
Tyler, answer this question already! After allowing this farce to continue, it is not just leo's (non)credibility that is being called into question here
What's useful about his posts is that it helps you remember that there will always be willfully ignorant suckers on the other end of your trades. It's the Leo's of the world that make buying physical gold so much more reasonable from a dollar price standpoint, and given that I still get paid in dollars for my day job, this is important.
It's difficult if not impossible to move around in this society without being reminded of that.
chill pal. aint free country, isnt it ?
Tyler does right thing to publish Leo rubbish, it called freedom of press.
think about leo as he's like brainwashed 'wanna be investor'.. his constant references ' my buddy at the diner' is simple posturing..
of course you wont hear from Leo 'I LONG /SHORT ' ..
he's trying to shorcut into finance circles publishing junk.. hey everybody must make living..
give pal a slack
alx
With respect, Alex, that is just a moral and intellectual cop-out.
And tell me, why do we need to 'balance" truth and honesty here with the bullshit and lies of little leo? If we wanted to read specious, statist, pro-Keynesian crap, there are any number of other websites at which to find it.
Grow a backbone already, dammit, and confront evil,absurdity and lies when you see them!
And we certainly see all three in the intellectually (and morally) insulting pro-status-quo swill of leo Quislingasskiss.
Leo's posts have their place, if for no other reason they force us to constantly scrutinize our own positions. So far, he hasn't said anything to make me reconsider. And it's good for us to have a market place of ideas, even if that includes some bad ones.
Leo's posts have their place, if for no other reason they force us to constantly scrutinize our own positions. So far, he hasn't said anything to make me reconsider. And it's good for us to have a market place of ideas, even if that includes some bad ones.
agree 100%..
but, dont think there's even one supporter of leo junk.. so he's not mightly evil, just a tool..:)
alx
Rating agencies are obviously beholden to those that pay them (issurers). That's why they rated junk as AAA.
No problem with them being sued into bankruptcy for there behavior in helping facilitate subprime mess.
However, to say that they are responsible for people realizing that the developed world is insolvent it ridiculous!
No matter whether the rating agencies call it a default or not, default (explicit or implicit) is coming for every major nation, including China.
Agreed- the only thing left to determine is who shall take the losses: creditors, taxpayers, or those who suffer the costs of money-printing.
Based upon the last week or so, many agree that there is no reason to be concerned. I still am! But I make my moves based upon what the market tells me, not my personal bias.
Yes, and I haven't died yet. So that must mean I'm not going to. What is it about the perfect (..ly terminal) track-record of fiat that you refuse to accept as reality?
"Reality" .... "leo" .... ???
Does not compute.
This entire "debt crisis" is starting to get on my nerves. Turn on the television and all you hear is about how another country got downgraded to junk status by those corrupt ratings agencies, the latest being Portugal. The timing of these announcements is extremely fishy. How corrupt are ratings agencies?
Corrupt enough to downgrade "small fries" like Greece and Portugal while avoiding the elephant in the room - the debt of the United States of America.
Perhaps people should start considering the possibility that, when nobody can pay anybody back, everything is junk (including this post?).
Cheers,
-FN
This is a huge relief. I thought the problem was that countries had national debts in the trillions, and bugdet deficits in billions and trillions. I thought the problem was a massive, irreconcilable insolvency of nations and giant financial corporations.
Good to know that the real problem is really speculators and CDS's - much easier to solve.
For a while there, I thought we were fucked beyond redemption. The clouds have parted. Nothing but blue skies and smooth sailing ahead.
Phew!
LOL
So much effort wasted on a futile attempt to shoot the messengers.
If the ratings agencies were truly honest, they would immediately downgrade Greece and the rest of the PIIGS to default status due to the transparently obvious truth that they can never repay their debts without abandoning their welfare states and siesta cultures. As if.
++
I'm currently out of work and trading gas, oil, gold, and silver to pay my bills....
Am I a "greedy speculator"?? Oh wow, I always wanted a marketable title!!! "Aerospace Engineer" doesn't cut it right now since CN Obama is shutting down the US space program so Granny can keep her medicare.
You are what we call a "liquidity provider" - you're welcome :-)
Drinking beer puts one into the same category too.
Yep, still dumb as a doorknob
Tyler, damn you, why do you allow this leo farce to even continue here?
you are the one who always cruises around looking to scrap so finish your own fights bitch
junk me bitch's haha