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Latest PSI Terms Leaked; Imply Greek Redefault Within 2 Years

The first details of the Greek bond deal are leaking out via Reuters, and we now learn the reason for the Greek bond sell off in recent days:

  • UNDER GREEK DEBT SWAP, PRIVATE SECTOR WILL GET 3% COUPON ON BONDS FROM 2012-20, 3.75% COUPON FROM 2021 ONWARDS [2021... LOL]
  • PRIVATE SECTOR WILL ALSO GET A GDP-LINKED ADDITIONAL PAYMENT, CAPPED AT 1 PCT OF THE OUTSTANDING AMOUNT OF NEW BONDS [If it appears that nobody gives a rat's ass about this bullet point, it's because it's true]
  • GREEK BANK RECAPITALISATION NEEDS MAY NOW BE AS MUCH AS 50 BLN EUROS-DEBT SUSTAINABILITY ANALYSIS

Which in turn explains the sell off in pre-petition Greek junior triple subordinated bonds (i.e., those held by private unconnected investors, which are subordinated to the Troika's bailout loans, to the ECB's SMP purchases, to the Public Sector bonds and to UK-law bonds in that order). With the EFSF Bill "sweetener" amounting to about 15 cents (and likely less), the fact that bondholders will receive a 3% cash coupon, a cash on cash return based on Greek bonds of 2015 trading at just 20.7 cents on the euro, indicates that investors are expecting to collect 1 cash coupon payment, and at absolute best 2, before redefault, as buying a 2015 bond now at 20.7 of par, yields a full cash return of 21 (15+3+3), thus the third coupon payment is assured not to come. And since there is a substantial upside risk premium kicker to bond buyers, in reality the investing market is saying that Greece will last at best about a year following the debt exchange (if it ever even happens) before the country redefaults.



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Tomorrow And Tomorrow And Tomorrow

Once we see what Europe is really going to do, not what they have told us they might do, the real show gets underway. Everything up till now was just a preamble, a mincemeat of words flowing like a unsubstantiated river from mouths full of fluff, orated by the deceptors and laid out on a table where cheese was pointed to as Prime Rib and where radishes were sworn to be asparagus but these days end tomorrow and as sure as the sun rises in the East; tomorrow will arrive.  There is the collateral for Finland, the CDS trigger, the “Collective Action Clause, who is really represented by the IIF, the $20Bn budget shortfall, the contribution of the IMF, the methodology for handing Greece the money, possible further notions that Greece has not met its commitments, law suits on the way for the ECB’s subordination of private bond holders and for the “haircut” coercion where different classes of investors have been retroactively applied and for the retroactive implementation of some “CAC”. All of these things are forthcoming regardless of what we find in Europe’s pronouncements so that the lens laid over today’s sun will tomorrow be removed and the glare of the light will be startling in its clarity and reflection.



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As Everything Disconnects And Everything Is Soaring, Morgan Stanley Issues A Warning

The latest report from Morgan Stanley's Graham Secker can be summarized simply as follows: i) in January everything has disconnected as traditional linkages between asset classes have broken down, ii) also in January every major asset class (equities, treasurys, gold, oil) was up materially, iii) such a phenomenon has been seen only 5 times in the past 5 years, iv) a double digit decline followed 3 of the past 4 such surges. Then again, as Bob Janjuah lamented earlier, when a bunch of bespectacled economists who have never held a real job in their academic careers since transplanted with banker blessings to various central bank buildings, and who continue to plan the fate of the world in secrecy (a fate that can be summarized as follows: CTRL+P), as the only marginal decision makers, who really cares anymore?



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It's Bear Hunting Season

The ECB and Fed seemed to have pushed Roubini and others into the capitulation. As a rough guess, only about 3 of the up days this year had anything to do with earnings and economic data (the NFP day being the most obvious). The rest were all induced by some political or central bank action. Frankly I’m surprised we weren’t up more in Europe today with the Chinese Bank Reserve Ratio getting cut. At any moment we should get details of all the next steps for the Greek bailouts. We will get to see the ECB swap, the PSI proposal, and retroactive collective action clauses. It will be interesting to see how that works. After the Greek default (yes, bondholders giving up 50% of their notional is a default), it will be interesting to see how Greece does. Hopefully they will actually spend some time trying to figure out alternative ways to finance themselves than the ever more onerous bailout packages from the Troika.



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Peter Thiel Emerges As Ron Paul's Biggest Super PAC Backer; Bill Gross Next?

While it has been well-documented by now, that even as the campaign of Mitt Romney continues to be funded exclusively by Wall Street legacy firms, that of Ron Paul is largely in the hands of the US military. Yet when it comes to the recently infamous SuperPAC, things have changed. Because as Politico reports, of the roughly $3.4 million total in cash raised by the pro-Paul group Endorse Liberty since its founding on December 20, none other than PayPal cofounder and Clarium Capital chief Peter Thiel has donated $2.6 million. So as the renegade financier, whose opinion on Ben Bernanke and the gold standard is well-known to Zero Hedge regulars emerges as a primary backer of all that is wrong with the status quo, and the Ben Bernanke way of monetary suicide, we wonder who is next? Actually, scratch that: Bill Gross has already made his opinion well known vis-a-vis Ron Paul's candidacy. Isn't it about time the Newport Beach multibillionaire reached into his back pocket and put his money where his mouth is, especially following his tongue in cheek endorsement of Ron Paul for president?



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European Insurers: How Long Before Capital Denial Becomes Capital Punishment

Following the recent downgrades of many of the major European banks and insurers and last year's comments by Fitch on insurers' inability to pass on losses to policyholders, the hot-topic of ASSGEN, ALZ, and the rest of the capital-impaired forced-soakers-up-of-new-issue-demand in the European insurance market are under new pressure as The WSJ points out today that new 'rightly punitive' capital rules have been watered down. The 2014 introduction of 'Solvency II' - the insurers' equivalent to banks' Basel III capital rules - did indeed attempt to create risk-weighted capital requirements and better balance assets and liabilities within these firms. However, as Hester Plumridge notes, regulators bowed to industry pressure (again) adding the ability to shift discount rates to get around low-rate-implied valuations for their annuity streams and the introduction of a 'countercyclical premium' to avoid the growing (and negative) spread between distressed assets and rising liabilities. As Plumridge concludes, "a solvency regime that ignores all European sovereign credit risk looks increasingly unrealistic. Investors could end up none the wiser." After some systemic compression, the last week or so has seen insurers start to deteriorate as perhaps the market will enforce its own capital expectations even if regulators are unwilling to.



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Guest Post: Presidents Day - Why Can't We Nominate Our Own President? We Can, We Are

If the last 12 years have revealed anything, they have shown beyond reasonable doubt that both Status Quo political parties in the U.S. are hopelessly, ruinously corrupt and thus beyond any reform or redemption. We all know why: it now takes millions of dollars to run costly mainstream media election campaigns, and the only source for contributions of that scale is the financial/corporate Elite. It doesn't matter how you arrange the taxonomy of the financial aristocracy that rules the nation or how you subdivide it--old money, new money, family money, corporate money, etc.-- the bottom line is these campaign contributions are viewed by the aristocratic donors as investments that yield gargantuan returns in tax breaks, subsidies, bailouts, sweetheart contracts, "get out of jail free" cards for the shadow banking system, and so on.



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JPM Hikes Crude Price Forecast, Sees $120 WTI By Election Time

JPM brings some less than good news for the administration, which unless planning to propose another $500 billion or so gas price offsetting fiscal stimulus (which would bring total US debt to $17 trillion by the end of 2012) may find itself with the bulk of its electorate unable to drive to the voting booths come November. In a just revised crude forecast, JPM commodity analyst Larry Eagles, has hiked both his Crude and Brent expectations across the board, and now sees WTI going from $105 currently to a $120 by the end of the year, $4 higher than his prior forecast. Alas, since in another report from this morning titled "Return of Asset Reflation" JPM finally figures out what we have been saying for months, namely that the stealthy global central bank liquidity tsunami is finally spilling out of equity markets and into everything else, inflation is about to become a substantially topic in pre-election propaganda. As a reminder, when gold was at $1900 last summer, central banks had pumped about $2 trillion less into the markets. We expect the market to grasp this discrepancy shortly.



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Ken Rogoff: Greece Should Be Given A "Sabbatical From The Euro" As Kicking The PIIGS Can Will Just Drag Germany Down

There is nothing new in this interview of Spiegel magazine with Ken Rogoff, but it is refreshing to listen to a person who has at least some standing in the arena of grand self-delusion (i.e., economics and capital markets), telling it like it is. While he rehashes all the old points, these bear reminding as the key one is what happens to Germany as the can kicking becomes a new default exercise in preserving bank "solvency" at the expense of the last stable economy: when asked if in 2015 the Eurozone will be the same, his response: "It may well be the case that all current members remain in the euro zone, and that Germany keeps on shouldering the ever-increasing debts of other countries. But the price of such a scenario is very high for all involved: southern Europe would become embroiled in permanent stagnation and the German economy would eventually be dragged down to a slower growth trajectory." So even though everyone knows that Europe is doomed in its current configuration, let's all just pretend things shall be well, and keep the even more doomed banks alive for a few more quarters? Is the loss of a banker bonus truly such a great catastrophe to society that countries have to remain in a state of perpetual misery until it all finally unwinds? Judging by today's market action the answer is yes.



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Guest Post: Consequences To Expect If The U.S. Invades Iran

Let’s be honest, quite a few Americans love a good war, especially those Americans who have never had to bear witness to one first hand.  War is the ultimate tribally vicarious experience.  Anyone, even pudgy armchair generals with deep-seated feelings of personal inadequacy, can revel in the victories and actions of armies a half a world away as if they themselves stood on the front lines risking possible annihilation at the hands of dastardly cartoon-land “evil doers”.  They may have never done a single worthwhile thing in their lives, but at least they can bask in the perceived glory of their country’s military might.   This attitude of swollen ego through proxy is not limited to the “Right” side of the political spectrum as some might expect.  In fact, if the terrifyingly demented presidency of Barack Obama has proven anything so far, it is that elements of the “Left” are just as bloodthirsty as any NeoCon, and just as ready to blindly support the political supremacy of their “side” regardless of any broken promises, abandoned principles, or openly flaunted hypocrisies.  No matter how reasonable or irrefutable the arguments against a particular conflict are, there will ALWAYS be a certain percentage of the populace which ignores all logic and barrels forward to cheerlead violent actions which ultimately only benefit a select and elite few.



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Greek Headline Reality Check

Mainstream media is desperately scrambling to fill copy with stories of collaboration, rescue, heroism, sacrifice, and altruism among the European leaders. The dismal reality facing real people and real participants is quite different and as Peter Tchir points out "How many 'untruths' have become so accepted that they are now treated as facts or axioms". In an effort to get to the facts and reality, we disentangle Bloomberg's 'Greek Rescue' story and note the increasingly Orwellian nature of the events unfolding across the pond. But anyways, the machine is grinding along towards headlines of "rescue" where Greece will have been "saved" and "default will have been avoided" and it will be "great that banks and politicians worked to save Greece" in spite of the "lingering doubts that Greece will fulfill its obligations".



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Euro FinMin Meeting Soundbites Du Hopium

Update: And finally for some reality from Dutch fin min De Jager: "We Cannot Approve Second Programme For Greece Until Greece Has Met All Its Obligation"... And now we know who Germany's "+1" will be when Greece becomes Southern Goldman Bavaria: "De Jager Says He’s in Favor of a Permanent Troika in Athens"

We would love to share some witty comments and jovial banter on this latest set of soundbites by Europe's effete bureaucrati on occasion of the latest and greatest Greek bailout, however having already done so on at least 10 times in the past, we have run out of things to say in this particular context and frankly we are bored with this topic. Which is precisely the Eurogroup's intention. Presenting "soundbites du jour, Greece edition N+1".



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Beyond Greece: The Three Scenarios

As forecasts for peripheral macro data continue to deteriorate and core to strengthen modestly, there is little real comfort available from the European situation aside from the 800lb gorilla that all headlines are focused on today. Credit Suisse describes it as "a case of the outlook being less bad than expected, rather that it being better" and notes that post the Greek situation, despite the ongoing rally in the ever-thinning sovereign bond market, that risk premia (that were dangerously forgotten for the first decade of the Euro) will remain at elevated levels. CS sees three scenarios beyond Greece with even the best-case leaving questions of sustainability, trust, and continued negotiations yet the market's willingness to follow along the path of inevitably ruinous policies seems writ large with today's credit, equity, and FX strength.



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