Greece

 The IMF has recently released the results of their staff consultations with Greece. Some may find
it interesting, particularly where it intersects with relevant
BoomBustBlog research. Let's not mince words here. Greece is going to
effectively default on its debt, one way or another, and it is probably
going to do it relatively soon. Shall we walk through the IMF findings
from LAST YEAR and how they are actually optimistic compared to the facts that my
team and I have dug up?

The chart says bond curve got more worried, and the CDS curve was … what it was in January. It seems that the CDS market reacted to the bailout news, while bonds continued to sell off. Differences in the curves at other times are reflections of inflation expectations and non-credit idiosyncratic risk. Neither curve is pricing in magical lightning from Zeus’ butthole that miracles billions of euros...Seems that all Greece has to show for their trouble is higher interest costs on a mountain of issuance coming up. On a global scale, aggregate debt repudiation either through inflation or default will be the endgame.

This is the skinny on the EU's Greek rescue package. The (empirical) truth, the whole truth, and nothing but the whole (empirical) truth! Moral hazard, be damned...

The guy who may have crushed Greece's hopes for a slow and steady bond issuance strategy by rushing head over heels to raise as much as his underwriters promised him could be done, with the result being getting hit on just 39% of the €1 billion in the recent 12 year reopening, is former Goldman banker Petros Christodoulou, director of the Greek Public Debt Management office. Here he is an a Bloomberg TV interview conducted earlier.

Call it poetic justice. In its pursuit to kill CDS "speculators", Greece has shot itself in the foot, and potentially hit a major artery. Earlier today Greece tried to do a quick drive by with a €1 billion in a reopening of a 12 Year auction. Instead, it barely managed to get €390 million off: a miss by 61%, which anywhere else would have caused the organizers to scrap the auction and never mention it again (but not here). The lack of demand for the remarkably stupid surprise auction, orchestrated by former Goldmanite Petros Christodoulou, achieved no incremental funding for Greece but merely spooked the entire curve, and forced buyers of yesterday's 7 Year auction to take immediate losses, as the bond traded down from 6% to 6.27% (not to mention a move wider in CDS). This is the third sequential auction in which primary buyers have taken post break losses. At this rate of disappointment (yesterday the 7 Year had a meager 1.4 Bid To Cover ratio), soon Greece will be unable to pull anything issuance off. Yet the bigger reason for the lack of demand is even simpler: the hounding of all those who hedge exposure with CDS. It doesn't matter if one has naked or hedged positions - any purchase of Greek protection is enough to get the European secret services scouring through your garbage. And this is precisely what Zero Hedge and many others have been warning about for weeks. And just in case we might not have been clear enough, here is Deutsche Bank explaining once again, just how negative for primary issuance and for sovereign borrowers, the escalation in the anti-CDS rhetoric is.

As we expected, Bill Lockyer has decided to go the media circus route. He won't be the first (G-Pap already did that. We have not heard much from him ever since it was uncovered that the biggest speculator in Greek CDS was Greek Post Bank), and he certainly won't be the last (there are about 49 other bankrupt states in America). But at least the Greeks were consistent - blah blah CDS = satan blah. From the attached clip, please someone explain in plain English just what it is that Lockyer is trying say: "If someone is in the market concurrently marketing risk claiming that there's some risk associated with these issues I don't know to what extent it affects investor perceptions and nervousness that might cause yields to increase. That's the question - we are not making any allegations." uh...................what? Did the Red Hot Chili Peppers, like, infiltrate the Cali Capitol and infuse the HVAC with legalized marijuana? Is the question how dare someone disclose that an investment may actually fall in value (and why)? Hold on, isn't the Connecticut AG suing the rating agencies for not doing just that?

The latest summary strategy deck from Morgan Stanley does a great job of capturing the key market driving themes: Greece, Europe, Principal Reduction, End of QE, Swap Spreads and the broader UST Curve

Something funny happened on the road to a Greek bailout: nothing. Well, a few exceptions: Germany and the ECB are now enemies, nobody knows what the hell the Maastricht rules really are, the ratings agencies are discredited beyond repair as even the ECB says its own internal bureaucrats can do a better job at modelling the Greek AAA rating... Yet Greek debt is still yielding 6%+. If anyone will recall, the primary concern that various administration George Pap[...]'s had, was that Greek debt was "unfairly" yielding double where German debt is. So yeah, lots of talk, more non-bailout bailouts, and in meantime, Greek default risk is pretty much where it was two months ago. Which is why speculation that emerged toward the end of last week that Greece will promptly issue new debt, is now being squashed by G-Pap (fin min or FM, not to be confused with the prime min or PM). In the end, it is all irrelevant: as Ambrose Evans-Pritchard says, the end is close for Greece.

If there is one topic that has been beaten to death, reincarnated, then Friend-o'ed three more times by everyone in desperate need of a Google hit or a TV appearance, it is Greece and China (and also Manchester United if you live in the UK). This will not stop us from presenting this FT clip, in which Goldman's Jim O'Neill and Nouriel Roubini spar over the Greek bailout and the Chinese economy (and, you guess it, Man U). Guess who is the optimist and who is the pessimist. For the most part a bland recreation of each pundit's party line, although we do appreciate Roubini's reminder that the immediate catalyst responsible for the 20% Black Monday drop (at a time when the market was poised on a precipice much as it is today) was a topic near and dear to everyone: the announcement of a trade war.

"20 years ago we had a large trade deficit with Japan and Germany. The dollar was weakening but the Germans and Japanese were resisting, and the US got angry. And the US Secretary of the Treasury Baker got on TV on Sunday and said if you don't let if move we are going to retaliate. The next day the stock market crashed 20%."

Are the starts aligning for a repeat appearance of just such a crash, especially as the US has mere days left in which to brand China a currency manipulator?

From Goldman's Erik Nielsen: "According to the Reuters story below, Merkel said this morning as a government declaration in front of the German parliament (ahead of the EU summit) that help to Greece would only come as the very last resort, and that it (bilateral help) would come ONLY in combination with the IMF. Whether this was formally agreed yesterday by the Euro-zone heads of state remains uncertainly, but I think it is very likely. If so, its just a matter of rubber stamping it in the full EU summit today, since none of the non-Eurozone EU members would object to the IMF being involved" and this "It is not clear when Greece will formally approach the IMF, but it might happen within weeks, and very likely during the next few months. I think negotiations – when they get under way – will focus on a program of about EUR20bn over 18 months. Stay tuned."

If you ever wondered just how independent the Federal Reserve is, wonder no more. A recently declassified transcript of a July 16, 1974 phone conversation between Henry Kissinger and then-Fed Chairman Arthur Burns, demonstrates just how very involved in global financial bailouts the Federal Reserve gets under duress of the administration. In the span of about a minute Kissinger advises Burns to do whatever he must to "not let Italy go down the drain." The facility with which the Federal Reserve throws around US taxpayer capital to bail out the "chosen ones" is simply beyond reproach. We are confident that the Fed is currently preparing a comparable bail out package for Greece as a measure of last resort. There is no way that Ben Bernanke will allow Greece to fail, killing the euro and sending the dollar into the stratosphere, destroying all hope of inflating the trillions in bad debt saddling America's banks and the Federal Reserve (which is now the world's biggest bank holding company).

A summary of two Jim Rogers interviews with Bloomberg & BNN regarding Greece, euro and how he would invest $100,000 now. Also included: a quick eruo technical analysis from yours truly.

It turns out that the massive credit spreads that Greece is currently experiencing (300+ bps over Germany and what not) have nothing to do with CDS speculators and other scapegoats, and all to do with the administration's complete avoidance of warnings issued a year earlier by the Bank Of Greece which previously said in its 2008-2009 Monetary Policy Report that it "warned about everything that is happening today – stressing,
in particular, the possibility of a rise in the cost of borrowing. As
that Report stated, 'a widening of the yield spread would increase the
future burden on taxpayers'." Furthermore, in the just released Monetary Policy Report for 2009-2010, the Bank of Greece is warning that things in Greece are about to get much worse once again, and is debunking the administration's still overly optimistic and rosy expectations. "In 2009, as the Bank of Greece had warned, the
general government deficit reached 12.9% of GDP and public debt stood
at 115% of GDP." Keep in mind that the G-Pap administration noted the deficit would be "just" 12.7% of GDP in 2009. Surely this is just another thing to blame the speculators for. What's worse, the BofG now says the GDP decline in 2010 will be -2%, also more dire than the government's rosy -1.7%. The conclusion which nobody will heed again until it is too late: "The Greek economy has fallen into a vicious circle with
only one way out: the drastic reduction of the deficit and
debt." Most damning is the proposed (lack of) way out: "Because of the low level of
private savings in Greece, the public debt cannot be financed from
domestic sources, resulting in a widening current account deficit and a
rising external debt." Oddly, blaming CDS speculators for the earth's roundness was nowhere in the Bank's report, and instead it notes that it is "most important, [that] Greece must
eradicate the patterns of behaviour, attitudes and policies that have
brought us to the present crisis situation." Once again, we hope that the BofG does not expect anyone to read this 2009-2010 100 page + report, once it is released, cause that would mean the government would have to do the right thing for once.

Presented is the full text of speech by ECB head Jean-Claude Trichet before the Committee on Economic and Monetary Affairs of the European Parliament in Brussels. While the speech itself has nothing new to say, further entrenching the bubble mentality of the Bernanke Put, some of the comments by JCT in the Q&A are rather relevant, namely that the ECB will once again look at the "collateral issue" of government bonds. Just in case Moody's grows a conscience, here is how the ECB will deal with it: "The European Central Bank does not expect Greek government bonds to be downgraded again, but if they are it might have to reconsider its plan to revert back to pre-crisis collateral rules at the end of this year." This is amusing because earlier today Alphaville posted a research note by UniCredit which shows just how increasingly impaired by "rubbish" the collateral provided by European banks to the ECB has become. This is inline with extended disclosures provided on Zero Hedge about how our own Fed has recently allowed total crap to be lent against in both its discount window and the Primary Dealer Credit Facility. Another amusing soundbite: "High government bond spreads don't justify emergency loans." Oh, so the CDS speculators won't be summarily executed after all, even despite all the disclosure by BaFin and everyone else that CDS speculators had no impact whatsoever on blowing up bond spreads? What an anticlimactic development.

Some not very euro friendly headlines emerging:

10:35 03/22 EU JUNCKER: AT LEAST 2 MEMBER STATES OPPOSE LOAN GUARANTEES
10:36 03/22 EU JUNCKER: I AM NOT IN FAVOUR OF IMF AID TO GREECE
10:19 03/22 EU JUNCKER: IMBALANCES WITHIN EMU STARTING TO CREATE PROBLEMS
10:27 03/22 EU JUNCKER: GREEK STEPS SHOULD HAVE IMPRESSED MARKETS
10:31 03/22 EU JUNCKER: I DON'T THINK HELP FOR GREECE WILL BE NEEDED
10:34 03/22 EU JUNCKER: NOT NECESSARY FOR EU LEADERS TO AGREE HELP THIS WEEK
10:32 03/22 EU JUNCKER: MUST BE PREPARED TO ENSURE STABILITY OF EUROZONE
10:37 03/22 EU JUNCKER; CAN FORESEE TWO-PRONGED AID, FROM IMF AND EUROZONE