In one of the most fascinating psychological shifts, there has been a massive shift in the perspective of the Greek electorate since the election two weeks ago. Almost as if the size of the actual votes for Syriza, the far-left anti-bailout party, gave citizens 'permission' to be angry and vote angry. The latest opinion polls, as per Credit Suisse, show the center-right New Democracy party crashing from 108 seats to only 57 as Tsipras and his Syriza colleagues soar from 52 seats to a hugely dominant 128 seats. Is it any wonder the market is pricing GGBs at record lows and 'expecting' a Greek exit from the Euro as imminent given the rhetoric this party has vociferously discussed. On the bright side, the extreme right Golden Dawn party is seen losing some of its share. As UBS notes, "expressions of frustration in debtor countries have their analogue in creditor countries as well. No one is happy with the status quo." Still, how Europe's political leaders address voters' grievances will go a long way to determining the fate of the Eurozone and, quite possibly, the course of European history in the 21st century. Europe's politicians will undoubtedly prevaricate and deny. The troika will, with minor modifications, probably insist on 'staying the course'. Yet it seems to us that ignoring clear voter demands for change might well be Europe's worst choice.
If indications become reality then we are faced with a leftist government in Greece that will either renegotiate a new bailout agreement with Europe or it will head back to the Drachma or be forced there by the refusal of European Union to provide any additional funds. In Spain we are faced with bare bones arithmetic where the country cannot bailout its Regional debt and its back debt because they do not have the capital to do either; much less both. Both countries can flop about for a brief period of time but the conclusions are unavoidable we are afraid and so a very unpleasant landscape awaits us in the coming days. We have warned about all of this for quite some time and we have hammered upon it in recent days as equities, credit/risk assets, the Euro have all declined in value as I had predicted. There may well be a bounce or two along the way but we continue to maintain that dark days lie ahead based not only upon fundamentals but based upon a union in Europe that has been deceptive in presentation and deceitful in practice.
Two months ago, to much fanfare, Greece and the IIF announced what a smashing success the forced cram down that was the Greek PSI (memories of GM and Chrysler should be flooding back here) was. The thinking went that Greece avoided bankruptcy, co-opted lemming creditors avoided pursuing what is rightfully theirs in exchange for a 75% haircut, hold out hedge funds would be blown out of the water for daring to not go with the herd of 96.6%, but most importantly, Europe was saved! Today, Europe is no longer saved, and all those hedge funds that folded like cheap lawn chairs in agreeing to Europe's extortion are getting annihilated, because as the chart below shows, the NEW Greek bonds have now seen their dollar price cut in half since the PSI. Which means that total looses on original Greek debt, for those who did agree to the PSI's arm-twisisting terms are now about 90%. Just desserts. But what happened to those other few who followed our advice, bought UK-law bonds, and told the group to shove it? Here's what...
European equities are seen lower across the board with the exception of the CAC-40 index as markets remain nervous towards the prospect of a second wave of Greek general elections. The outperformance of the CAC-40 follows the news from oil major Total, who have stemmed the gas leak from their Elgin well successfully after conducting intervention. As such, Total are seen higher by over 2%, strongly above the Oil & Gas sector. The Bank of England have released their latest projections for the UK economy, revising lower their growth forecasts and higher their near-term inflation expectations, alongside analyst forecasts. The BoE have stuck to their long-term predictions that there will be a slow but steady return to recovery, but reiterated that major downside risks exist from Europe. Governor King’s subsequent press conference has shown him to remain somewhat dovish, commenting that an increase in downside risks would prompt the bank to commit to further actions, leaving the door to a boost in asset purchases open. The forecast revisions prompted a sharp move lower in GBP/USD, falling around 75 pips and Gilt futures moving 55 ticks to the upside after the opening comments. At the midpoint of the session, GBP/USD remains in negative territory despite seeing support before the inflation report after better than expected UK jobless claims data.
Billionaire investor George Soros significantly increased his shares in the SPDR Gold Trust in the first quarter. Soros Fund Management nearly quadrupled its investment in the largest exchange-traded gold fund (GLD) to 319,550 shares - compared with 85,450 shares at the end of the fourth quarter. John Paulson maintained his large stake, the ETF’s largest stake and other large and respected institutional buyers were PIMCO and the Teacher Retirement System of Texas. Paulson, 56, who became a billionaire in 2007 by betting against the U.S. subprime mortgage market, told clients in February that gold is a good long term investment, serving as protection against currency debasement, rising inflation and a possible breakup of the euro. Eric Mindich’s Eton Park Capital also bought 739,117 shares in the SPDR Gold Trust during the first quarter. The New York-based fund held no shares of the exchange-traded product as of December 31. Overall holdings in the SPDR Trust rose just over 8% in the first quarter, after a 2% gain in Q4 2011.
- Facebook's selling shareholders can't wait to get out of company, increase offering by 25% (Bloomberg)
- Boehner Draws Line in Sand on Debt (WSJ)
- Romney Attacks Obama Over Recovery Citing U.S. Debt Load (Bloomberg)
- BHP chairman says commodity markets to cool further (Reuters)
- Merkel’s First Hollande Meeting Yields Growth Signal for Greece (Bloomberg)
- Greek President Told Banks Anxious as Deposits Pulled (Bloomberg)
- EU to push for binding investor pay votes (FT)
- Martin Wolf: Era of a diminished superpower (FT)
- China’s Hong Kong Home-Buying Influx Wanes, Midland Says (Bloomberg)
- U.N. and Iran agree to keep talking on nuclear (Reuters)
- US nears deal to reopen Afghan supply route (FT)
Overnight: just more of the same, as markets collapsed, first in Asia, then in Europe, on ever more concerns what a Greek exit would do to Europe. The most important story of the night was a report in Dutch Dagblad claiming that ECB has turned off the tap for Greek bank liquidity: "At the end of January, Greek banks had received EUR73 billion in liquidity support from the ECB, but this amount has dropped by more than 50% now, according to the newspaper. The ECB is cutting back support because Greece has been holding off on recapitalizing its banking system, despite receiving EUR25 billion in funds for that purpose, the paper says." Whether this move is to force Greece to blink (even more) by making the previously reported bank run even more acute, or just general European stupidity, is unclear but it is certain to make the funding stresses across all of Europe far more acute. The news sent all peripheral bond yields soaring, and the EURUSD tumbling to under 1.27 briefly.
In a somewhat stunning revelation, especially after our earlier note on the Golden Dawn leader's 'position' on the issues of the day, GreekReporter notes via the news paper To Vima, that more than half of all police officers in Greece voted for pro-Nazi party Golden Dawn in the elections of May 6th. It's not really for us to judge (well maybe it is) but when some polling stations report Golden Dawn receiving 19-24% of the votes, things are going from the dismal to the horrific (and potentially chaotic) very fast.
Blew my mind!
Doing God's Real Work - Hollande's Plane Returns To France After Being Hit By Lightning On Way To Merkel VisitSubmitted by Tyler Durden on 05/15/2012 12:03 -0400
No, this is not a joke:
- HOLLANDE'S PLANE TURNS BACK TO PARIS AFTER BEING HIT LIGHTNING EN ROUTE TO BERLIN - PRESIDENTIAL SOURCE
Greece lightning? Even Zeus demands deleveraging, pardon, austerity.
Earlier, we reported on media speculation that this was a done deal. We now get confirmation.
- GREEK FINANCE MINISTRY TO PAY EU435 MLN BOND
- GREECE SAYS TODAY'S DECISION DOESN'T PREJUDICE FUTURE DECISIONS - no, just those you have to COMPLY with
In other words, just as Zero Hedge predicted in January, non-Greek law bondholders, who did not comply with the PSI, had all the leverage. And again: congratulation to all those who were not Steve Rattnered into agreeing to the PSI, and held out: the 135% annualized return is worth it. Just keep this in mind when the PSIs of Portugal, Ireland, Spain and Italy take places next.