Greek Bonds Monkeyhammered As Hedge Funds Slash Hands Catching Falling Knives

Tyler Durden's picture


About two years ago the Norwegian sovereign wealth fund did something truly remarkable: it invested for infinity: "Norway, which has amassed the world’s second-biggest sovereign wealth fund, says Greece won’t default on its debts. The Nordic nation’s $450 billion Government Pension Fund Global has stocked up on Greek debt, as well as bonds of Spain, Italy and Portugal. Finance Minister Sigbjoern Johnsen says he backs the strategy, which contributed to a 3.4 percent loss on European fixed income in the second quarter, compared with gains on bonds in Asia and the Americas. Norway says its long-term perspective will protect it from losses. “One could say we are investing for infinity,” Johnsen said." Well, we all know how the experiment ended: "Norway Sovereign Wealth Fund Purges All Insolvent Eurozone Debt Holdings." So much for infinity. But that has not stopped others to boldly catch falling knives where so many other have tried to catch falling knives before, and failed. Enter Greylock Capital and various other hedge funds who are positive they have rediscovered the wheel.

From the NYT:

As Greece girds for an election on Sunday that top politicians warn could ultimately force the countryto leave the euro zone, some risk-happy investors have adopted an improbable rallying cry: buy Greek bonds now. Among counterintuitive bets, few in Europe match this one.


The common wisdom holds that the new Greek government, whatever its composition, will be unable to force another round of public spending cuts on its people. That could prompt Greece to leave the euro currency union and default on its debt. But the contrarians, who are mainly distressed-debt experts, see a buying opportunity. They favorably compare the junklike 21 percent yields on Greek bonds to the much lower returns, but comparable risks, on bonds of international renegades like Venezuela and Argentina, which now trade in the 11 to 13 percent range.


"This is the trade of the year," said Hans Humes, president of Greylock Capital, a New York-based hedge fund. Greylock is actively buying the debt at prices that have ranged from 19 to 25 cents on the dollar. "It's a no-brainer," Mr. Humes said.


Investors like Mr. Humes are betting that a new Greek government -- even if it is a coalition that includes unruly splinter parties -- will have to accept demands from Europe and the International Monetary Fund that the country adopt yet another round of to-the-bone spending cuts, to secure the money it needs to survive and make good on its debts.


Bond traders say that others now doubling down on Greece include Banco BTG Pactuel, the Brazilian investment bank; Finisterre Capital, a London-based fund company that specializes in emerging markets and, in particular, Brevan Howard, one of Europe's largest hedge funds.


Mr. Humes was a member of the steering committee that negotiated the deal in March that erased 100 billion euros from Greece's still-staggering debt load, but left investors like himself with eye-watering losses. Even after that bailout deal, Greek government debt is 160 percent of its gross domestic product -- still the highest level in Europe.


But instead of selling the revamped bonds as almost certain to fail, the way many investors have done, Mr. Humes has been aggressively adding to his position.


"Greece will not default on the private sector this time around," Mr. Humes predicted.


"The politics are shambolic and the recession is massive," said Alex Garrard, a senior debt trader for BTG Pactuel in London. "But in the end, Europe cannot walk away from Greece."

Um, distressed bond expert guys - the bonds you should have bought are the old UK-law bonds which may return par, when one piggybacks on the Norwegian side in some European tribunal which is about to sue the Greek anarchy into oblivion: at least you had some covenant cover.

Buying into the new bonds which have ZERO creditor protection means the probability of a zero recovery is not really rocket science.

But yes - "no brainer" sure is better than "investing for infinity." However, at least as of this morning, considering the unthinkable is close to happening, and the 'Greek Bond' bullish thesis is evaporating in a puff of smoke, resulting in Greek bonds pummeled down by almost 20%, the no-brainer description is most applicable to those who once again boldly ventured to catch falling knives where so many have done before, into what is now the world's biggest economic depression, maybe in history. And what all these experts fail to recognize is that the New Greek bonds are essentially primed by secured debt that is at least 177% of Greek GDP. Which means in a downside case the recovery value, when all Greek assets are sold for scrap, the bonds will recover, oh, about -77%.

Sold to you.

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Mon, 05/07/2012 - 11:06 | 2403365 Snakeeyes
Mon, 05/07/2012 - 11:12 | 2403392 Harlequin001
Harlequin001's picture

'when all Greek assets are sold for scrap, the bonds will recover, oh, about -77%'

Oh, better buy some CDS on that...

The market's good for it, honest...

Mon, 05/07/2012 - 11:19 | 2403427 NotApplicable
NotApplicable's picture

"Investing for infinity." = "All your posterity are belong to us."

Mon, 05/07/2012 - 11:47 | 2403539 The trend is yo...
The trend is your friend's picture

I just love the hubris of these hedgefund managers that think they are so smart.  It will be fun to see them blow up

Mon, 05/07/2012 - 12:00 | 2403588 Zero Govt
Zero Govt's picture

Yes normally in a recession, ok Depression, you're supposed to pay-off your debts buying debt (ie. paying for it) inverts the Idiot Guides to Depressions basic rules somewhat

Mon, 05/07/2012 - 12:34 | 2403702 redpill
redpill's picture

These are the voyages of the Starship Hellenia.  Its five year mission: to explore strange new debt instruments, to seek out new suckers and new bondholders, and to boldly catch knives that no one has caught before!


aaaAHHH ah ah ah ah ah....

Mon, 05/07/2012 - 18:11 | 2404892 r00t61
r00t61's picture

If this was really such an awesome "I can't believe it's not butter!" trade, he wouldn't be talking about it out loud to some newspaper.

Mon, 05/07/2012 - 20:43 | 2405228 StychoKiller
StychoKiller's picture

"It's sovereign finance Jim, but NOT as we know it..."  :>D

Mon, 05/07/2012 - 11:56 | 2403577 Chaffinch
Chaffinch's picture

"All your posteriors are belong to us"
There, fixed it for you.

Mon, 05/07/2012 - 11:07 | 2403367 midgetrannyporn
midgetrannyporn's picture

Calpers and Fidelity will buy them.

Mon, 05/07/2012 - 11:17 | 2403426 Theta_Burn
Theta_Burn's picture

And they call me the dumb money x.x

Mon, 05/07/2012 - 11:08 | 2403376 GolfHatesMe
GolfHatesMe's picture

The 10:30 am only buyer on the planet has logged on, and Mr. Sack is buying us out of this Red chart

Mon, 05/07/2012 - 11:09 | 2403377 Lost Wages
Lost Wages's picture

Is "monkeyhammered" a technical term?

Mon, 05/07/2012 - 11:14 | 2403399 Harlequin001
Harlequin001's picture

yes, it stands alongside 'utterly fucked'...

Mon, 05/07/2012 - 11:14 | 2403403 ReallySparky
ReallySparky's picture

Yes, it was coined here.  The vernacular is zerohedgion.

Mon, 05/07/2012 - 11:14 | 2403407 SheepDog-One
SheepDog-One's picture

Yes, but if you hear 'monkey-stomped' you know its a bit worse indicator.

Mon, 05/07/2012 - 11:16 | 2403411 GMadScientist
GMadScientist's picture

Yes, it's slightly more severe than "pole-axed" or "whacked" but less dramatic than "meltdown" or "flash crash".

We should note that an improvised weapon made from a log in pendulum configuration is a "monkeyhammer"; consider the mv^2 involved.

Mon, 05/07/2012 - 11:14 | 2403414 mayhem_korner
mayhem_korner's picture



Is "shambolic"?

Mon, 05/07/2012 - 11:24 | 2403458 CPL
CPL's picture

Picture a Monkey hammering and it frames the situation perfectly.  Lots of missing the target and endless destruction.


In physics we call it entropy.


ZH vocabulary builder:

Monkeyhammer.  bumblefuck.  Shit the bed.  nuked.

Mon, 05/07/2012 - 11:59 | 2403591 theTribster
theTribster's picture

tits up - my personal favorite...

Mon, 05/07/2012 - 11:44 | 2403530 WAMO556
WAMO556's picture

Negative Ghostriders!!! Monkey Fucked, Monkey Stomped, Monkey Hammered along with quite a few other technical terms of quotable violence comes from: THE MARINE CORPS. Yes that is right, the: first to fight are usually the ones who are: first to come up with colorful metaphors about what they will do to: your ass, face, body, mind, skull, the enemy, the stripper down at Pure Platinum and quite a few other near directional targets.

Most economists are boring and live a life of numbers and are GREY, however, Marines live a tumultuous life, learn through having information knocked into the brain housing group (nomenclature for: the head) by some really vicious but well meaning short tempered no-nonsense NCO's who cannot stand stupidity of any form and will not tolerate said stupidity to be within the frag radius of a 155mm shell of themselves.

So.... now all of yous apes know where this shit comes from, either recieve said information through osmosis, the Mk 1 inernal optical sensors or have one of my guys monkeyhammer that shit into your brain housing group, right after they stomp a mud hole in your monkey ass!

Just saying!!!

Mon, 05/07/2012 - 11:10 | 2403384 Loukanika the r...
Loukanika the riot dog's picture

The guys a fucking idiot!

Please, raise awareness if you have dated, known, worked with, are related to, married to (or divorced from) or have children to someone who suffers from being a fucking idiot. We all need to understand, being a fucking idiot is real and must be taken seriously. You could be sitting next to a fucking idiot right now. There is still no known cure for being a fucking idiot, and sympathy does not help. Sometimes a piece of 4x2 to the back of the head helps, but not a lot. But we can raise awareness!

Mon, 05/07/2012 - 11:11 | 2403385 Winston Churchill
Winston Churchill's picture

Stupid is ,as stupid does.(sic)

Mon, 05/07/2012 - 11:11 | 2403386 justanothernerd
justanothernerd's picture

How liquid are these bonds? If I owned any, I'd feel like I was sitting there holding a large pile of excrement. 

Mon, 05/07/2012 - 11:17 | 2403413 Harlequin001
Harlequin001's picture

From a liquidity perspective they're a bit like concrete unless you're a central bank. Then they're a bit like concrete...

Mon, 05/07/2012 - 11:31 | 2403485 Joe Davola
Joe Davola's picture

If you've ever had a colonoscopy, that MoviPrep stuff proves that liquid and excrement aren't mutually exclusive.

Mon, 05/07/2012 - 12:02 | 2403604 Zero Govt
Zero Govt's picture

the answer is the Bonds are as liquid as the Greek Govt

..the viscous flow gauge reads 'Insolvent' on the test

Mon, 05/07/2012 - 11:11 | 2403387 Aductor
Aductor's picture

Never mind. As long as nothing directly and imminently impacts the US we will happily trade in lala-land mode. USA! USA! USA!

Mon, 05/07/2012 - 11:12 | 2403388 manhunter
manhunter's picture

Excellent example of how Europe is working through its' problems. Losses are put on bondholders, where they belong; not printed onto the back of the currency. The ECB cannot be forced to fund government deficits; the euro will not hyperinflate.

France will also learn this lesson, new socialist government or not. The ECB will not print to fund deficits, period.

Euro FTW.

Mon, 05/07/2012 - 11:13 | 2403404 agent default
agent default's picture

Just wait until countries start leaving the Eurozone, and the EU begins to unravel.  The ECB will disappear overnight.

Mon, 05/07/2012 - 11:16 | 2403420 manhunter
manhunter's picture

No one is leaving the eurozone. They even have a new unofficial member, Switzerland, which is pegged to the euro.

Mon, 05/07/2012 - 11:15 | 2403405 mayhem_korner
mayhem_korner's picture



"no-brainer"..."trade of the year"..."Greece will not default on the private sector this time around"..."Europe cannot walk away from Greece"...

These quotes are keepers.

No risk here, folks.  Step right up!

Mon, 05/07/2012 - 11:16 | 2403416 SheepDog-One
SheepDog-One's picture

'No-brainer' indeed....all it takes to buy into any of this is no brain.

Mon, 05/07/2012 - 11:14 | 2403408 l1b3rty
l1b3rty's picture

How long will people keep on buying on dips? This must be the experiment taking place by the powers-that-be as on Monday morning they brought silver almost to its knees, down to $29.70 as of 7:41am PST. Headlines in the early morning discussed how world markets were faltering on news of a socialist president taking power in France, as most world markets remained somewhat steady. If they were down, it was only slightly. The dollar remained where it had been, around 79.50.  The Euro is down to a three-month low, which has hurt gold and silver. Greek voters have shot down austerity measures, which goes against the wishes of technocrats in Europe regarding what to do with the debt of drowning countries. 

It appears, though, that this is a minor early morning dip out of New York as the traders there finish their first cup of coffee and received their marching signals from Blythe Masters who received her marching signal from the City of London. Anymore market turbulence or paper market selloff will bring silver to $29.50 with the next floor in the high $26.00 range.

Mon, 05/07/2012 - 11:17 | 2403421 SheepDog-One
SheepDog-One's picture


Mon, 05/07/2012 - 11:26 | 2403466 Theta_Burn
Theta_Burn's picture

Mr. Buffett seems to be upbeat,0,2611214.story

He also feels that problems in Europe will eventually be resolved

Mon, 05/07/2012 - 11:46 | 2403536 EBR MOD 0
EBR MOD 0's picture


Mon, 05/07/2012 - 11:16 | 2403418 buzzsaw99
buzzsaw99's picture

I can't believe my eyes, a credit event has been admitted?:

Mon, 05/07/2012 - 11:17 | 2403422 orangegeek
orangegeek's picture

Norway is so smart.

Mon, 05/07/2012 - 11:25 | 2403463 GMadScientist
GMadScientist's picture

Positive trade balance, current account surplus, low debt to GDP ratio, and 3.2% unemployment.

Yeah, they're real "dumb". LOL


Mon, 05/07/2012 - 11:40 | 2403517 FlyoverCountryS...
FlyoverCountrySchmuck's picture

an OIL-based economy will do that. Funny how those on the left always forget the EVIL OIL when they pimp Norway's Social Welfare, isn't it?

Mon, 05/07/2012 - 11:42 | 2403520 Marco
Marco's picture

Which is why most of the time we chose Sweden as the example ... and to a lesser extent Denmark.

Mon, 05/07/2012 - 11:50 | 2403546 GMadScientist
GMadScientist's picture

I don't consider oil evil; I like food and plastics.

Dipshits who waste it in profligate fashion on energy unconscious fits of conspicuous consumption to assuage their petulant, penis-enying little egos on the other hand, can get fucked and learn to ride a bike.

Funny how Norway's "social welfare" oil money was used for direct investment, until it got pissed down an Ouzo bottle.

Mon, 05/07/2012 - 14:31 | 2404216 robertocarlos
robertocarlos's picture

We're not wasting gasoline driving SUVs. Gasoline is a useless by-product of the refining of oil for the important parts like plastic and kerosene.

Mon, 05/07/2012 - 11:18 | 2403425 LawsofPhysics
LawsofPhysics's picture

Paper promises are for paper people.  If you are made of flesh and blood, then you will bleed.

Mon, 05/07/2012 - 11:19 | 2403432 Clayton Bigsby
Clayton Bigsby's picture

And by "no-brainer", you mean?....

Mon, 05/07/2012 - 11:21 | 2403440 overmedicatedun...
overmedicatedundersexed's picture

translation: I buy these bond and the nation holds them until long after I am dead..ass wipe smiles as they hold to infinity, come to think of it he is right.

Mon, 05/07/2012 - 11:24 | 2403452 youngman
youngman's picture

I have always wondered who was buying them???????  Now I mans junk is another mans treasure I guess......time will tell...

Mon, 05/07/2012 - 11:24 | 2403453 Dr. Engali
Dr. Engali's picture

I hope there is a follow up on Mr. Humes and his trade of the year as he is scrambling to cover his ass.

Mon, 05/07/2012 - 11:24 | 2403455 FranSix
FranSix's picture

OT:  The  Canadian housing bubble is catching some press.  Very likely the banks and hedge funds are getting fried as they're short the bubble that just won't die:

Canada went from a surplus to a deficit after the ABCP collapse.  Tarp 1.  Which was accompanied by deregulation of the banks in 2006.  Banks also brought their failed assets to the central banks and traded them for treasuries. Then the gub'mint bailed out the banks while lying to voters in 2008.  Tarp 2.  Then we saw the no-down-tick rule abolished in 2011.  Now there's going to be another bailout.  In the meantime quantitative easing and operation twist in Canada went completely unannounced.  Voters had been relying on the conservatives to pump up their house prices.

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