A Clean Knockout

[don]

No if, ands, or buts. You could have counted to a hundred....

Greek Two-Year Note Yield Climbs to More Than 17% on S&P Cut

By Daniel Tilles

April 27 (Bloomberg) -- Greek two-year government note yields surged to more than 17 percent after Standard & Poor’s cut the nation’s credit rating three levels to BB+, or junk.

The bond traded at 80.3 percent of face value as of 4:27 p.m. in London.

"In truth the Greek never laid a glove on me" (Kid FIRE)

http://www.bloomberg.com/apps/news?p...E3srsrnA&pos=2



and in the Main Event to come.....

Greece Cut to Junk at S&P as Contagion Spreads Through Europe


April 27 (Bloomberg) -- Greece’s credit rating was cut three steps to junk by Standard and Poor’s, the first time that’s happened to a euro member since the currency started, as contagion from the nation’s debt crisis spread through the bloc.

Greece was lowered to BB+ from BBB+ by S&P, which also warned that bondholders could recover as little as 30 percent of their initial investment if the country restructures its debt. The Greek move came minutes after the rating company reduced Portugal by two steps to A- from A+. The euro weakened, stocks plunged and the extra yield that investors demand to hold Greek and Portuguese bonds over German bunds surged.

The turmoil comes as European Union policy makers struggle to agree on measures to ease the panic over swelling budget deficits. Leaders of the 16 euro nations may hold a summit after the Greek government’s decision last week to tap a 45 billion- euro ($60 billion) emergency-aid package failed to reassure investors, a European diplomat said.

“The markets are demanding their pound of flesh and want everything to be signed, sealed and delivered as of yesterday,” said David Owen, chief European financial economist at Jefferies International Ltd. in London.

The euro fell 1.2 percent to $1.3226 as of 5:08 p.m. in London. The Stoxx Europe 600 Index slid 3.1 percent to 261.65 points today.

The spread on Greek 10-year bonds over German counterparts widened to 682 basis points, the highest since at least 1998, from 652 basis points yesterday. The Portuguese spread jumped 42 basis points to 260 basis points.

Investors in Greek bonds may get back between 30 percent and 50 percent of the value of their holdings should the government default or restructure its debt, said S&P.

http://www.bloomberg.com/apps/news?p...eq8WkZM&pos=2#

[ASH]

Re: A Clean Knockout

It appears I'm getting an answer to a question I have wondered about for some time: if fears over sovereign debt push stocks down, what will happen to precious metals? So far, it looks like shares down, PM up. I wonder if the anti-correlation will hold for a larger drop in the stock market, if it happens? (For the record, my hunch had been that fears over sovereign debt overseas would drive the dollar up and stocks/PM down... and I seem to have been wrong so far about PM going down.)

[jiimbergin]

Re: A Clean Knockout

It appears I'm getting an answer to a question I have wondered about for some time: if fears over sovereign debt push stocks down, what will happen to precious metals? So far, it looks like shares down, PM up. I wonder if the anti-correlation will hold for a larger drop in the stock market, if it happens? (For the record, my hunch had been that fears over sovereign debt overseas would drive the dollar up and stocks/PM down... and I seem to have been wrong so far about PM going down.)

I always assumed that PM would follow stocks down initially, but after a brief period would begin to rise again.

[bcassill]

Re: A Clean Knockout

Ah, the game of chicken now gets interesting. You can rest assured that the downgrade was a political calculation to force the Greeks to the table. There was nothing "analytical" about it. If the rating agencies were truly doing their jobs, everyone would have been cut to BBB+ by now. The question is, will the Greeks bite?

In such high stakes games of brinkmanship, things can get out of hand very quickly. Of course, what the IMF (a.k.a. another term for the large Wall Street interests) wants is to dump a bunch of money on the problem, but only with strings attached, to keep the game going as long as they can because it is too profitable to simply stop the suicidal march towards economic collapse.

My question is who is next after Greece? And when will this lead to a civil war somewhere across the pond? The polis is angry everywhere, and I am sure that the top brass will look on any such "civil disturbances" as an opportunity for a new peace keeping mission to the great benefit of military industrial complex.

[ASH]

Re: A Clean Knockout

Ah, the game of chicken now gets interesting. You can rest assured that the downgrade was a political calculation to force the Greeks to the table. There was nothing "analytical" about it. If the rating agencies were truly doing their jobs, everyone would have been cut to BBB+ by now. The question is, will the Greeks bite?

That's a good point. The rating agencies haven't been 'doing their job' very well... assuming that 'their job' is to rate credit risk, and not something else. But this doesn't have to be political, except in the sense of staying in business. The rating agencies underestimated risk in many categories during the credit bubble, and the climb down is embarrassing. I think that by tying downgrades to events, they save themselves the awkwardness of cutting someone's rating "because we didn't do our job earlier". Also, it is political in another sense: downgrades on sovereign debt have a very large impact upon sovereign countries, and the rating agencies will lose business or subject themselves to regulatory attacks if they drop someone's credit rating without a very plausible proximate cause.

My question is who is next after Greece? And when will this lead to a civil war somewhere across the pond? The polis is angry everywhere, and I am sure that the top brass will look on any such "civil disturbances" as an opportunity for a new peace keeping mission to the great benefit of military industrial complex.

It sure looks like Portugal is next, based upon the headlines.

I think civil disturbances are likely, but not what I'd call 'civil war'. There is no one 'civil' to fight here -- there isn't much difference in the interests inside any of the countries facing trouble. The division of interests is between creditor and debtor. Both the people and the government, as the debtors, have very similar interests. Up to a point, the governments may attempt to meet their formal international obligations -- to uphold national dignity, to retain access to international credit (or guard against the shock of its abrupt withdrawal), to protect their status in international organizations... but when they do this by cutting spending and raising taxes, they are going to be met with various degrees of civil unrest. If the austerity measures are too painful, the government will fall without any sort of protracted violence; it will simply fail at the ballot box. There is no large faction within any of these countries who have an interest in paying off the accumulated public debt... there are no two sides to wage civil war. Instead, the existing government (or dominant political parties) might get displaced by a more populist government (or parties) that repudiates its debt. More likely, the existing government and parties play the austerity hand as far as they can, and then try to work out some sort of controlled default or restructuring before they are tossed from power by angry voters.

[jneal3]

Re: A Clean Knockout

I'm left wondering if the market dynamics play out in this 'black swan' in any way similarly to how things proceeded after the Lehman swan...the only metric that I sort-of-understood to be a measure of the market's reaction to Lehman was the TED spread, and it's recently on a (very) slight upward trend, but nowhere near the crisis levels of '07/'08. The markets didn't crater during Dubai either. Looks to me like everyone's already taken all this into account, and this will just be digested we'll all move on after a few bumps. Not to say that that is a good thing....

[radon]

Re: A Clean Knockout

It appears I'm getting an answer to a question I have wondered about for some time: if fears over sovereign debt push stocks down, what will happen to precious metals? So far, it looks like shares down, PM up. I wonder if the anti-correlation will hold for a larger drop in the stock market, if it happens? (For the record, my hunch had been that fears over sovereign debt overseas would drive the dollar up and stocks/PM down... and I seem to have been wrong so far about PM going down.)

Instead of being dominated by deleveraging perhaps this time around we are seeing more of a flight to safety. It seems sort of odd since I'd expect debt repudiation by the Greeks to add to the deflationary pressure experienced by the Eurozone.

[dummass]

Re: A Clean Knockout

Instead of being dominated by deleveraging perhaps this time around we are seeing more of a flight to safety. It seems sort of odd since I'd expect debt repudiation by the Greeks to add to the deflationary pressure experienced by the Eurozone.

Last time was US dollar short covering. This time is flight to safety.

[don]

Re: A Clean Knockout

Just rifting on events:

IMF was devoid of customers- Bingo, customers aplenty.

The Bonar continued to tank against the Euro- Viola, flight to Treasury Island, which also was tanking.

[Adeptus]

Re: A Clean Knockout

I'm left wondering if the market dynamics play out in this 'black swan' in any way similarly to how things proceeded after the Lehman swan...the only metric that I sort-of-understood to be a measure of the market's reaction to Lehman was the TED spread, and it's recently on a (very) slight upward trend, but nowhere near the crisis levels of '07/'08. The markets didn't crater during Dubai either. Looks to me like everyone's already taken all this into account, and this will just be digested we'll all move on after a few bumps. Not to say that that is a good thing....

I disagree with everyone's already taken "all this" into account, especially if we buy into the fact that "all this", likely includes all this:


image005.jpg

(above pic from: SULTANS OF SWAP, ACT II: http://news.goldseek.com/GoldSeek/1269021600.php)

And further, as the contagion progresses to bigger and bigger countries/states, there's no way the markets (all of them) won't react with increasing volatility.

Just my 2 cents,
Adeptus

[oddlots]

Re: A Clean Knockout

I can't remember where I read this anecdote but it went like this:

A wall street trader is asked by his son what he does at his job. He points to a car they are walking by and says, "You see that car? It's made in Japan. That means that someone here paid a lot of money to someone in Japan to buy it. My job is to get that money back."

It's obviously from the eighties that story but it's always stuck in my mind. I've been wondering whether this isn't the source of Blankfein's outrage recently. This logic: what's the point of having the exorbitant privilege unless you use it to the hilt?