Greece

Guest Post: Paul Krugman's Dangerous Misconceptions

In a recent article at the NYT entitled 'Incredible Credibility', Paul Krugman once again takes aim at those who believe it may not be a good idea to let the government's debt rise without limit. In order to understand the backdrop to this, Krugman is a Keynesian who thinks that recessions should be fought by increasing the government deficit spending and printing gobs of money. Moreover, he is a past master at presenting whatever evidence appears to support his case, while ignoring or disparaging evidence that seems to contradict his beliefs. Krugman compounds his error by asserting that there is an 'absence of default risk' in the rest of the developed world (on the basis of low interest rates and completely missing point of a 'default' by devaluation). We are generally of the opinion that it is in any case impossible to decide or prove points of economic theory with the help of economic history – the method Krugman seems to regularly employ, but then again it is a well-known flaw of Keynesian thinking in general that it tends to put the cart before the horse (e.g. the idea that one can consume oneself to economic wealth).

AVFMS's picture

Looks like yesterday put into practice: Let’s thank everyone to turn around markets, when they sink. Nothing to break the barn stomp in Periphery bonds (but themselves). Italy brilliantly stuffed its primary dealer at a 2-year low. Core EGBs holding quite steady, given ROn in Risk and Periphery. Strong US GDP revision – but, as expected anyway. Given the actual level in Risk, good numbers are seen as given. Nothing weak, no more, never. Swimming in a Sea of (Risk) Love. Watch the Event / Headline risk on FC (& Greece. The math still seems quite odd…). Hard Periphery (especially Spain) slap-back in the afternoon, though.

"Sea Of Love" (Bunds 1,37% unch; Spain 5,32% +1; Stoxx 2579 +1,3%; EUR 1,298 +50)

Argentina Wins Reprieve - Brevan Howard Vs Elliott Round One Or Gore Vs Bush Round Two

Just as the ever soaring Argentina default swaps indicated that a technical default for the Latin American country - one which would eventually morph into a second full blown default in a decade - was all but inevitable (and previews extensively here), the twisting and turning multi-year story of Argentina vs its "vulture" holdout creditors got its latest dramatic installment last night. Shortly after market close, the Second Circuit court of appeals once again override last week's critical order by Judge Griesa that Argentina promptly pay everyone or face monetary exclusions, lumping together any and all agents who facilitated the ongoing isolation of the holdout hedge funds from the broader group which in Griesa's view had pari passu status throughout.

A Market Only A Mother Could Love

We have again reached a point where attempting to explain away an utterly irrational market, in which sentiment and momentum shifts on a dime overriding any fundamental newsflow, and summarizing overnight catalysts has become a moot point. With stocks acting and reacting like petulant, schizophrenic children with ADHD, fundamentals are totally meaningless: yesterday and the overnight trading session have become perfect examples as prepared bulletins by two politicians, which said absolutely nothing of significance or constructive - have been enough to override 72 hours worth of actual fundamental deteriorating data, and also offset each other. Will Congress resolve the Fiscal cliff in its 10 remaining days in session without a major impetus to move such as a market plunge? Of course not, but once again the question has become one of who sells first, and the momentum piles on - and if there is no downside momentum, there are no volume ramps. In the meantime all the sellside firms have gone uber bullish on 2013, setting up the Fiscal Cliff as a perfect strawman. Of course the "Cliff" will be surmounted eventually, and after some near-term pain, but the reality is that the resulting rising taxes across the world in 2013 will be a major economic headwind, just the opposite of what the sellside crew is saying as one after another strategists push out optimistic outlooks on the next year to sucker in what little remaining retail interest in the farce formerly known as the market may be left.

First Greek Bailout Snag - Local Bankers Refuse To "Voluntarily" Participate In Critical Bond Buyback

Those who have been following the recent developments over the Greek distressed debt buyback, which in any normal universe would have been considered an event of default but certainly not in "special cases" such as Greece where the country's official default would start the Lehman-like domino collapse as apparently getting a 70 cent haircut in 8 months is a "voluntary" event, have been quite confused by the internal dynamics. On one hand the sole beneficiary of the transaction are those hedge funds who bought the GGB2 bonds when they tanked to lows just barely in the double digits as a % of par; on the other, there is absolutely no benefit to the Greek people as a result of this sub-par prepayment, as the only fund flow benefits hit the bondholders (and it is up to Greece to figure out how to grow its GDP by over 4% per year over the next 8 years). Then let's not forget that nobody has any clue yet where the funding for said buyback will come from. And finally, as Kathimerini just reported, we learn that one group that has just vocally declared against the buy back are the very people who are supposed to be benefiting from the Greek bailout: i.e., the country's bankers.

Goldman Wins Again As European Union Court Rules To Keep ECB Involvement In Greek Debt Fudging A Secret

Three years ago, a hard fought landmark FOIA lawsuit was won by the great Bloomberg reports, the late Mark Pittman, in which the Fed was forced to disclose a plethora of previously secret bailout information, which in turn spurred the movement to "audit the Fed" and include a variety of largely watered down provisions in the Frank-Dodd bill. This victory came despite extensive objections by the Fed and the threat that the case may even escalate to the highly politicized Supreme Court, which lately has demonstrated conclusively that not only is justice not blind, but goes to the highest ideological bidder. Moments ago, Europe just learned that when it comes to secrecy of its supreme monetary leaders, in this case all originating from Goldman Sachs and defending data highly sensitive to the same Goldman Sachs, the European central bank's secrecy is not only matched by that of the Fed, but even more engrained in the "judicial" system of the Eurozone, after the European Union General Court in Luxembourg just announced that the European Central Bank will be allowed to refuse access to secret files showing how Greece used derivatives to hide its debt. Why? Simple: recall that it was Goldman Sachs who was the primary "advisor" on a decade worth of FX swaps-related deals which allowed Greece to outright lie about both its fiscal deficit and its total debt levels, and that it was a Goldman alum who became head of the same Greek debt office just before the country imploded. And certainly the ECB was involved and knew very all about the Greek behind the scenes shennanigans. And who happens to be head of the ECB? Why yet another former Goldman worker, of course. Mario Draghi.

AVFMS's picture

Once more, not much own stuff to chew on Europe’s own. Drifting. EGBs very strong on (relative) equity weakness. Periphery starting to glow like the ZZ Top Eliminator. In absence of any strong lead, need to start thanking everyone for input and support (Mario, Ben, Angie, Chrissie… Anyone working on the Fiscal Cliff. Mariano & Mario. Wolfie...). New paradigm put into practice: nothing will ever be weak again, nothing. And watch out for FC Ping-Pong! And I Thank You!

"I Thank You" (Bunds 1,37% -6; Spain 5,31% -20; Stoxx 2547 +0,4%; EUR 1,293 unch)

The Grand Inquisitor

Greece and the grand machinations of the European Union came to mind as it occurred to me that all of the fine points aside; Greece had become a ward of the State. The math doesn’t even add up so it can be said that it was a poor attempt at hide-and-seek but we suppose it was the best they could do given their skill-set these days. As you watch the antics of the politicians in Spain you realize that they are first cousins to the Greeks. Prime Minister Rajoy and his merry band of henchmen are playing the same tunes as we have all heard before. The reasons that Spain has not come begging for alms yet is not too complicated. They don’t want to be audited by the Troika, God forbid, they want no one peering at the actual state of their Real Estate market, they don’t want anyone but paid flunkies examining their banks. The ECB will save the world subject to the decisions of Europe’s political leaders. Saving the world is a good thing and keeps getting promised by virtually every religious leader for the past several thousand years; the second Spanish Inquisition is about to begin and the zealot may be found wanting.

Greek Debt Buyback: Another Idiotic European Idea Or A Step Toward An Actual Solution?

Where will the €10bn for the buyback come from? This is far from clear but it is hard to imagine it being found anywhere other than the bailout funds, meaning a new transfer of around €9bn will be needed. This again poses significant political problems as leaders in Germany, the Netherlands and Finland (to name but a few) try to convince their parliaments (and public) that this is not more money into a black hole. It has been suggested that some of the other mechanisms mentioned below could be used to fund the buyback, but this looks impossible since they are being tapped to fill the existing funding gap. These substantial obstacles to a successful debt buyback are crucial since the IMF has already stated its on-going participation in the Greek bailout hinges on this policy. The likes of Finland and the Netherlands have also previously stated that IMF involvement is requirement if they are expected to continue to aid Greece. With a plan on the buyback expected to be in place by 13 December, to allow for the release of the next tranche of bailout funds, this deal could hit a wall even sooner than many expected.

Frontrunning: November 28

  • Egypt protests continue in crisis over Mursi powers (Reuters)
  • Greece hires Deutsche, Morgan Stanley to run Greek voluntary debt buy back, sources say (Kathimerini)
  • Executives' Good Luck in Trading Own Stock (WSJ)
  • Hollande Presents Mittal Nationalization Among Site Options (Bloomberg)
  • Eurozone states face losses on Greek debt (FT)
  • Spain's rescued banks to shrink, slash jobs (Reuters)
  • EU Approves Spanish Banks' Restructuring Plans (WSJ)
  • At SAC, Portfolio Managers Are Treated Like Stocks (BBG)
  • China considers easing family planning rules (Reuters)
  • European Court to Rule Over ECB’s Secret Greek File (BusinessWeek)
  • And another top tick indicator: Asia Funds Buy London Offices in Bet Volatility Is Past (Bloomberg)
  • Harvard Doctor Turns Felon After Lure of Insider Trading (BBG)
  • Zucker Is Lead Candidate to Head CNN (WSJ) - it's not true until CNN misreports it
  • Iran "will press on with enrichment:" nuclear chief (Reuters)

Europe Refuses To Be Fixed

It seems like it was only 24 hours ago that Europe bailed out Greece for the third time and everything was "fixed", with a resultant desperate attempt to validate this by pushing the EURUSD above 1.3000. Sadly, as always happens, Europe, and especially Greece, refuses to be fixed, because as we will not tire of saying: you can't fix debt with i) more debt, ii) hockeystick projections or iii) soothing words of platitude and an outright bankruptcy, just like that which Argentina is about to undergo, will be needed. If that means the end of the EUR and the delusion that the Eurozone is a viable monument to the egos of a few technocratic career politicians, so be it. As a result, this time around the halflife of the latest bailout was precisely zero, as was that of the latest Japanese QE episode, as the entire world is now habituated to the lies emanating from Europe, and demands details, which in turn are sorely lacking, especially as relates to the question of just where will Greece get the money desperately needed to fund the Greek bond buyback. But at least Kathimerini was kind enough to advise readers that said buyback must take place by December 7 in time for the euroarea finmins to approve the payment of the next Greek loan tranche at the December 13 meeting, something which will likely not happen, especially if Germany's SPD party delays the vote on the Greek bailout until the end of December as was reported yesterday. We can't wait to learn the details of the buyback package, which will come in the "next few days" per ANA, and especially where the buyback money will come from, especially with the FT reporting that various European countries will already lose money next year on the latest Greek bailout.

Guest Post: We're Heading For Economic Dictatorship

We are all now members of the Permanent No-growth Club. And the United States has just re-elected a president who seems determined to sign up too. No government in what used to be called “the free world” seems prepared to take the steps that can stop this inexorable decline. They are all busily telling their electorates that austerity is for other people (France), or that the piddling attempts they have made at it will solve the problem (Britain), or that taxing “the rich” will make it unnecessary for government to cut back its own spending (America). So here we all are. Like us, the member nations of the European single currency have embarked on their very own double (or is it triple?) dip recession. This is the future: the long, meandering “zig-zag” recovery to which the politicians and heads of central banks allude is just a euphemism for the end of economic life as we have known it. Democratic socialism with its “soft redistribution” and exponential growth of government spending will have paved the way for the hard redistribution of diminished resources under economic dictatorship.

Burkhardt's picture

Just maybe the Greek bailout saga is drawing to a close. While markets set expectations, we now move towards the true impact of what this final deal will do for both Greece and the EU as a whole. Moral hazard is set to be released again, and we get a chance to glimpse the true impact…