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CMA Now Officially Assumes 20% Recovery In Greek Default - Time To Change Sovereign Debt Risk Management Defaults?
One of the ironclad assumptions in CDS trading was that recovery assumptions, especially on sovereign bonds, would be 40% of par come hell or high water. This key variable, which drives various other downstream implied data points, was never really touched as most i) had never really experienced a freefall sovereign default and ii) 40% recovery on sovereign bonds seemed more than fair. Obviously with Greek bonds already trading in the 20s this assumption was substantially challenged, although the methodology for all intents and purposes remained at 40%. No more - according to CMA, the default recovery on Greece is now 20%. So how long before both this number is adjusted, before recovery assumptions for all sovereigns are adjusted lower, and before all existing risk model have to be scrapped and redone with this new assumption which would impact how trillions in cash is allocated across the board. Of course, none of this will happen - after all what happens in Greece stays in Greece. In fact since America can decouple from the outside world, it now also appears that Greece can decouple from within the Eurozone, even though it has to be in the eurozone for there to be a Eurozone. We may go as suggesting that the word of the year 2012 will be "decoupling", even though as everyone knows, decoupling does not exist: thank you 60 years of globalization, $100 trillion in cross-held debt, and a $1 quadrillion interlinked derivatives framework.

As GGB cheapest-to-deliver bonds already trade sub-20
Source: Bloomberg
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Still 20% higher than it'll turn out to be.
But is that before or after legal costs and taxes?
And old or new euros?
If we wait a few more months the recovery will be zip. And then Greece will setup the funding from last year's bailout. Someone will scoop up the cheap Greek bonds and make a killing (hey, didn't the Rothschilds do that after the Battle of Waterloo ?)
No kidding, they are all playing a game of make believe and hoping that something comes up that can bailout all of them.
I'm confused.. is the CMA saying here is a 20% chance of a recovery in Greece, or are they saying there is a 20% chance of default? This is very bullish right?
They're saying 20 cents on the dollar is what bag...er...bondholders will get.
Will our new consumer protection czar Richard Cordray protect US bond investors?
So it's a "voluntary" 80% haircut....and still not a credit event trigger?
That's not a haircut.....that's a head shave!
You kidding me, that's almost the whole head from the top down to the forelip....we can keep the goatee in case the 20% needs to be further reduced.
or a comb over
More like a scalping!
More like a decapitation!
Under the double secret world financial sustainability compact, the term "credit event trigger" has not been defined and therfore can not happen making any insurace sold extreamly lucrative for the seller yet completely worthless for the purchaser. You would be better off buying a Reverse Morgtage from Robert Wagner.
even though most banks record show 100%
The CMA is way too optimistic. The way Greece and the rest of the periphery is going you will be lucky to get half that.
everything is bullish....everything............
http://www.youtube.com/watch?v=WlBiLNN1NhQ
What do they think will be the recovery rate on Greek CDS's?
So EK bond holders will get 24, Greek will get 20
Once the recovery estimates are that low why not just completely default 100%?
And what would all the 'journalists' do if they printed the truth on Day 1? Please have some compassion for the light-minded.
The Journalists can't handle the truth...if they did, they end up like those in Russia. Cold. No exit.
Don't disturb the intricate and delicate House of Cards.
In a few months everything will be arranged...by lets say The Ides of March.
BAC up close to 8% on a positive ZH post on Greece...
Now I understand why they call them zombie sovereigns - for all practical purposes they're as good as dead, but they can't really die...
BAC went in recently for their liquidity injections.
The stress test is next week...silly !
Didn't you get the memo ?
Biderman's Daily Edge 1/3/2012: Why No President Can Change Our Economic Woes
http://www.youtube.com/watch?v=wS2TF5ziWog&feature=uploademail
sounds like MFG clients
How does this not trigger a credit event and how much money are we talking about?
CMA doesnt know that Greece devaluation into Drachma will turn the RR into 5%
Precisely.
"as everyone knows, decoupling does not exist"
I don't know about that..
Ethics, morality and veracity seem to be entirely decoupled from the financial markets.
model railroaders are aghast!
So at what point do I start buying Greek bonds?
"Who gets the 20 and who gets the 80?" I want to know before I sign.
Not a credit event. Mwhahahaha
See, by new definition it is not default as long as you get something.
1 cent on the € !! Nice terms if the borrower can get that ;O)
With limited resources the only solution is MUTEX, each then gets access to the resource one at a time. So now each local government can become mutually exclusive of the global governments. This will form a partition and the local vichy governments will have to locally survive on whatever their local economy produces.
Wine country looks good right about now, or Loretto, Kentucky.
or if you are not married ... Vegas.
If you to know why people use 40% recovery rate for Corproration, and 20% for Financial Sub, ask NYU Stern Professor Edward Altaman, well it is just becasue he told them to do so. And wehen you ask him his answer is why not.
It's not over until the fat lady sings.
By the way do not forget that ITRAX and DOwJones CDX are priced with 40% recovery rate as input in the pricer
Have you seen the PSI Letter to Investors??
http://www.scribd.com/doc/76950350/Letter-to-Govs-PSI-26082011-Mpenny-Fi...
any comments ??
PP
It's an impressive document but why not just shorten it to "whistle for it"?
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