Sovereign Debt

The euro-19 area is now close to having a 100% debt to GDP ratio, and that’s flattered by German surpluses from an export boom that is rapidly cooling, and the fact the for a few quarters Mario’s printing press has conferred huge interest rate subsidies on their depleted fiscal accounts. The pending Graccident will puncture that illusion, tipping most of Europe into acute fiscal crisis and political upheaval of the type that has already roiled Greece and was starkly evident in Spain’s elections last weekend. The odds that the European superstate and the ECB’s Keynesian monetary regime will survive the resulting upheaval are, thankfully, somewhere between slim and none.

It is becoming increasingly clear that the Syriza show will ultimately have to be canceled in Greece (or at least recast) if the country intends to find a long-term solution that allows for stable relations with European creditors, but as we noted on Wednesday, it may be time for Greeks to ask themselves if binding their fate to Europe is in their best interests. Indeed, it's time to take a hard look at the political ramifications of the June 5 IMF deadline and ask if the troika will, in the final analysis, be successful in using financial leverage to undermine the democratic process.

With each passing year the currency fell in value to ever more absurd depths until by November 1923 an ounce of gold - which had cost 170 Marks only five years previously - was trading at 87,000,000,000,000 Marks per ounce. Silver saw similar price gains (see chart) - or rather to put it more accurately silver too remained a store of value and maintained purchasing power as the currency collapsed.

By failing to prepare, you are preparing to fail

Not a day passes without one clueless pundit after another appearing on TV and reading from the teleprompter like a stoned zombie that one must not fight the Fed (and central banks) and buy stocks while shorting bonds. And yet what are central banks buying? Not stocks (at least not officially in the case of the Fed; only the BOJ and the SNB admit to openly monetizing equities).

The answer: bonds.

The biggest slow motion trainwreck in history, one that everyone knows how it ends just not when (especially since the "when" is about 5 years overdue), that of the Greek sovereign default may just got a bit more exciting earlier today when the WSJ reported that the IMF can no longer lie - like Mario Draghi did to Zero Hedge in 2013 - that there are preparation for a Plan B. To wit: "the International Monetary Fund is working with national authorities in southeastern Europe on contingency plans for a Greek default, a senior fund official said—a rare public admission that regulators are preparing for the potential failure to agree on continued aid for Athens."

For over 30 years, sovereign nations, particularly in the West have been buying votes by offering social payments in the form of welfare, Medicare, social security, and the like.

An interesting article has neatly encapsulated the global (but primarily Western) “bond bubble”:

The politicians like the bankers and the central bankers, are happy to kick the can down the road and let their successors and future generations pick up the tab and pay for the economic mess that they refuse to address.

Liquidity is plentiful when you don't care about it and scarce when you need it most

• ‘Flash Crash’ Overhaul Is Snarled in Red Tape (WSJ)
• ECB Considers Tighter Noose on Greek Banks (BBG)
• Dollar Falls as U.S. Data Cast Doubt on Fed Policy Tightening (BBG)
• Market U-Turn Rams Hedge Funds (WSJ)
• Greece makes 200 million euro IMF payment due Wednesday (Reuters)
• Greek unemployment was 25.4 percent in February (Reuters)
• J.P. Morgan’s Barista-Turned-Banker Sees Good Things Brewing (WSJ)

With NIRP having turned traditional risk-free assets into guaranteed losers, investors have poured more than $9 billion into junk bond ETFs YTD, and while common sense dictates that buying at the top of an epic HY bubble just ahead of a rate hike cycle and against a backdrop characterized by disappearing liquidity in the secondary market for corporate credit is a fool's errand, most investors feel they have little choice. 

• Fed's Yellen says met firm at heart of leak probes (Reuters)
• EU Raises Growth Outlook as ECB Counters Greek Threat (BBG)
• Hillary Clinton Takes Hit in WSJ Poll, but Holds Edge Over GOP Rivals (WSJ)
• China stocks slump on tighter margin rules, IPOs; Hong Kong down (Reuters)
• McDonald’s Chief Promises Turnaround in a Restructuring (NYT)
• German Bond Market Selloff Continues (WSJ)
• Vanguard overtakes Pimco’s Total Return following outflows in wake of Bill Gross’s departure (WSJ)
• EU Demands Concessions as Greece Hurtles Toward Deadlines (BBG)
• Junk Bonds Are The New Haven Assets (BBG)

If yesterday's laughable lack of volume (helped by the closure of Japan and the UK) coupled with hopes that the end of the buyback blackout period was enough to send stocks surging if only to end with a whimper below all time highs despite what is now looking like three consecutive quarters of Y/Y EPS declines according to Factset, today's ramp will be more difficult for the NY Fed and Citadel to engineer, not least of all due to the headwind of the overnight "incident" by China's stock bubble which saw the Shanghai Composite tumble by 4%, the most since January.

"Greece is so far off course on its $172bn bailout programme that it faces losing vital International Monetary Fund support unless European lenders write off significant amounts of its sovereign debt, the fund has warned Athens’ eurozone creditors," FT reports, indicating that the organization may force the ECB and implicitly the German taxpayer to take the hit if Greece wants to receive the last tranche of aid under its existing program.