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How Dan Loeb Thinks The Greek Crisis Plays Out
As reported yesterday in his Q4 letter to investors, Third Point's Dan Loeb took down his net leverage going into 2015 for one simple reason: a "haunted house market" as he described it, where "a new scary event lurks around each corner", and no event is scarier than a worst-case outcome to the Greek situation.
So how does Loeb see the latest Greek crisis ending? Read on for this thoughts.
Greece Update
In 2014, Greece’s economy started to improve modestly after a long malaise. This progress proved to be too little too late for Greece’s former Prime Minister, Antonio Samaras, whose New Democracy party was defeated in January elections which were triggered by the parliament’s failure to elect a President in December 2014. Samaras was committed to keeping Greece in the EU and had implemented unpopular but necessary fiscal and structural changes to pull the country back from the 2012 brink. Greek voters, who had suffered from austerity just long enough to miss out on its emerging benefits, rejected his approach and elected Syriza, a popular but inexperienced leftist party. Syriza’s first move was to form a coalition with a radical right wing party with whom they shared one key interest: aggressively confronting the Troika. The markets naturally reacted with grave concern.
Today, the situation is changing daily as Syriza finds its footing and faces divisions within its ranks. As we have seen many times before, campaigning and actually governing are two completely separate things and unfortunately, in this case, there is no time to learn on the job. The government is currently dealing with a plunge in asset values and tight liquidity for both the sovereign and banks. Tax collections – a significant, if unpopular, focus of the former PM – slowed significantly in the past few months, putting fiscal pressure on the government. Over the last few weeks, Greek banks have needed to borrow emergency ECB funding at high costs in order to meet deposit outflows. We believe that unless an agreement with creditors is reached this month, Greece will begin experiencing extreme liquidity pressures in early March. These liquidity pressures will only escalate leading into April as government treasury bill obligations and interest payments/maturities to private creditors and the IMF begin to pile up. Greece theoretically has enough liquidity to make it through February and possibly March (absent a bank run) but as we have witnessed time and again, the path to insolvency starts slowly but ends very quickly.
Thus far, Syriza has appeared unwilling to adjust its negotiating strategy to these liquidity constraints, instead choosing to remain firm on campaign pledges not to extend the current Troika program. This will soon create a “between a rock and a hard place” moment since Greek voters did not mandate Syriza to take Greece out of the Euro or default on its debts. The country’s only liquidity source is its EU partners, who will insist on continued monitoring and reforms as a funding condition. Syriza is far from omnipotent – it does not have a majority in parliament and its coalition is viewed as relatively weak given that its partner finished sixth in the elections, with less than 5% of votes, meaning only about 40% of voters voted for this government. A potential outcome of failed negotiations is a collapse of the existing coalition and possibly new elections, which would create significant market volatility but most likely produce a national unity government with a clear mandate to prevent catastrophe.
Despite this chaos, on the other side of the table, no one wants a Greek exit (“Grexit”) from the European Union. We are confident that Germany believes funding Greece and reducing its debt through a politically palatable restructuring is a good investment of German taxpayer funds. In 2014, Germany is poised to break the world record for largest current account surplus (again) at a whopping ~$285 billion, nearly double that of China and triple that of Saudi Arabia. Germany also boasts Europe’s lowest unemployment rate at 4.9%, which is half the Eurozone average and one fifth that of Greece. Both Germany’s current account surplus and low unemployment are enabled only by an artificially low currency which would be threatened with extinction should any Eurozone member opt – or be forced – to leave. As one German politician recently said, “Have you seen what happened to Switzerland?”
These are powerful incentives to drive a constructive German negotiating position, but the German government will not be blackmailed or embarrassed. Greece and Europe should almost certainly find common ground if Syriza can provide real alternatives to Greece’s existing austerity measures while respecting Germany’s need for a politically acceptable outcome. What a Syriza-led government ultimately means to Greece’s economic prospects remains unclear but one thing is certain: if they do not play their cards well in coming weeks, it’s likely we will never know.
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"Greek voters, who had suffered from austerity just long enough to miss out on its emerging benefits"
Yeah, think of all that weight they will lose starving while the bankers walk away with fat profits and stuff their faces after nights of hoookers and blow.
BULLSHIT DANNO!
That's all wishful thinking when Danny knows full well Greece is going tango-uniform any day now and the ECB and the EU are fucked.
"The country’s only liquidity source is its EU partners, who will insist on continued monitoring and reforms as a funding condition."
He forgot to read about Russia offering assistance and the Chinese too...
Ever heard of the BRICS bank Danny boy?
lol haunted house is perfect.
Dano seems to be talking his book again. what a fuck stick
AD
"Have you seen what happened to switzerland?" YEAH! THEIR CITIZENS BECAME 40% RICHER OVERNIGHT!
Yes, I was wondering about that..Switzerland is doing better than 99% of the rest of the world other than bank execs hiring snitches by mistake (HSB) for some feel good headlines for the have nots
Dannyboy may be a smart investor but he knows sh!t about what an economy is about and for how long you can starve people just to repay the banksters. And regarding those "improvements" under samaras: what is he smoking to see any? The Greek "growth" 2014 consisted of GDP falling 5 % and prices dropping 7.5 % - voila, 2.5 % real "growth". Go figure.
No news here. WTF would you expect a bankster to say.
The interest rate that was charged TOOK INTO ACCOUNT the probablility of DEFAULT.
They guessed wrong. Banksters fucked up. They made a BAD INVESTMENT.
Let Greece DEFAULT and leave the union or make another loan, for all I care. Or not, I don't care.
Just stop bailing out Banksters.
+100 What you said... the last sentence.
Concentrated po
As far as I know there isn't much in the BRICS Bank as far as liquidity with which they would reliquish to a NON-BRICS member (in the shape Greece is in). All the BRICS are hurting and they would rather use it on themselves then pissing it away with perhaps little chance of recouping it. If oil was at $100 a barrel things would be very different.
Unlike most people, I'm driven by facts and preponderance of evidence, and not by sentiment, habit, dogma or ideology. Therefore...
I side with Dan's analysis, no matter how distasteful it may be. As I posted earlier*
The ONLY leverage they have is that of Blackmail: "Give us what we want, or we change the Geopolitical balance by swinging East."
I wish it were not so, but I'm certain it is. Until Greece "pulls an Iceland" and pulls out of overpriced NATO, my hypothesis stands. Facts are facts, and they are trumped only by new facts, not entrenched opinion or hope.
* Tue, 02/10/2015 - 12:06 | 5766849 new noben
What was that concept "Talking your book"?
How does that math work?
Loan money -
then loan more money to pay back first loan plus interest due -
then loan more money to pay back second loan plus interest due -
then loan more money to pay back third loan plus interest -
then loan more money to pay back fourth loan plus interest due
then write off all loans plus interest due.
Where are the fat profits?
Sounds like a Seinfeld episode - just write it off!
You forget. The money they loaned only came into existance when the loan was issued. They can't lose money in this scenario; fat profits are generated on the interest. They don't even have to bother to print the principal any more; it only ever existed as digits in a computer.
No interest was ever paid - they just keep loaning more money to cover the principal that is due + interest.
How annoying for them. No profit, but I still don't see where any loss was incured by the creditors who conjoured the money into existence. I can see where there might be loss to others who might have bought into this with their own monopoly money (that had been conjoured into existance). That is the inevitable and entirely predictable end to a Ponzi scheme. Years ago, in the late 70's, when i was still young and naive, there was a chain letter/pyramid scheme going around where you bought yourself a slot at the bottom of the pyramid for a couple of hundred dollars cash given to the person who sold you the slot and were supposed to send a couple of hundred cash to the person in the top slot of the pyramid. You then removed the name on top, rewrote it, placing you own name last on the 2nd to the last tier, drew in blank slots for the bottom tier and sold them. Early investors made a great deal of cash money. Of course, I got in near the very end. You were supposed to move up the pyramid, getting money all the while until you reached the top slot in the pyramid, where the big payoff was supposed to happen. I tried to sell a slot to my brother-in-law and he just laughed at me, drew a blank pyramid and put his name at the top, his wife's and his relatives names in the some of the lower slots and said he'd just sell that, and I learned an extremely valuable lesson relatively cheaply, but because it is so enormous, I didn't recognize the entire economy for a Ponzi until very recently. If you put a name on a thing you can define it.
So in your opinion fat profits and no loss are the same thing?
You must be a CPA
For Bernie Madoff
Sorry Dan. The Greek people have already stated quite clearly what they want and elected this government to fulfill their demands. If these guys don't do it then they will be run out of town and then there's no way they elect another government that will.
Weak currencies for everyone!
"these things are so scary that my hedge fund uses leverage to play these kind of games with other people's money. when i'm right, i get 20% of gains. when i'm wrong, i get my 2% on assets. life is good." - dan loeb, hedge fund manager
No shit. Loeb is probably levered up the ass -with his client's funds.
I wonder who his counterparties are and if they enjoy his little game of chicken with their asses. He's already rich and I'm sure that his own balls aren't sitting in the bottom of in the blender.
Heads I win and tails you lose is such easy bet to make...
John Corzine has shown us the way...
don't forget I only pay capital gains tax of 15%(I even defer that for years) as opposed to your 38%(and state tax)! You little people are a joke
Syriza was elected on a mandate to get out of the Euro. Negotiations on the debt are pointless since the only amount of haircut that will give the Greeks freedom to recover their economy amount to a default anyway, and they still need their own currency to have any economic/monetray freedom and growth going forward.
All Syriza is doing is trying to 1) buy time to plan Grexit and 2) try to get assistance if possible on Grexit.
Germany will fight tooth and nail since Grexit means Spexit and Pexit then Itexit/Frexit...then Germany is left alone with mega-strong New-DM and in a couple of years gets payback for decade of decent growth. People buying German Govies for safety have got it very wrong.
Germany is the leech of Europe.
Just wait for it.
How do you spell "FUCKED" in German?
GREXITSPEXITPEXITITEXITFREXIT.
If they wait for it.
GREXITSPEXITPEXITITEXITFREXIT=Fuxit
Germany is the only place that works in Europe. They burn thier surplus on socialism at home and feeding the PIIGS abroad. However Germany goes under, all the rest of Europe goes Detroit.
Actually it goes Beirut...
I agree with Loeb, I'm all out in cash, fk this market fk oil, fk china, fk europe
I'm even out of cash... it's all PMs, beef stew, and ammo at this point.
Greek govt just begged for Eur 2,000,000,000 to feed it's poor this Summer. Tsipras will cave soon.
Merkel is not going to retreat easily, she seeks a decent exit from the dead end she caused. Meanwhile the Greeks appear determined to face all the consequences. The return to national currency is not a nightmare anymore. There are signs showing that the Greek government is making some moves to prepare for a Grexit.
Screw Germany saving face. They were destroying people.
Both Germany’s current account surplus and low unemployment are enabled only by an artificially low currency.
Completely incorrect. The low unemployment is primarily the result of a hard-working, highly educated, productive work force that encourages such values and passes them on to the next generation. Continue to steal the surpluses generated by such industrious people, and their values will eventually change, as they are in America, you dumb fucking billionaire socialist.
"Both Germany’s current account surplus and low unemployment are enabled only by an artificially low currency."
I agree, it's Bullshit! If that were the ONLY variable, then it would apply to ALL EU countries.
It is PRODUCTIVITY, TECHNOLOGY, QUALITY, PERFORMANCE, PRICE, MARKETING that dominate the equation of German success. Its currency is only a small factor. Can the PIIGS lay claim to be competitive with Germany on the aforementioned variables? LOL. I think not!
Think back to the pre-EUR era (1950-1990), when they had the DM (DEM), and the PIIGS had their shitty little currencies: The PIIGS were just as poor or poorer (1950-1990) as they are now.
So the BCE can give to the EU zombi banks hundreds of Billions ( if not trillions ) of Euro at cost of 1 % interest . But can't bail out the Greek Government for 342 billions ? Free money to the banksters is OK but never to the citizens ! EU drop dead ASAP we do not need you !
F' them. Throw them to the lions, wolfs, or, the goats. No wait. Not the goats. Definitely, not the goats...
ZH Can kickers: 99
ZH Doomsdayers:1
Place your bets.
Whack on the breaks and take the first grexit left. Yanis Varoufakis was writing about this fan hitting shitastrpohy years ago. Dump the euro, print the drachma .. pain for a year, all is well.
This guy is either completely delusional or purposfuly misleading, nothing that he said is in any way shape or form correct.
Agreed. Reminds me in The Hunt for Red October when Connery tells Baldwin that his conclusions were all wrong.
You know what they say about assholes and opinions.
Big money and politics have some vested interest in Greece me thinks...
I like this guys articulation of the facts but dont agree a Greece Exit would be disasterous or the start of a Euro break up. Thus his analogy to Switz is false. False revalued . At worst, the Euro devalues on Grexit.
THis letter is a pile of crap.
Got Rubles?
In Greece everything is going according to plan.
Syriza recognizes the problem is bankruptcy not liquidity.
In a symbolic first act as prime minister, Alexis Tsipras pays his respects to 200 Greeks executed by the Nazis in World War Two.
What message is this sending to the Germans?
Now here is the finance minister talking to max Keiser in the early stages of the crisis:
https://www.youtube.com/watch?v=pwAClUrhrek
Is this a man who is going to carry on taking bailouts and punishing the Greek people?
Syriza are not going to back down.
What are Syriza doing?
They are showing the Greek people they are trying but the problem is the Germans.
Their aim is default.
I'm going to confess, I just skimmed over what he said.
Truthfully, there's very little point in Zero HEdge posting stuff like this.
1. The guy barely said anything of value! He spent most of his letter going over recent history, then put forward a bit of conjecture and that's it. And even the conclusions he drew were flimsy, at best.
2. The guy is a hedge fund manager. For goodness sake! We spend most of our time on Zero Hedge slating bankers and this type, calling them "Crooks" and "criminals". So why should we take any stock on what this guy says as it will either be (depending on your narrative) a) wrong because they're idiots or b) lies, because they're untrustworthy.
3. Since this letter DID come from a hedge fund manager, I have the pre-supposition that he saying whatever he's saying because he is going to make money betting the other way and trying to send others the other way.
As much as I loathe him, Max Keiser did say something on his TV show which did make sense. He said that there's a joke on Wall Street which went something like this "Where are the customers' yachts?". And it's true. How many of the customers of these hedge fund make so much money they can become like Jordan Belfort (a la "The Wolf of Wall Street")? But look at the banksters and hedge fund manager, they ALWAYS seem to win. There's a similar saying in the UK which goes "I'll start betting when I see a poor bookmaker."
Bookmaker = Hedge Fund Manager? I'd put money on it....
Phuck these vultures. They are chunking in their shorts like a cheating spouses club exposed and names posted on the newspapers of latest johns busted, praying their best half doesn't read the papers. shoring up the losses before the domino gets to them. Better stake out the nearest park bench to sleep on before the next guy gets it.
Take a letter Maria
https://www.youtube.com/watch?v=Z9Y0x1jLkLg
The most outrageous things the new Greek government is doing:
1. Threatening the Brussels Bureaucracy by endangering the United States of Europe project which is designed to remove sovereignty from each European state and give Brussels all-powerful status as the only sovereign in Europe;
2. Refusing to continue the Extend and Pretend game where the bankrupt nation keeps taking more advances to keep afloat while their debts keep increasing. Without Extend and Pretend, the bankruptcy of each of the PIIGS becomes obvious and the Euro project is put into jeopardy;
3. Raising the specter of other members of the PIIGS doing a Syriza;
4. Endangering several $Trillion in derivatives and threatening banksters with losses; and
5. Threatening to team up with Russia.
The more threatened the Eurocrats feel, the louder their squeals. The squeals are getting louder.
The consequences of Grexit are too serious for the EU to allow it. In addition to the immediate destabilization of the EU's tottering house of financial cards, Grexit threatens to make Greece as a non-EU state the new hub for natural gas delivery to southern Europe.
One of the greatest concerns of Europe is its energy supply, in particular its dependence upon natural gas from Russia.
The EU has been using 3 tactics against Russia in their energy war:
1. The plans to bring natural gas from non-Russian sources in Central Asia and the Middle East via the NABUCCO/TANAP pipeline system through Syria and Turkey;
2. The Third Energy Package which was intended to force Gazprom to hand over control, use, and part of the profits of the South Stream pipeline project to Brussels, and give Brussels control of all gas-price negotiations with Russia; and
3. Keeping Russia threatened with having to depend on their Ukraine pipelines for sales of gas to southern Europe. This was intended to force Russia to give Ukraine lower prices, forgive Ukraine's gas debts, and most importantly, play nice with Ukraine and the US/EU/NATO plan to take over Ukraine and use it as a threat to Russia.
NABUCCO/TANAP is moribund for lack of secure suppliers.
Then Putin diverted South Stream to Turkey and on to Turkey's border with Greece, removing the legal controls that the Third Energy Package gave Brussels, and emboldening Turkey to exert independence from the EU. Russia then announced that it will shut off the Ukraine pipelines once Turk Stream is up and running.
Putin then cheekily invited Greece to leave the EU and join the Eurasian Economic Union, and hinted at giving Greece bridge financing to leave the Euro.
If the Euro project falls apart, the artificially low exchange rate that it gives Germany will disappear and Germany's immense trade surplus will fall.
Expect the howls of outrage from Brussels and Germany to get louder.
It's obvious he hasn't read what David Stockman has to say about them in Europe;http://davidstockmanscontracorner.com/