Greece

Greece Is Saved, Again, As Eurozone And IMF Reach Deal On Greek Debt/GDP of 124% By 2020

No 4:00 AM morning session this time, as the general revulsion to even pretending to work on behalf of a totally destroyed country is tangible:

  • EURO ZONE MINISTERS, IMF REACH DEAL TO CUT GREEK DEBT TO 124 PCT/GDP IN 2020 THROUGH PACKAGE OF EXTRA STEPS TOTALLING 20 PCT/GDP -OFFICIAL

Phew - great, Greece is fixed or something. The only problem, of course, as we explained earlier, is that Greece has to magically grow its GDP by EUR 50 billion from EUR 184 billion to EUR235 billion by 2020 for this 124% debt/GDP to be hit (and another EUR 20 billion in the next two years). No, really.

EURUSD Coiling As Rumor (ECB) And Counter-Rumor (IMF) Dominate

Following the almost total lack of movement on the ECB 'savior' rumors, now we have IMF 'pain' rumors:

IMF WANTS EURO ZONE TO CUT GREEK DEBT BY 20 PCT OF GDP UP FRONT, COMMIT TO FURTHER REDUCTION LATER - Source

*IMF MAY WANT 40B EURO CUT IN GREEK DEBT, MORE LATER: REUTERS

EURUSD is just coiling and coiling here - but of the two rumors, t's EUR40bn write-down makes the most sense in a rational world of trying to help Greece (and therefore must be discounted as 100% not what will happen). We can only imagine that the EU tactic is now to throw each strawman to the rumor-mill to see what reaction is generated by the market - so far - #FAIL.

Eurogroup Scrambles With Greek "Solution" Late In The Day

Following their brief interruption for calculations, the Eurogrouop is back hard at work and a few absolutely meaningless and ridiculous headlines are being spewed:

  • *ECB SAID POISED TO RE-ACCEPT GREEK GOVT BONDS AS COLLATERAL (IF AID TRANCHE APPROVED)
  • *ECB SAID TO REOPEN ISSUE OF PORTFOLIO PROFITS ON GREEK BONDS
  • *ECB SAID TO ALSO LOOK AT OPTIONS OF BOND ROLLOVER, BUYBACK

The market, for reasons we note below, completely ignored this idiocy as anything of relevance as they continue to try to find a way to enable the Greeks to appear to pay their next principal via pure accounting shenanigans as opposed to the transfer of any real money. We wait with baited breath for how they are going to wriggle out of this one and remind readers of the buyback 'boondoggle' Q&A from the weekend, as it is the write-down that is what the market is focused on.

AVFMS's picture

Hard pressed to find anything remotely exciting today. Equities losing a little shine, but understandable given last week’s 5% rush (and 14% tightening in Credit). Bonds stuck in range. Fiscal Cliff hailing back (in yet rather timid manner, though). Waiting on Greek rescue revelations. Yawn!

"Sailing" (Bunds 1,41% -3; Spain 5,6% unch; Stoxx 2542 -0,4%; EUR 1,296 unch)

Quote Of The Day: "All EMU States Except Greece Oppose Debt Haircut"

The wunder-farce continues as hope remains that an accord on Greece can be reached this evening. German Finance Minister Steffen Kampeter believes "Greece has delivered" as pledged on reforms but, unlike the rest of the rational mathematics-capable free-world, believes that Greece can bridge its fiscal gap without a writedown, adding that:

  • *KAMPETER SAYS GREEK OSI WOULD MARK `END OF GERMAN SOLIDARITY'
  • *KAMPETER SAYS 16 [of 17!] EURO STATES REJECT GREEK OSI WRITEDOWN

Will beggars become choosers once again this evening?

"In Regione Caecorum Res Est Luscus"

We are in a “different moment” now than in the past several years and that is the point of my commentary today. Promises have come and gone, the central banks have supported the fiscal system as political decision making waned with indecision and the difficulties of the choices. Complacency took hold as a kind of “everything will be fine” mentality inundated the market places. Soon, in my opinion, everything will not be quite so fine as the politicians in America and Europe have to earn their salaries and the ramifications of many decisions are going to be unpleasant as they are released. If we regard America’s fiscal cliff or the pending decisions about Greece or the separatist movement in Spain or the lack of a budget for the European Union; it is all politically centered and the battlefields are rife with perhaps surprising decisions. In each of these four arenas the easy answers have now come and gone. The “can kicking” if you will is over.

"Gold From The ATM" In Turkey As Gold Deposits Surge In Turkish Banks

Gold edged down on a Monday as speculators took their profits as prices rallied on thin volumes on Friday to their highest in a month on technical buying.  A strong fall in the greenback triggered rapid gains in commodities and options-related buying on Friday. Tonight US Congress will meet to attempt to devise a plan to avert the US fiscal cliff which will throw the US into a spiral of tax hikes and budgetary cuts that will lead the US economy deeper into a recession this January. Another short term ‘resolution’ will almost certainly be achieved which will allow the US to keep spending like a broke drunken sailor and which will again store up far greater fiscal and monetary problems. The scale of these deep rooted structural challenges is so great that they are likely to affect the US sooner rather than later. Global investment demand for gold remains robust with the amount in exchange-traded products backed by the metal rising 0.1% to 2,606.3 metric tons.

The Farcical Tragicomedy Of The "Sustainable" Greek Debt/GDP "Denominator"

Somewhere in the deep bowels of Brussels bureaucratic labyrinth, a murder of European ministers (as they most closely approximate the Corvus Corvidae Genus/Species) currently sitting down and trying to come with a solution that "fixed" Greece. It will do no such thing: in fact, all that the Eurogroup is doing today, in addition to trying to do with it already did twice before without success, is to find a socially palatable way to disclose a policy that will see Greek debt haircut by a very modest amount (modest enough to be considered prohibited under Article 123, but who is counting any more), either through an outright haircut of official sector debt (something Germany has repeatedly said "9" to), or through a debt buyback of existing private debt (something which will have no impact now that the debt has soared following a long-running political leak which has allowed bondholders to trade accordingly). Aside for applying lipstick on a dead pig, what Europe is doing is focusing on the numerator in the all critical debt/GDP ratio. Sadly, this is just half of what Europe should be focusing on. The other half? Why GDP of course. Because it is here that things get truly hilarious.

In summary: Greek 2022 debt/GDP will be 115% if and only if Greece not only cuts its debt by EUR50 billion, but manages to grow its GDP by EUR60 billion.

Frontrunning: November 26

  • Goldman Turns Down Southern Europe Banks as Crisis Lingers (Bloomberg)
  • Euro Ministers Take Third Swing at Clearing Greek Payment (Bloomberg)
  • Chamber Sidestepped in Obama’s Talks on Avoiding Fiscal Cliff (Bloomberg)
  • Republicans and Democrats Differ on Taxes as Fiscal Cliff Looms (Bloomberg)
  • Republicans bargain hard over fiscal cliff (FT)
  • Catalan Pro-Independence Parties Win Regional Vote (BBG)
  • Shirakawa defends BoJ from attack (FT)
  • Run-off looms in Italy’s centre-left vote (FT)
  • BOJ rift surfaces over easing as political debate heats up (Reuters)
  • Barnier seeks ‘political will’ on bank union (FT)
  • New BOJ Members Sought More-Expansionary Wording (Bloomberg)
  • Osborne May Extend U.K. Austerity to 2018, IFS Says (Bloomberg)

Overnight Sentiment: No Progress Means Lots Of Progress

Another week begins which means all eyes turn to Europe which is getting increasingly problematic once more, even if the central banks have lulled all capital markets into total submission, and a state of complete decoupling with the underlying fundamentals. The primary event last night without doubt was Catalonia's definitive vote for independence. While some have spun this as a loss for firebrand Artur Mas, who lost 12 seats since the 2010 election to a total of 50, and who recently made an independence referendum as his primary election mission, the reality is that his loss has only occurred as as result of his shift from a more moderate platform. The reality is that his loss is the gain of ERC, which gained the seats Mas lost, with 21, compared to 10 previously, and is now the second biggest Catalan power. The only difference between Mas' CiU and the ERC is that the latter is not interested in a referendum, and demand outright independence for Catalonia as soon as possible, coupled with a reduction in austerity and a write off of the Catalan debt. As such while there will be some serious horse trading in the coming days and week, it is idiotic to attempt to spin last night's result as anything less than a slap in the face of European "cohesion." And Catalonia is merely the beginning. Recall: "The European Disunion: The Richest Increasingly Want To Fragment From The Poorest" - it is coming to an insolvent European country near you.

The Greek Debt Buyback 'Boondoggle' - Questions Answered

Following this week's 'failed' Eurogroup meeting, leaked details suggest a debt-buyback is becoming the corner-piece of the 'new' Troika deal with Greece. The leaking of details (and anticipation by the market) has driven GGB prices up and reduced much of the benefit of the buyback 'boondoggle' but as Barclays notes, "even if the debt buyback enables the IMF and EU leaders to come to an agreement, leading to a Greek resolution in the near term, in the medium-to-long-term Greek debt is not sustainable on realistic macroeconomic assumptions without notable outright haircuts on official EU loans to Greece. Therefore, a successful debt buyback might resolve the Greek debt sustainability issue on paper in the troika report but it will most likely not resolve it in investors’ minds." While there are 'optical' advantages to the buyback, the four main disadvantages outlined below should be irksome to the Greeks (e.g. creditor benfitting over growth-empowering) - which is critical since, as ekathermini notes, a senior finance minister commented "God forbid we should not be close to an agreement on Monday."

Observe The Short Squeeze

Confused at why the stock market has risen phoenix-like this week amid no-news on the fiscal cliff, a lack of closure on Greece and EU budgets, and a further collapse in Japan's trade balance? Wonder no longer; for the explanation is simple - a massive and dramatic short-squeeze has created a 200bps outperformance this week among the most-shorted Russell 3000 names. Impressive indeed; sustainable? One wonders if an "expert network" was used by various known and unknown CT-based hedge funds for "advice" to ramp stops in the highest beta, most shorted stocks in a market in which volume would be so abysmal any entity which already controls 10% of NYSE volume could do with the market as it saw fit?