Greece

Following the just completed teleprompted preaching of concentrated, yet inverse, truthiness, we find that yet another bankrupt country has in fact been lying about its economic prospects. Following the recent stunning disclosure out of Portugal that contrary to constat promises to the contrary the country was in fact, broke, now we get another admission, this time from a country already bankrupt. Per the FT: "Greece needs time to convince international investors about its reform programme and may not be able to return to financial markets next year as planned, its finance minister has admitted. Greece’s budget plans are fully funded this year but Athens will have to raise between €25bn-€30bn on financial markets in 2012 – a step that would mark the first stage of its international rehabilitation. But Mr Papaconstantinou suggested that goal was in doubt and the timetable would not become clearer until an EU-IMF agreement had been struck for Portugal, the latest victim in the eurozone debt crisis. “A judgment cannot be made before the summer and before Portugal closes its deal,” he said." So now it is trendy for one broke country to bash another broke country? In retrospect Greece should have a right of first refusal of bailout funding: after all it first (was forced to) disclose its bankruptcy. Surely there should be some brownie points for that. But all this may well be moot: Germany is now openly saying the need for a Greek restructuring is coming. Which means that senior creditor haircuts (supposedly up to 50-60%) are imminent.

And you thought the EU bailouts were a mess?

Are Greece and Eurozone doomed? I'm not buying the drama...

While a crippled Europe continues to gladly enjoy being in the shadow of Fed-driven revolutions and natural disasters, its time in the sun is coming to an end. Soon everyone will realize that just today, 2 Year Greek bonds traded at all time wides of over 17%. That's right - holders of Greek bonds for 2 years will be rewarded with a 17% gain if the country actually repays these at maturity. Alas, for those who are paying attention, this has a snowball's chance in Hades of happening. And speaking of Hades, Knight Capital's Alfredo Viegas has released a note explaining not only why Greece has just passed the Rubicon following the release of its disastrous budget deficit details earlier, but also advising those who care, how to be positioned to best profit from Greece's descent into Hades, which will be promptly followed by the rest of the Eurozone. His advice: short Spanish and Italian cash bonds (this trade will work just as well using horrible, evil CDS which no politician still understands and therefore continue to be the scapegoat for everything).

Auntie Angela has finally snapped at the panhandlers begging for handouts, making it clear what the quid pro quo considerations are for interest rate concessions:

• MERKEL SAYS GREECE MUST SELL ASSETS IN RETURN FOR RATE CUTS
• MERKEL SAYS IRELAND MUST BACK JOINT CORPORATE TAX BASE FOR CUTS
• GERMAN LAWMAKERS CITING MERKEL AS COMMENTING IN CLOSED SESSION
• GERMAN LAWMAKERS SPEAKING ON CONDITION OF ANONYMITY

This is great news for Goldman prop traders and for John Paulson as (a non extradition) Santorini will be back on the market very soon.

You know, timing is everything. If you hit brakes after you pass the red light... Bang! If you pucker up after you press your face against that of your sweetheart's.... You bonk her/him on the forehead. If you downgrade a nation after obvious signs of insolvency...
As the markets slowly wake up to the risks I've been outlining over the last two years, reality will reassert itself in a most assertive fashion. The (re)adherence to fundamentals will feel like the reinvention of gravity.

Just because Greece is now terminally locked out from regular capital markets, with its CDS trading points upfront, doesn't mean the country can't drink from the same Hopium trough as every other US investor. According to Reuters: "Greece has filed a shelf registration with securities regulators in the United States to be able to sell so-called diaspora bonds to retail investors, the head of the country's debt agency said on Wednesday." In other words, Uncle Pap wants YOU to bail out the country that even the ECB appears to have given up on. And if not for G-Pap, do it for Angela: because if the euro falls apart, the the DEM returns, how will Germany export its way in a non-eurozone environment, if the fair value of Germany's currency is realized and exports plunge? And to all US citizens who are jealous they are not the target source of funds for this last ditch attempt to stave off bankruptcy (again) fear not: pretty soon (if Uncle Bill is correct), Uncle TurboTax will give the very same opportunity to all 300+ million US hopium addicts.

When one insolvent bank buys another insolvent bank, you know things are swell. National Bank of Greece, best known for being bankrupt, has just announced it will buy Greek Alpha Bank best known for also being bankrupt. Remember: when in doubt, use taxpayer capital to become TBTF, even as you have determined billions in bonus payouts (but not in a public filing of ourse). Worked great for John Thain...

It has been a while since we were reminded just how bankrupt Europe continues to be. And while the market has put European solvency issues on the backburner now that some CDO is about to purchase 5 times its weight in toxic sovereign debt (which somehow means everything can be swept under the rug for at least 2-3 months), a Belgian think tank reminds us again that the "Greece Question" is still as open and festering as always, no matter how many lies G-Pap throws at anyone gullible enough to still listen to him. Greek paper Kathimerini cites Belgian think tank Bruegel which "has recommended that Greece should restructure its public debt as soon as possible, and that this should be one of the main elements of a comprehensive response to the eurozone crisis to be agreed by European Union leaders when they meet next month. In a policy brief published on Monday, the Bruegel think tank argues that Greece is “clearly on the verge of insolvency” and that the swift restructuring of its debt, with creditors accepting a 30 percent “haircut,” should form part of a three-pronged strategy that includes the strengthening of the eurozone banking system and policies to foster greater growth in member states with weak economies. “Our conclusion therefore, is that Greece has become insolvent and that further lending without a significant enough debt reduction is not a viable strategy,” the think tank argues." Of course, should Greek proceed with the inevitable impairments, the domino effect will promptly take out marginal banks across the continent leading to precisely the toxic spiral which Ben Bernanke and his European colleagues have been trying hard to avoid.

Just headlines for now, citing a Handelsblatt article. Per Feld's recommendation, Germany would need to set aside funds for the inevitable Greek default. This dovetails nicely on the German forecast that the EFSF will have no choice but to buy sovereign debt in the secondary market, in essence removing sovereign debt purchases from the SMP program, and through a CDO conduit. This will not end in tears.

Perhaps it is time for Eurostat to adjust its Greek economic numbers. According to a back of the envelope analysis, roughly 5% of GDP in 2010 was lost to a string of increasingly more potent general strikes, and another 10% due to downstream effects. A new one is in process currently, which will be particularly crippling as workers in the transportation industry have called for a near week-long shut down of the capital. For those travelling to the city (not sure how as all flights into the city have been cancelled), here is revised operational schedule of various means of transportation: Buses and trolleys will operate from 9 am to 9pm; The metro (all lines) will run from 10am to 6pm; Taxis will not operate between 10am and 2pm. And courtesy of "From The Greek Streets", below is a live update of events from Athens as they transpire in real time.

S&P flexes its chicken wings, and nobody cares. After all it's not like a CCC- rated Greece will not have access to the global Bernanke put: "On Dec. 2, 2010, Standard & Poor's Ratings Services placed its 'BB+' long-term sovereign credit rating on the Hellenic Republic (Greece) on CreditWatch with negative implications. Standard & Poor's has also placed its 'BB+' rating on the individual debt issues of the Greek government on CreditWatch with negative implications, reflecting both the action on the sovereign credit rating and the possibility of a downward revision of our '4' recovery rating on this debt...We could affirm the ratings on Greece if our current expectations about the impact of subordination and undefined restructuring triggers are not borne out by events after we have analyzed the full ESM proposal. If, on the other hand, our views are borne out, we could lower our long-term rating on Greece, probably by one, but not likely more than two notches, depending on the details of the ESM."

The dominoes are starting to fall ...

Update: Irish Times is quick to quell the public fury by reporting that while it has no clue what the interest rate will be, a "source" has said it will be lower than the 6.7%. In other words, just like the Greek bailout package started at $500 billion early in the day on that fateful Sunday in May only to progress to $1 trillion based on the futures reaction, so the IMF now will likely determine just what the final interest rate on the rescue loan will be based on the degree of public mauling of various elected officials over the weekend.

RTE reports that the IMF/EU Irish rescue package will come with a whopping 6.7% rate for nine year money. Per the RTE article, it is unclear if that will be an APR or some multi-year blended effective annual yield: "The Government's four year plan assumes that by 2014, interest payments
will have increased from €2.5 billion to €8.4 billion a year - around
one fifth of all tax revenue." Regardles of how it is calculated, newspaper tomorrow will be blasting the 6.7% number, which is 150 bps wide of what Greece is paying on backstopped paper, and will only create further resentment at the fact that not only is Europe split into a core and PIIGS, but that it is now apparent that not all PIIGS are treated as equals. How Irish citizens will react once they find out that the EU believes they are less creditworthy than even the Greeks, only the IRA can predict.

But the real story is that this financial crisis in Europe could potentially cause the break up of the euro and of the European Union.