Creditors

But Bill Black Demolishes Dimon's Fake PR Campaign

In one of the most fascinating psychological shifts, there has been a massive shift in the perspective of the Greek electorate since the election two weeks ago. Almost as if the size of the actual votes for Syriza, the far-left anti-bailout party, gave citizens 'permission' to be angry and vote angry. The latest opinion polls, as per Credit Suisse, show the center-right New Democracy party crashing from 108 seats to only 57 as Tsipras and his Syriza colleagues soar from 52 seats to a hugely dominant 128 seats. Is it any wonder the market is pricing GGBs at record lows and 'expecting' a Greek exit from the Euro as imminent given the rhetoric this party has vociferously discussed. On the bright side, the extreme right Golden Dawn party is seen losing some of its share. As UBS notes, "expressions of frustration in debtor countries have their analogue in creditor countries as well. No one is happy with the status quo." Still, how Europe's political leaders address voters' grievances will go a long way to determining the fate of the Eurozone and, quite possibly, the course of European history in the 21st century. Europe's politicians will undoubtedly prevaricate and deny. The troika will, with minor modifications, probably insist on 'staying the course'. Yet it seems to us that ignoring clear voter demands for change might well be Europe's worst choice.

All you need to know.

Two months ago, to much fanfare, Greece and the IIF announced what a smashing success the forced cram down that was the Greek PSI (memories of GM and Chrysler should be flooding back here) was. The thinking went that Greece avoided bankruptcy, co-opted lemming creditors avoided pursuing what is rightfully theirs in exchange for a 75% haircut, hold out hedge funds would be blown out of the water for daring to not go with the herd of 96.6%, but most importantly, Europe was saved! Today, Europe is no longer saved, and all those hedge funds that folded like cheap lawn chairs in agreeing to Europe's extortion are getting annihilated, because as the chart below shows, the NEW Greek bonds have now seen their dollar price cut in half since the PSI. Which means that total looses on original Greek debt, for those who did agree to the PSI's arm-twisisting terms are now about 90%. Just desserts. But what happened to those other few who followed our advice, bought UK-law bonds, and told the group to shove it? Here's what...

When inflation isn’t particularly hot, it’s praised as something desirable....

Wonder why the EURUSD is suddenly sliding? Here's why:

• GREEK ANTI-BAILOUT CONSERVATIVE KAMMENOS SAYS THERE IS NO DEAL ON GOVERNMENT -BBG
• KAMMENOS SAYS "THEY PREFER CREDITORS TO NATIONAL SOLUTION"
• KAMMENOS SAYS NEW ELECTIONS WILL BE HELD

Which means Syriza will win the June re-elections, likely with a strong majority, and what happens then is anyone's guess.

Update: the expected next step: "GREEK 2023 BOND PRICE FALLS TO 14.51 PERCENT OF FACE VALUE" - but it was a "no brainer" trade... a "trade of the year" trade... Tough break for Greylock. As we said "Um, distressed bond expert guys - the bonds you should have bought are the old UK-law bonds which may return par...at least you had some covenant cover." Oh well - at least it is "other people's money."

Back on January 22, (Subordination 101), we advised readers that the one virtually sure way to make a killing in the bond market is to i) buy up a fulcrum Greek piece of debt, i.e., international/UK-law bond with strong covenant protection ahead of the country's restructuring, ii) refuse participation in the cramming down PSI, which was nothing but a GM-type exercise in covenant stripping, and iii) sit back and enjoy the money trickle in. Back than the €450 million bond of May 15, 2012 traded at ~75. Today, that same bond is about to generate a 31.26% cash on cash return, or 135% annualized, as it is Greece that has blinked, and according to the FT, has decided to make a full bond payment on this issue to avoid an out of control sovereign default, even though by doing so, it reduces its cash holdings by a third to just over €1 billion as discussed yesterday, and risks pushing both the PSI participants and its citizens into a murderous rage, as instead of complying with its mouthing off during and after the PSI, that not one bondholder would get a par repayment (nor apparently use the cash for public proceeds such as paying salaries), the one entity who ended up having all the leverage was those bondholders, who went against the grain, and held to their covenant rights. Just as we suggested. End result...

Explaining why and how the global monetary system is failing, why it is too late to stop, what will come next, and why the crisis is only financial – not commercial.

Just because it is never boring after hours:

• MOODY'S DOWNGRADES ITALIAN BANKS; OUTLOOKS REMAIN NEGATIVE

EURUSD sliding... even more. But that's ok: at some point tomorrow Europe will close and all shall be fixed, only to break shortly thereafter. And now.... Margin Stanley's $10 billion collateral-call inducing 3 notch downgrade is on deck.

Good news: it is not the Enron (wall of pain) org chart. Bad news: it is the SkyTerra, pardon, LightSquared one. Bad for Falcone that is and its various unsecured creditors. Good for Milbank Tweed which has just started billing hundreds of attorneys to the estate at about $500/hour on average. Expect many, many more bankruptcy professionals to get involved shortly in this fee bonanza in a desert of recent restructuring assignments. Time for Centerview to shine.

If the establishment is to be believed — it’s in the interests of “long-term financial stability” that creditors who stupidly bought unrepayable debt don’t get a big haircut like they would in a free market.  And it’s in the interests of “long-term financial stability” that bad companies who made bad decisions don’t go out of business like they would in a free market, but instead become suckling zombies attached to the taxpayer teat. And apparently it is also in the interests of “long-term financial stability” that a broken market and broken system doesn’t liquidate, so that people learn their lesson. Apparently our “long-term financial stability” depends on producing even greater moral hazard by handing more money out to the negligent. The only real question is whether or not it will just be the IMF and the EU institutions, or whether Bernanke at the Fed will get involved beyond the inevitable QE3 (please do it Bernanke! I have some crummy equities I want to offload to a greater fool!)

Germany is interested in the EU as a political entity, NOT the Euro as a currency. With that in mind, as well as Merkel’s recent political struggle, the stage is set for a possible exit from the Euro on the part of Germany.

Now that the Greek exit is back to being topic #1 of discussion, just as it was back in the fall of 2011, and the media has been flooded by groundless speculation posited by journalists who have never used excel in their lives and are merely paid mouthpieces of bigger bank interests (long live access journalism and the book sales it facilitates), it is time to rewind to a step by step analysis of precisely what will happen in the moment before Greece announces the EMU exit, how the transition from pre to post occurs, and the aftermath of what said transition would entail, courtesy of one of the smarter minds out there, Citi's Willem Buiter, who pontificated precisely on this topic last year, and whose thoughts he has graciously provided for all to read on his own website. Of course, take all of this with a huge grain of salt - these are observations by the chief economist of a bank which will likely be swept aside the second the EMU starts the post-Grexit rumble.

And so it all begins anew: "The so-called troika of the European Union, the International Monetary Fund and the European Central Bank is willing to make six important changes to Greece’s financial aid agreement if a pro-European government is formed in the country, Real News said.  The Troika is willing to extend by one year to end 2015 the time for Greece to cut its budget deficit as well as to proceed with a restructuring of loans, the Athens-based newspaper reported in its Sunday edition preleased today, citing “well informed” sources at the European Commission."