Rating Agencies

Greek CDS Surges To All Time Record On Talk Accord For Greek Bailout Faces Major Obstacles

Nobody could have seen this coming. According to RanSquawk, there is "Market talk that accord on new Greek bailout faces major obstacles." Whether true or not is irrelevant: the market sells first. Greek CDS just hit 1,474, +63 bps and an all time record high. Elsewhere, the EURUSD is dropping as the house of cards appears to be finally on the edge. Per Market News: "Despite public declarations last Friday that an agreement in principle had been reached, two major problems threaten to block a deal, the sources said. One is the highly sensitive issue of private sector contribution. The other is the insistence of European officials and the International Monetary Fund that the Greek parliament pass significant new deficit-cutting measures before EU leaders meet at the end of June as a condition for new money. That task appears Herculean, given the rapidly growing domestic political and social resistance. "

Guest Post: Keep The Faith....

What happens if energy and food prices keep going up? Can we be sure that this won’t happen? No of course not so these markets are far too complacent in my view and are not pricing enough risk premium. I am not even convinced that a lot of higher input prices have been passed on yet so the consumer will either face higher prices or the producer will see margins collapse and neither is good for equities. Europe is in a mess and it looks increasingly likely that a restructuring WILL happen somewhere at some point, whilst Trichet seems determined to jack up rates on principle. Don’t forget that even though European politicians want to help for fear of the consequences, ultimately the outcome will be decided by backbench politicians in PM Papandreou's parliamentary party. If austerity measures are not approved by parliament on Jun 28, then all hell could break loose. And just look at the EUR; what’s it doing up here? There is little risk priced here it seems and yet the risks are huge. Central banks are sucking volatility from these markets in a bid to create a false sense of security. This covert intervention is very clever as it’s tough to fight. Without doubt G20 is behind this and the accord is strong. They need a stable equity markets and stable FX markets to help buy time. Very clever.

IMF Says Is Open To Delaying Greek Bailout Loan Repayments

The soap opera begins early today (at least in the US), after the Irish Times reports that the IMF is open to delaying Greece's repayment of its international loans but believes a major restructuring of its debt would create untold problems in the euro zone, a senior IMF official said today. "Athens has made progress in tackling its debt crisis but cannot afford to relax the pace of reforms, Bob Traa, the International Monetary Fund's senior representative in Greece, told a banking conference. "If you want a debt restructuring that will really make a difference, it will need to be very large. Such a large debt restructuring would create untold problems not just in Greece, but also in the euro zone," Mr Traa said. But he did hint that the IMF was open to other solutions. "Stretching out payment terms, for instance in loans from euro area partners and the IMF, is a reasonable thing to think about because we have amortisation right at the end of the programme. This is a technical issue we can think about," he said." Unfortunately, as the rating agencies have made clear by now, such a move would be considered a technical default, and thus is unworkable as the very simple matter at the heart of the whole eurozone crisis is the forced marking of debt from mythical par levels (where the ECB has it) to market values (around half): a development which would lead to the insolvency of the ECB, something discussed minutes ago. All Europe wants is a phase transition that allows it to keep marking Greek bonds at par, and how this is achieved is irrelevant.

Guest Post: A First In History: The Coming Simultaneous European Banking Collapse

Watching international financial policy persisting on a concept to fight debt with more debt in an environment where official GDP growth rates only remain positive because of ridiculously low deflators, while interest rates apart from those central bank help for banks via laughingly low interest rates begin to surge everywhere else, this observer begins to wonder if one can expect anything else than a fast-rolling, simultaneous European banking collapse. Engulfed in more exponentially rising debt on public and private levels than ever before there simply cannot be another end of the longest growth cycle in history than a simultaneous collapse of international banking when lending freezes up due to fears about the real creditworthiness of the respective counter party. Globalization will have made it possible.

Fitch Blows At Greek Bailout House Of Cards, Says On Closing Of Distressed Debt Exchange Will Place Sovereign Rating Into Default

As we speculated yesterday...

  • If in Fitch's opinion, an announced exchange offer constitutes a DDE,
    the sovereign issuer rating will be lowered to 'C', indicating that
    default is highly likely in the near term
  • Fitch will place the issuer rating of the sovereign into default, specifically 'Restricted Default' (RD) upon closing of a distrssed debt exchange.
  • Fitch says a potential Greek debt exchange if voluntary, could still be considered a default event
  • Fitch says Greek debt exchange would be a default if bondholders terms were worse than original terms
  • Fitch says stressed sovereign debt exchange with worse terms is a technical default even if deemed voluntary

The gist is clear: the great unknown of how the rating agencies will treat even a "voluntary" restructuring is still in the closet.

"Escaping The Clutches Of Financial Markets" - An Essay On Europe's Debt-For-Democracy Prepackaged Bankruptcy

In today's Europe, the people are no longer in control. Instead, politicians have become slaves to financial institutions and the markets. We are partly to blame -- and changes are urgently needed to nurse European democracy back to health.We are doing well. In fact, we're doing splendidly. The economy is booming, with 1.5 percent growth in the first quarter. We are as prosperous as we were before the crisis, which has finally been overcome. Congratulations are in order for everyone. The banks, Deutsche Bank above all, deserve particular congratulations. In the first quarter, it earned €3.5 billion ($5.1 billion) in pretax profits in its core business, and by the end of the year the bank will likely report a record €10 billion in pretax profits, its best results ever. That number is expected to rise to €11 billion or even €12 billion in two or three years. Less than three years after the peak of the crisis, it seems as if it never happened. That is true of the economy, but it also true of us as economic subjects. But is that all we are? No, we are also citizens and participants in a democratic society. As such, we have no reason to be celebrating. Instead, we ought to be sad and outraged. Democracy, after all, is not doing splendidly, or even well. It is gradually becoming a casualty of the financial crisis.

Don Coxe On Everything From The Markets Rolling Over, To Persistent Food Inflation, To The Coming US Sovereign Debt Crunch

There is a plethora of original insight in Don Coxe (BMO Capital Makets) among them observations on sovereign risk moving from east to west, state finances (or lack thereof), the ongoing correction in financial stocks which portends nothing good for the equity investors, the ongoing violence in MENA, why this inflationary spike in food may last far longer than previous ones, and naturally, some very spot on thoughts on gold, which conclude with: "The only gold bubble likely to burst is the bubbling ridicule of gold."

Reggie Middleton's picture

I called it the coming RE Depression in 2007! I put MY money where my mouth was and sold off all of my investment real estate. I put YOUR money where my mouth was and shorted all that had to do with real estate (REITs, banks, builders, insurers). I called almost every major bank collapse months in advance. I warned the .gov bubble blowing does not = organic economic recovery. Now I'm saying we need to, and will, continue what's left of the crash of 2009, with ample global company. There will be no RE recovery this year, and there will be a crash. OK, you heard it here!

Dagong Downgrades The UK From AA- To A+, Outlook "Negative"

With everyone trading the GBP in the overnight session eagerly awaiting the leaked Moody's report that the rating agency, which has yet to be at least 2 years behind the curve, is set to downgrade "more than a dozen British financial institutions to reflect the eventual withdrawal of Government support for the banking industry", China has gone and upstaged the beating around the bush poser by downgrading the UK outright from AA- to A+, with an outlook negative. The premise: stagflation and deteriorating "debt repayment capability." Poor fools: they have yet to meet the full debt repayment capability of 20 Primary Dealers.

Jean-Claude Juncker - Europe Is Doing God's Work By Lying About Greek Insolvency, And Keeping EURUSD Longs Profitable

A few weeks ago, the entire world was made aware that nobody in Europe is to be trusted any longer after Jean Claude Jun(c)ker admitted he lied to the media ahead of what Spiegel had leaked earlier was a "secret" meeting to kick Greece out of the eurozone (turned out to be only half true - Greece was not and will not be kicked out... voluntarily). The purpose for the lie: "self-preservation." Today, in a much anticipated showdown between the magazine (which Greece said would sue for spreading salacious, yet true, rumors), and the bureaucrat, we learn that it is not Goldman, but Europe, that is doing God's work by lying on a daily basis about the Greek insolvency: "The most important commandment is not to inflict harm on others. Although it isn't stated quite that way in the Ten Commandments, it follows from them. The finance ministers of several Euro Group nations had agreed to meet on Friday with the president of the European Central Bank (ECB), Jean-Claude Trichet. Because the financial markets in Europe were still open and trading was still underway on Wall Street, we had to deny the existence of the meeting. Otherwise the course of the euro against the dollar, which had already fallen as a result of your report, would have plunged disastrously." Ah yes, doing God's will by focusing on the greater good, which is making sure those EURUSD longs are not impaired. If this is not confirmation that Europe is run by sociopaths, then nothing is. All this, and much more, including such pearls as "If the donkey were a cat it could climb a tree. But it is not a cat" read the full surreal interview below.

Olli Rehn Says Unlikely Greece Will Meet €50 Billion Privatization Target

It is now as if Europe is urging Greece to fail. The EU's Olli Rehn, better known as lord protector of Ireland (and now Portugal), for once said the sensible thing when he commented on Greek prospects to privatize €50 billion worth of assets: the latest condition for the country to procure additional bailout funding. In word (or two) - not good. This obviously could be a major issue because as we noted yesterday, the country now suddenly only has 2 months of cash left. So if even the very entity that imposed this condition is saying it is a moot point (something we observed yesterday), then why engage in the exercise at all? And how long before Europe (and whoever heads the IMF at that time) decides to pull the plug entirely...

The Week Ahead In Beltway Drama: May 16-20

As GS summarizes the week ahead in politics, it will be "a somewhat quiet week, with the House on recess and energy legislation on the Senate floor; fiscal debates will continue in the background, with possible action in the Senate on competing budget plans starting later this week…" In other words, the soap opera on the debt limit will soon start getting very interesting.