The Rise Of Activist Sovereign Hedge Funds, The "Subordination" Spectre, And The Real "Coercive" Restructuring Threat
When Zero Hedge correctly predicted the imminent rise of the "activist sovereign hedge fund" phenomenon first back in June 2011 (also predicting that the "the drama is about to get very, very real") few listened... except of course the hedge funds, such as Saba, York, Marathon, and others, which realized the unprecedented upside potential in such "nuisance value", long known to all distressed debt investors who procure hold out stakes, and quietly built up blocking positions in European sovereign bonds at sub-liquidation prices. Based on a just released IFRE report, the bulk of this buying occurred in Q4, when banks were dumping positions, promptly vacuumed up by hedge funds. More importantly, we learn from IFRE's post mortem of what is only now being comprehended by the market as having happened, is the realization that the terms "voluntary" and "collective action clauses" end up having the same impact as a retailer (Sears) warning about liquidity (and the result being the start of the death clock, with such catalysts as CIT pulling vendor financing only reinforcing this) to get the vultures circling and picking up the pieces that nobody else desires. As a reminder, it was again back in June we predicted that "the key phrase (or two) in the proposed package: "Voluntary" and "Collective Action Clauses"." Why? Because what this does is unleash the prospect of yet another word, which is about to become one of the most overused in the dilettante financial journalist's lingo: "subordination" or the tranching of an existing equal class of bonds (pari passu) into two distinct subsets, trading at different prices, and possessing different investor protections (we use the term very loosely) with the result being an even greater demand destruction for sovereign paper.
Incidentally this is precisely the reason why we predicted the second Greek bailout would be dead back in June of last year (proven right) as it underscores a very specific dynamic in bond trading, and thus demand, which apparently nobody in Europe grasped at the time, except for the hedge funds who now control the entire process and can demand anything to keep the Eurozone from falling apart. Unfortunately, it is now likely too late - with everyone finally figuring out what subordination means, and the S&P making it the highlight of their downgrade FAQ, the fear of future subordination alone is why demand for peripherals will likely plunge even more, paradoxically allowing activist funds to build up even bigger blocking stakes at cheaper price, throwing Europe into a toxic loop where courtesy of its stupidity it will now have to pay fund managers, the same ones it vilified, billions and billions, so they don't pull the plug on Europe.
IFRE describes when the realization of "nuisance value" set in:
One head of rates trading at a major dealer noted several instances in the fourth quarter when second-tier European banks looked to sell portfolios of Greek government bonds in the €50m to €100m range, with one trade reportedly even exceeding this.
While playing down the likelihood of all of these trades closing, the rates trader noted leveraged accounts had succeeded in building up large holdings of Greek government bonds recently.
“We saw probably five big transactions in the fourth quarter, and some of them definitely closed because some hedge funds have been able to build reasonable positions [in GGBs] of a few hundred million. You cannot [build a decent position] by buying €1m pieces,” he said.
Blocking stakes defined:
If one party managed to accumulate between a quarter and a third of a given series it might be able to block a debt exchange, making it likely that investors would focus on particular bond maturities. Foreign-denominated Greek debt that is subject to English law is also thought to be particularly targeted by vulture funds.
Finally here is IFRE's 7 month delayed analysis of what Zero Hedge readers knew in the first half of 2011.
Further uncertainty has been added by what the European Central Bank, the third member of the Troika, plans to do with its estimated €40bn of Greek bonds picked up under the Securities and Markets Programme since June 2010.
This makes it the largest holder of Greek bonds. However, President Mario Draghi reiterated that it was not a party to the current negotiations between Greece and its private creditors.
If the take-up of the bond offer is unsuccessful and a deeper, more coercive restructuring is required, using retrospectively introduced collective action clauses, the ECB will face a dilemma.
If it continues to hold out, it will subordinate all other holders who will see their Greek holdings in effect wiped out. But this would have other consequences. Many are European banks that would have their capital compromised and so need to be supported by the ECB. It would also make the institution’s holdings in other sovereigns, namely Italy and Spain, senior too.
“If collective action clauses aren’t binding on the ECB it’s hard to see how they could be binding on others,” said the hedge fund manager. “If bonds bought by the ECB are de facto senior, it turns the SMP into a double-edged sword. For every Italian bond the ECB buys, that could be less Italian debt servicing power for everyone else.”
Which is what the real threat of a coercive Greek default is: not the triggering of Greek CDS - that event will have no actual cash flow impact whatsoever. What it will have an impact on, is the waterfall bifurcation of all sovereign debt bonds into a universe of "covenant-stripped" bonds, all of which will have special treatment with the ECB, with Repoclear for repo pledging purposes. Most importantly, it will further collapse bond demand as investors will no longer know if the bond they purchase will be the same bond tomorrow, or some metamorphozed monster trading at pennies on the dollar because of some hedge fund's activitist strategy.
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What? I feel like all the answere are in there. But.....What? Man I hate being stupid.
If you can be the fund that holds out longest, eventually they will have to pay your ransom. So you bought Greek debt at 25 cents on the drahcma. They'll pay you back at full par so that they don't trigger a CDS.
OR you could just decide to buy gold in drachmas...bitchez. Devaluation of the euro, the USD, and maybe even the yuan are coming. It is the only way to ever be able to "faithfully" pay off the debt that seovereings have incurred. Or they might just default on us.
Buyers of CDS are SUCKERS LOL! Smart credit derivatives desks have sold large quantities of sovereign CDS knowing that peripheral Euro states are simply TOO BIG TO FAIL. This means that CDS buyers are paying for a hedge that already exists in the form of liquidity backstops provided by vigilant central banks. Looks like ungrateful doomer shorts are going to learn the hard way that you do not bet against the global economy and world leaders.
that you do not bet against the global economy and world leaders. DUMBEST comment I've read on this site EVER!
World leaders and the Global economy are working this plan exactly as they intended? Their plan: We're bored. Things are too stable. Let's see if we can let Greece, Spain and Italy, etc. all get pushed to the brink/insolvency/default. Then we can try to rescue them. Yeah, Yeah, that's a great plan!
you missed the implied /sarc, present in all MDB posts.
but, he has a point worth thinking about.
if there is never a credit event, no CDS ever gets tripped. just all these 'voluntary haircuts', which i now read as not applicable to the hedgies with a 'blocking stake'.
so they either force a payout at par, or a CDS trip.
the 'voluntary haircut' is for everyone else.
hence the bifurcation of the bond market, and doubt with subordination (which appears to be the same bet taken by the ECB)
brilliant really, except it cannot last as it is.
thus the subtle /sarc from MDB
Oh.
might also be interesting to learn whether these hedgies also hold any significant qty of CDS on the bonds they are buying. that would offer some clue as to their ability to call the bluff on this 'default or par-payoff' gambit, and also suggest with which counterparties exactly they might be negotiating (we can be sure there are conversations regarding division of the spoils on this). also, if other hedgies are loading up on CDS themselves, might point to their next bond issue targets... but i digress...
on the other hand, their ability to pull the pin on the CDS grenade being held by someone else and still cause huge damage may be sufficient threat. only question is just how prepared are they to play terminal chicken?
not sure whether their postion is stong enough to demand something between the par and the eventual haircut rate, or between the haircut rate and what they paid, but i'd surely appreciate some insight there...
It's all so clear to me now... the global economy always goes up and world leaders always do the right thing. What a revelation!
Buying some of these CDS's is like insuring your business against losses due to global thermonuclear war. Do you really think you will be able to collect?
AIG has such deep pockets and every US taxpayer stands behind it
You clearly have a short memory. Cast your mind back to the sterling-ERM crisis in the early 1990s. The BoE, a major central bank, desperately tried to defend its currency and was unable to do so under concerted attack by Soros and company. It took years and a massive overhaul of the governance of the BoE before it regained its composure and it credibility. There is a tipping point where even the market realises the Emperor has no clothes - watch out for it.
Nothing more than Ben, Tim, Merkel, Monti, and Lagarde doing "Thelma and Louise" meet the "Night of the Living Dead". Where is Signore Fellini when we really need him? He went with Dali and Buñuel I am left to imagine.
"If you can be the fund that holds out longest, eventually they will have to pay your ransom."
There is an old saying which goes way back: "You can't squeeze blood out of a turnip" Greece just doesn't have the money. So please explain how they can "pay your ransom".
Parentheon?
Acropolis?
If not the actual physical, maybe 100 years worth of tourist revenue?
lol. terrible.
Maybe some Yoda knowledge will help you out: Look not at what you see but look at what you do not see little padwan.
I see people going broke and hungry and I see markets going up gently while the msm speak about the recovery. Europe they tell me is in bad bad shape but the good news is the 2nd half of the year when they have it all squared away we can refocus on the budding US economy.
I have some scratch and a family to provide for and I don't believe the msm. I come here for the truth. I see no volume in the markets and the cracks getting bigger. The info on this site leads me to believe the markets are about to tank. The only question in my mind is how long it takes.
What is it that I don't see? If Greece is completely broke and is not paying anyone back why should anyone care about a tug of war between the ECB and hedge funds on worthless bonds?
I just looked to see, and discovered you are a super-noob, at just over a week. Welcome. Gird your loins.
I've been here well over two years and still only "get" about 20% of what the Tylers speak. But it's not because I'm stupid. It's because the fine mechanations designed into the matrix are supposed to baffle. So we'll give up. And be happy with what we have, albeit less and less as the days wear on. Thank GOD for the Tylers who are patient enough to bring it to light for those of us busy trying to make a living, supporting our families, and contributing to our communities.
It sounds like you've got the fundamentals. Protect you, yours, and as many others who will listen. Understand that no matter WHAT the MSM and PTB say, 2+2 will ALWAYS equal 4, regardless of the microdata suggesting otherwise. When they start preaching that the real answer is actually 5, and that they just don't have the time or patience to explain it, and for you to just sit back down and check what time Dancing With The Stars comes on... ( be sure to watch it streaming on your iPad... you DO have an iPad, don't you... if you do not, one will be issued you...)
There's NOTHING datawise, macro or micro, that you don't see that actually matters. It actually IS simple. 2+2=4. Always.
Spread the word.
2 + 2 = 4 = ?
"THERE... ARE... FOUR... LIGHTS!" -- Jean Luc Picard
WRONG! AGAIN! HOW MANY LIGHTS ARE THERE! - Romulan Captor
It's because the fine mechanations designed into the matrix are supposed to baffle.
...and to provide concealment (but not cover) for the real machinations that ARE going on behind the scenes. You can rest assured that the big guys will trade on insider / govt information, get rules changed, and outright steal and stay "profitable," while the little guy will have what's left of his life's savings and future earnings stolen by the system. There is nothing new under the sun.
"Cover" is provided by the executive, legislative and regulatory stooges in Washington DC.
IMO significant barriers to the outright seizure of private property in the name of "preserving the state" have been implemented since the crisis began, and have even survived court challenges. There is no limit to what the system, and those who make up and rely on the system, are willing to do in order to preserve it. We can call it "class warfare" but if it is, that war was declared and is being waged by the 0.1%, overtly.
The MFG rehypothecation scandal is only the latest indicator of this trend. IMO the safety of 401(k)s and IRAs continues to diminish. There will be some "concealment" story, but how will it really be until these assets are seized "to protect them"?
I agree. I think Mother Fuckin' Global was a false flag so that when the time comes the government will snatch IRAs and 401ks in the same of security, so 'MF Global doesn't happen to everyone'.
Yes I believe MFG was some sort of test run for massive customer account looting. They wanted to see how the sheep would react, and thus far the sheep have done nothing but whine and bitch about it, with a lawsuit here and there, which are meaningless when they're filed in court system owned by bankers.
so 'MF Global doesn't happen to everyone'.
Yes I believe 401ks and other retirement assets are the real prize they want, and "taking custody of them (confiscating them) to protect them" might just be the cover story. Hadn't really considered that angle, but it makes perfect sense.
Fozzannoon It's all about maintaning the Status Quo by the TPTB. The Large Money Managers ( Blackrocks. American Funds, FED, CNBS) will not admit to anyone, let alone their own investors, they are all toast right now. It will take a trigger, like the Reserve Fund, breaking the buck in 2008, that causes a painic which will start the dominoes. It will happen this time. It's just waiting for the trigger.
fonzannoon, here is the quick version. The central bankers, financial geeks (ZHers), and politicians have inflated the money supply about 16 times what the real economy is. Everyone did it based on some dead white guys economic model called Keynesian economics. It is complete bull shit but politicians like it because they can justify spending huge amounts of money, central bankers like it because it justifies them printing huge amounts of money, and this has been done. The problem is the law of physics, for every action there is a equal and opposite reaction. Opps!!!
What you need to know is there is massive quantities of cash sitting parked in banks that can drive up inflation to levels not conceived of in the very near future, that is why all these bitchez are always saying grunt words like "gold" "silver" or the sophisticated ones say "gold bitchez" or "Au" and even "Ag."
What they mean is use your money to buy guns, food, water and Au or Ag.
The theory of the inflationists is that you can just jeep printing money to keep inflating the money supply, keep inflation at a reasonable pace (never mind it is making people's savings dwindle), until the debt is manageable. Common sense would tell you that if the money supply is inflated 16x beyond what the real economy is, then it can't just keep going up to 20x 25x 50x, it has to contract at some point and the bigger it becomes the more damaging the contraction will be.
What Kensesian's miss is that to keep inflating the money supply you need demand for the money you are pumping out. Individuals and corporations have already started curtailing their borrowing (though that is changing because politicians and media they trust are telling them it's getting better). Investors would borrow forever, but they are already paying significantly more than historic price to earnings. Price to earnings has only been as high as it currently is for the last 20 years, which represent the end of the credit bubble. It's the same pattern that played out prior to the great depression. Go look at a chart of historic P/E goijng back to 1900 and ignore anyone that only shows you a chart of the last 25 years. Sooner or later it will dawn on invesrores that the corporations they are investing in have falling earnings potential (due to individuals and corporations scaling back on spending) and the fundamentals wont' support the inflated prices.
Investors could shift to government debt but governments are careening towards default. We are seeing in Greece what happens when government debt overwhelms the ability of the people to pay. There is no answer in Greece that does not involve defaulting and they are just desprately trying to avoid coming to the obvious conclusion. Greeces debt is 140% of GDP. US debt is not that far off at 94% of GDP, and our debt has grown 30% in only 3 years. The problem with this Keynesian model is that it has strapped governments so they won't have any monitary resources to call upon when the real contraction starts. It's a house of cards and it's amazing to watch so many supposedly smart people delude themselves into believing that it couldn't happen here, or that more money printing in the form of QE3 is what is called for to save us all.
Indeed. And when you realize that these are smart people, then the whole circus does not make sense unless if it isn't a mistake. And believe me, this is not the product of stupidity - ask anybody around here if they really think the world leaders with armies of thinktanks and top analysts are stupid, even though we often call them dumb out of frustration.
By now, even the sheer improbability of everything still holding up against its own obvious destruction is a sign that it was intended to be held up that long. This requires lots of skill and planning. So you might start wondering what for?
Welcome to the rabbit hole. If you want to go down, make sure to bring supplies, because it goes deep.
So you might start wondering what for?
It's very simple. They're slowly looting everybody's wealth. The longer they can keep the currency-printing-to-fund-more-sovereign-debt game going, the more of people's wealth they can loot via currency debasement.
And no, they can't keep that currency out of the general money supply. Governments borrow freshly printed currency and spend it right into the economy, directly debasing the currency.
The real reason they keep the sovereign debt ponzi scheme going is to loot more of people's wealth.
Are you, by any chance, of GERN BLANSDEN fame?
If so, do you get ... small?
fonzannoon,
Welcome.
Don't sweat it.
We have seen these things before in world history but never under these conditions.
Fiat currencies backed by central banks backed by binary database currencies that can be flashed from one end of the globe to the other in milliseconds make history somewhat moot, but reference "Tulip Mania" and "South Seas Bubble".
We have in many respects separated the physical world from the world of: economic theory, speculation, equivocation, leverage (gambling), and numbers separated from physical constraints.
This is dangerous in a way the world has never faced. Not only are our banking and financial markets disconnected from the physical reality of precious metals and paper and coin currency, much of the population is physically disconnected from the land that our ancestors had to relate with on a daily basis little more than 100 years ago (four generations based upon current life expectancy).
The failures, bankruptcies, and claw-backs that should have happened post the 2008 malfeasance and skullduggery of the equivocators and money changers were soothed and pasted over by enabling mother governments, quiescent law enforcement, and an uneducated and seemingly somnolent public.
Who knows when the debt on the backs of regular people for the sake of bankers and politicians will end.
Of course, they will say they did it for our sake, but if you have half-a-brain you know that is a bald-faced lie.
Go to cash if you don't know what to do. Pay off debt and keep what cash you have left. Don't rely on the police or politicians or the establishment because they are the last ones to come to your aid when the SHTF.
The markets are full of Great White Sharks and Killer Whales. Your mutual fund, portfolio advisor, or pension fund are the anchovies, cod, and seals of the ocean - you can't trust their advice.
Keep your chin up, and keep educating yourself.
I DO NOT SEE a way out of this Effing Mess. ... Oh riiiight.... ugh.
Our financial alchemy reeks
The Ponzi is reaching new peaks
As much as we try
Our system will die
The crash will begin with the Greeks
Instant classic..
Yoda = Bastiat?
I know how you feel, I truly do, but, what I just can't get my head around is how the non-elected heads of the EU can remove the heads of democratically elected governments.
Despite all else that is happening, this, I'm afraid, is the thin wedge that leads to our downfall.
Be sure to read the links provided in this article for deeper understanding.
I've heard that writing options is like collecting coins in front of a steamroller. Are these guys real: http://bit.ly/jmgPLz
You can bet whatever happens over there somebody's gonna make a Big Fat Greek Profit off it.
Because once there is a credit event with Greece all Greece's bonds are considered bad. And on top of that any country that is in the PIIGS and/or have the same or worse financial situation there bonds would be considered bad also. A cascade of bond defaults.
Only solution is for Germany and France to pay 100 cents on the dollar to all holders of Greek debt. We wouldn't want any uncertainty. Reminds me of the good old days when Bazooka Paulson agreed to pay Goldman off with no discussion of any discounts.
You are really clueless !
it won't probably happen, they will find a legal eagle way around it; trust me. They are sovereigns and don't take no shit from HFs whoever they may be. That's their spiel, will it fly? Time will tell. Paulson was on the side of the thiefs. Not here. Its Eurozone vs US HF mavericks.
Looking at pigbonds.info (yields) makes me feel like Mario Printi sacrifices both Greece and Portugal.
Honest description in German about current state of affairs in Italy, boots on the ground, use Google Translate
http://www.dasgelbeforum.de.org/forum_entry.php?id=245757
Executive summary: wages down, price of living sky high, VAT soon at 23%, people wonder how to survive (literally).
Biflation to the max
Wow, very nice.
Pandora Style Beads
This is all going to get very messy indeed.
Russell Simmons just tweeted : "I'll be at the Fed Reserve Bank in NYC (Liberty & B'way) today at 11:30AM for rally -- join us and let's #OccupyTheDream"
KRS-One toured for Ron Paul last year.
Tell Richard Simmons not today.
Incredibly good summary of the rotten ins and outs of the "real" situation. You gotta hand it to the hedge funds, treading where no one dared to go. Thanks again for an explanation that we will most likely read in the MSM in a few weeks.
Wow...Biting the hand that feeds you...I guess they weren't feeding them that well...
Hedgies making money by outsmarting bureaucrats? Why work when you can make the easy money?
Outsmarting? Look, the powers that be had Greece by the short hairs because they just don't get the notion that life's not free. So the "vultures", those clairvoyant enough to see the obvious and take advantage, move in. This is so contrived, with examples of it happeneing before, that it is laughable. Now the bad guys are those with the dollars to buy up the mess and then demand payment on the fairy tale.
The bad guys won't "do what is right" but expect to be paid what was agreed to. And all these brilliant bureaucrats, especially the ones getting the fix in Greece, never see it coming. I don't know whether to laugh or cry.
They ALWAYS see it coming. They are part of the club. And these are all handouts to their friends. At the expense of all the people, who are told to fear/hate one another.
Story as old as time.
I see European markets rallying. I feel like in 2008 there was chatter of what was to come and people at least had a clue. This time around it feels like either nothing is coming or people are going to get completely blindsided.
Tough to know what to do when the Dow could/should be up/down 300 points on any news...Whole new ball game...Feel sorry for people retiring presently...Your alternative is 3% or less on gov. bonds and really sticking your neck out for yield of anything else!!!
3%? Ten yer yielding 1.86. AND retirees never put their money in long-dated maturities. Almost always T-bills (1 year yield 0.1%, 2 year 0.22%). Those yields are negative in real terms, meaning the "interest" gets totally swallowed up by price inflation and then some. So they lose out on the deal. Big
The absolute safest investment I can think of is physical nickels. Nickels now have a melt value of over $.05, so it's a great inflation protection and the value can never drop below $.05.
Add a tad more risk and a huge amount more reward and gold is the next safest investment. Just a tad more risk than that and likely about 5 X more reward than gold when all is said and done makes physical silver is the best combination of risk and reward.
TheSilverJournal.com
The problem is extracting that value. If I'm not mistaken (and I'm lazy, so I'm not googling it) there is a law to prohibit the melting down of coins.
Of course there are ways around it.
Coins don't have to be melted to be traded for the value of the metal they contain. Actually, not melting coins is often preferable for ease of identifying the value of the metal in the coin. This is exactly how silver is traded today. "Junk" silver coins are traded for the value of the silver that they contain.
Besides, if I'm not mistaken, once the coin is taken out of circulation, then the coin can be melted down. Soon, inflation will wipe out the need for nickels.
TheSilverJournal.com
Something tells me before this is over we'll be back to those 15% money market rates we had in the 70's.
Those high rates in the 1970's and 1980's were a result of the ultra low rates in the 1950's and 1960's brought about from a fed funds rate that got down to about 3%. Rates will go much higher now than the 1970's as a result of the ultra low 3% fed funds rate in 1993 and 0% fed funds rate + QE now.
Remember, the high inflation in the 1970's wasn't seen until rates started to be RAISED because it uncovered all of the bad investments. So whoever thinks simply raising rates will immediately kill inflation better think again.
Once the inflation genie is out of the bottle he's out to play for good until rates are raised enough to get ahead of inflation. Of course, raising rates to even 5% will lead to an imminent default of the US, much less the 20% plus rates that are needed.
TheSilverJournal.com
Exactly. And remember that interesting year of '87 with the Fed raising rates every month right along with the markets climb; then along came October and kaboom.
Rates will go much higher now ...
No they won't. ZIRP is with us till the end of the dollar.
As you correctly point out, raising interest rates would collapse the whole sovereign debt ponzi scheme.
It will not be allowed to collapse, meaning rates will not be raished.
ZIRP and ongoing inflation is the game plan.
I basically agree with you. My guess is they'll hold rates down as long as possible until they are simply no longer able to. There will still be ZIRP, but interest rates will shoot to the moon as the dollar dies. Minor details.
TheSilverJournal.com
Somebody needs to take a swipe at the maggot-filled pinata, Europe. As long as these fools are officially still "alive," our politicians will continue to shovel money at them. Maybe once the story breaks that all the billions, trillions in bailouts is going to rich hedge guys who outsmarted the dolts running the sovreigns, maybe then the money flow from the US will stop. But I doubt it. Obama is lawn jockey to Goldman Sachs, and Romney IS Goldman Sachs.
Without socialism, crony capitalism cannot florish... Thanks to all those socialist countries the US has been living on borrowed wealth for so long. As Thatcher put it: " ...and Socialist governments traditionally do make a financial mess.They [socialists] always run out of other people's money. It's quite a characteristic of them. "... well, yeah, and that's why she loved them so much, because she and her banking buddies could create all that money out of nothing. The running out part of the quote says it all though: they all knew it was going to end sooner or later...
what you call socialism is the closed club of uber elites, the corporate oligarchy. Its not the socialism of 'we the people'...Kings were socialists according to your definition, they were always fighting wars with other people's money. So when a king is labelled a 'socialist' 'cos he's self serving, thinking first about himself, it makes that label meanigless. Your label of socialism = feudalism with divine rights!
L.O.L. I remember the days when I couldn't even write a check & now I'm reading articles on ZEROHEDGE; try as hard as I may, this article was beyond me. I am in utter amazement at the Tylers & those who run this website.
Hang in there, it's an acquired taste. You'll catch on.
Good for you lynybee, keep reading and you'll understand more with time. Also, keep your sense of humor because the more you understand the more you'll need it. :)
I'm still not sure how any of this is a smart move by Hedge Funds. They can have claim on the subordinate bonds, but they are going to have to go all in when the yields keep climbing month after month. At which point would they stop buying? And as with any bond buying right now, if yields are rising, the point for buying is for a revenue stream because holding to maturity is only going to get someone their investment minus inflation back, and with inflation rising....
The bond issuance on last Thursday was a massive one. The biggest of the year for total Euro debt issuance. Thus why the ratings downgrade came on Friday- the cordination still exists in the Race to the Bottom. But now yields will rise further, until next months huge sale, and the next's. So when do the Hedge Funds step out? Or do they think they can play chicken with the Central Banks?
maybe they hope to have their resolution before yields rise. there are loads (IIRC) of greek bonds maturing in early march.
they only have to chase yield on their issues if they bought with leverage.
but the bigger picture is how this is likely to totally f**k up future issuance.
i can't wait to see what TPTB have as a trump card on all this. probably some kind of a cut, done behind yet another smoke and mirrors public explanation.
pari passu : equal treatment clause in a contract. So those HFs get paid not on a second rank basis but on prorated basis if pari passu is deemed applicable. The Romans knew their LEx.
http://en.wikipedia.org/wiki/Pari_passu
i quit making investment decisions or analyzing any of this assuming consistent application of the rule of law a long time ago...
Everyone seems to be playing chicken here, ECB with the bond holders, bond holders with other bond holders, Everyone with the ratings agencies, FED to Europe, FED to Congress, Congress to the people.
Every incremental decision, game-theorized to infinity causes another incremental grain of civilization to fall down the side of the mountain.
Someone is going to get slaughtered here, this being a bacon and egg breakfast that would be the pig paying the high price.
It's a game where we know what the outcome is right now. Once the fate of these countries is deteremined to be otherwise there will be a lot less posturing and it will be every man for himself. Just waiting for the powers to be to see that the emporer has no clothes.
+1
Playing chicken....
if only the citizens could play chicken with TAXES in a cooridinated manner against their governments lke these clever hedge funds. We would win very quickly and the bullshit all comes to an end. Unfortunately the citizens are like trained labratory animals and would never want the shock for misbehaving
@fonzannoon;
You and me both. I hate being stupid, but that, among other things, is presumably why we come to ZH. To get less stupid.
I have absolutely NO IDEA what was said in this article, but I intend to find out, because I care.
More people caring is the only way we will ever rebuild our way out of this, after the worst has passed.
Onward. Nobody said this was going to be easy.
Isn't there the possibility that the Greek government just rewrites the securities law so that all bondholders are paid at the rate tht the MAJORITY of holders accept. In this case don't the hedge funds loose? Or have I failed to grasp the stuation correctly
The point is that the hedge funds are betting that Germany and France won't allow the terms of the Greek bonds to be arbitrarily rewritten because, in addition to a flurry of lawsuits, it would mean going forward the legal terms set forth in the bonds of other countries, i.e. Italy, Spain, Portugal and France might also be subject to change and no investors would be willing to purchase their bonds going forward given the legal uncertainty.
We'll be living in the shadow of Friday the 13th for a long time. It was the sharp dividing line separating "before" and "after" the injection of a dose of reality into the drunken Ponzi circus. Now the throbbing hangover is setting in. Just like last year after the US downgrade, only much worse because Europe is much more brittle.
Whether or not hedgies profit from their "blocking" positions in PIIGS bonds, they are upping the bets at the poker table. ECB, EU, IMF and the governments of the core countries will have to make decisions with major repercussions that will cast a long shadow. In essence they'll have to chose who to throw under the bus: Greece or bond holders. And a decision either way is lose lose for the ECB which has to carry the burdens of unsustainable debt, insolvent banks, and central bank credibility.
I'll go out on a limb once again and say they'll nationalize key large banks.
they already have behind the curtain in France, Germany and Italy. This is now a concerted national effort in the core Euro countries. They want to "chill" the market, decouple their sovereign from the HFs and US lending market, apart from those PDs who are too deeply in already. It has the making of an all out US-Euro financial war, beyond currency war, US mavericks operating from City against ECB/Merkozy front. Whoever blinks first loses. Anyways, further down the road, the West as a whole comes out much weakened who-ever wins the Euro dog fight.
Thats why the Cameron play earlier on in December was the key move that drew the line in the sand.
Rehypothecation subordination.
The people with the biggest and most guns and violence get to sell things then take them back.
RINO Romney -- a pawn of Goldman Sachs.
What would Chrylser do?
Umm, make more Fiat(s)?
Back in July I visited a friend of mine who was an analyst at Marathon in his office. It was around 11:00 PM on a Thursday and a couple analysts were staying up for a conference call with some Europeans at 3:00 AM. They've been on this thing for a while.
The hedge funds go toe to toe with the CB's. Either the funds get paid or the Ponzi gets revealed like the emperor's new clothes. But, if they get paid to keep the Ponzi going, the CB's have to devalue - ergo, they have painted themselves into a corner. Hello Weimar inflation. And if GOD comes in and says the hedge fund vultures (love that term) won't get paid except at such and such a rate, the Ponzi falls apart - and probably forever - no one will buy a sovereign bond ever again. This is lose, lose and lose. This is three guys standing on a table with revolvers and they begin to shoot. This is much like my courtroom became after I ordered a case of Evan Williams delivered and they idiot came through the front door - people get damned grabby - even the bailiff. Helluva thing.