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.
Ok. It’s not that the Greek deal is nothing. But then again, third strike. Eventually expected, or at least hoped for. Hence, lack of concrete follow-through. So, now it’s there. And now what? You Ain’t Seen Nothing Yet? What is there to see??? Pitch the markets some input, something concrete, something to feed off, something to see!
"You Ain't Seen Nothing Yet" (Bunds 1,43% +2; Spain 5,51% -9; Stoxx 2538 -0,2%; EUR 1,293 -30)
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)
When it comes to firmly established, currency-for-commodity, self reinforcing systems in the past century of human history, nothing comes close to the petrodollar: it is safe to say that few things have shaped the face of the modern world and defined the reserve currency as much as the $2.3 trillion/year energy exports denominated exclusively in US dollars (although recent confirmations of previously inconceivable exclusions such as Turkey's oil-for-gold trade with Iran are increasingly putting the petrodollar status quo under the microscope). But that is the past, and with rapid changes in modern technology and extraction efficiency, leading to such offshoots are renewable and shale, the days of the petrodollar "as defined" may be over. So what new trade regime may be the dominant one for the next several decades? According to some, for now mostly overheard whispering in the hallways, the primary commodity imbalance that will shape the face of global trade in the coming years is not that of energy, but that of food, driven by constantly rising food prices due to a fragmented supply-side unable to catch up with increasing demand, one in which China will play a dominant role but not due to its commodity extraction and/or processing supremacy, but the contrary: due to its soaring deficit for agricultural products, and in which such legacy trade deficit culprits as the US will suddenly enjoy a huge advantage in both trade and geopolitical terms. Coming soon: the agri-dollar.
If we lacked Direction last week, this week was a strong case for “The Only Way is Up!” with Risk assets soaring. Quite a cleansing process over the last weeks: weak longs stopped out, weak shorts stopped out. Volatility crushed nevertheless.
"The Only Way Is Up" (Bunds 1,44% +12; Spain 5,60% -26; Stoxx 2552 +4,8%; EUR 1,296 +260)
Yet another light ROn close of the day, crowning a ROn of a week. Worries put aside on Greece (and Cyprus) and the Periphery (and the Fiscal Cliff). Sentiment data all for the better. Last week’s nightmare obviously obliterated. It’s not like things have really changed, though.
Fly like an Eagle – for those “Free Bird” of yesterday that made it through the night…
"Fly Like An Eagle" (Bunds 1,44% +1; Spain 5,6% -4; Stoxx 2552 +0,7%; EUR 1,296 +80)
So we have the Greek debt crisis, the European Union budget problem and the European bank oversight issue and twenty-seven countries all wanting “this, that and the other” except “the other” is not that much fun unless Ms. Merkel surprises everyone by saying she is a little tired and pulling a Mae West and telling all twenty-seven nations that one will have to leave. The scenario is unlikely of course but then everyone involved is now playing the grand old game of “Work Around” where someone must pay and it is going to be anybody but them. “Not this little piggy,” says the IMF and “not this little piggy” says the ECB and “not this little piggy” says the European Union. This is all because no one wants the political winds to “blow their house down.”
US closing fine, Asia closing fine. PMIs a tick better than expected. Fine. Spanish auction fine. Greek bonds fine. All fine. Slight Risk On. Fine. Fine, fine, fine… All is good. Free that Bird – or Eat it!
"Free Bird" (Bunds 1,43% +0; Spain 5,64% -6; Stoxx 2534 +0,6%; EUR 1,288 +60)
The Latest Greek "Bailout" In A Nutshell: AAA-Rated Euro Countries To Fund Massive Hedge Fund ProfitsSubmitted by Tyler Durden on 11/21/2012 15:06 -0400
What is the latest state of play that has the biggest support from all parties? It appears that the plan which is now back in play, is one which Greece had previously nixed, namely a partial Greek bond buyback of the private bonds at a discount to par: with numbers currently rumored anywhere between 25 cents and 50 cents on the euro. And even if Greece agrees with this proposal, there is a question of where Greece will get the money for this distressed debt buyback? After all Greece is completely broke, and any new cash would have to be in the form of loans, as not even the most nebulous interpretation of the Maastricht treaty would allow an equity investment, or to use the proper nomenclature, "a fiscal investment" into Greece. But the kicker is when one traces the use of funds. Because what is will happening is a payment not to Greece, obviously, but to its creditors: entities which for the most part are hedge funds, and which have bought up GGB2s in the mid teen levels as recently as 4 months ago (recall Dan Loeb's major position in Greek bonds).
Greece? Sorry, what’s with Greece? French downgrade. Unexpected, but then again not that much. So what? Fiscal Cliff? As no one speaks about it, it can be ignored. Risk? If it doesn’t fall, it has to rise.
"Rise To The Occasion" (Bunds 1,43% +2; Spain 5,7% -9; Stoxx 2518 +0,4%; EUR 1,282 +10)
What does the Fed's QE 3, a Spanish default, the systemic crisis in the EU and Lehman all have in common?
Uh… Very uncomfortable French downgrade. Not surprising per se, but uncomfortable. Ask the EFSF… Brings back the question of “Who’s Next”? European Risk (Equities & Credit), however, oblivious and taking rising yields as a sure sign for Risk On. I’d see the risk of France (and everyone else) starting to count contingent costs.
"A Tout Le Monde" (Bunds 1,41% +6; Spain 5,79% -9; Stoxx 2509 +0,6%; EUR 1,281 unch)
Another day, another melt up overnight wiping out all the post-Moody's weakness, this time coming courtesy of Europe, where following the French downgrade, the EURUSD filled its entire gap down and then some in the span of minutes following the European open, when it moved from 1.2775 to 1.2820 as if on command. And with the ES inextricably linked to the most active and levered pair in the world, it is is no surprise to see futures unchanged. It appears that the primary catalyst in the centrally planned market has become the opening of said "market" itself, as all other news flow is now largely irrelevant: after all the central planners have it all under control.
Certainly, don’t let the riffraff decide.
"With EUR now at 1.2773 versus 1.2816 just before the announcement there is probably more downside till the kneejerk reaction is out of the way. But on the whole it seems likely that this more reflects an already existing reality than new information for the market so the downside should be relatively limited, and nothing that could not be cured by an aggressive Fed indication on balance sheet expansion."