Financial, Real Estate, Stock Markets Trends and Current Affairs

Do you want to know who's next for the bond vigilantes? Read on...

In today's headlines:

• EU Calls for More Bondholder Concessions as Greece Seen Going ‘Off Track’
• European Stocks Decline on Greek Debt Impasse
• U.S. Stock Futures Slip Amid Greek Stalemate

On Thursday, 22 April 2010 I Explicitly Forwarned, Greece Is Well On Its Way To Default, and Previously Published Numbers Were Waaaayyy Too Optimistic! That post provided ample evidence to support said assertion. Fast forward nearly two years and the Greek Govt Bond 1Year Yield is roughly 426.118%. Many, if not most, pundits swore that Greece would not default. Now, even S&P Says Likely to Cut Greece to 'Selective Default'.

Standard & Poor's will likely downgrade Greece's ratings to "selective default" when the country concludes its debt restructuring, but that will not necessarily destroy the credibility of the European Union, an official with the ratings agency said on Tuesday.

Who's willing to bet the farm on that statement?

"It's not a given that Greece's default would have a domino effect in the euro zone," John Chambers, the chairman of S&P's sovereign rating committee, said in an event organized by Blooomberg Link.

Of course not! It wouldn't effect Portugal, Italy, Spain nor Ireland, right???!!! You know that I know that you know that Portugal is up next. Of course, games will continue to be played with CDS, since some declare that "selective default" does not necessarily trigger CDS. The pertinent fact is being missed, or ignored. Even if one does wiggle around triggering CDS, the losses will have to be taken, even if through counterparty risks blowing apart as the banks that thought they were hedged weren't hedged, collapse, bringing the counterparties who relied on them for payment down with them... Daisy Chain style. There really is no way around it.

CNBC goes on to report...

IMF Positive

Asked if there was still hope of a deal, IMF chief Christine Lagarde said she remained positive.

"I'm determined to be positive," she told Deutschlandradio Kultur. "Political leaders have the instruments and possible measures in order to manage this situation and bring the euro zone back on to a sustainable path."

Yeah, right! You see, the IMF's problem is that they're too positive on Greece and Portugal. As excerpted from Lies, Damn Lies, and Sovereign Truths: Why the Euro is Destined to Collapse!:

Let's take a visual perusal of what I am talking about, focusing on those sovereign nations that I have covered thus far.

image005.pngimage005.pngimage005.png

Notice how dramatically off the market the IMF has been, skewered HEAVILY to the optimistic side. Now, notice how aggressively the IMF has downwardly revsied their forecasts to still end up widlly optimistic. image018.pngimage018.pngimage018.png

Ever since the beginning of this crisis, IMF estimates of government balance have been just as bad...

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Do remember what I told the Dutch about being optimistic, or pessimistic...

For those who are optmistic of a plan to work out an orderly default with CDS, let me explain again... You are missing the point!  Massive amounts of capital has been destroyed, and it is not coming back. That capital destruction has yet to be recognized by the markets and TPTB are trying their best to postpone said recognition. Once that recognition is upon us, the daisy chain effect will be inevitable as various players seek to be made whole. I have run through the capital destruction scenario two years ago...

1. What is the Most Likely Scenario in the Greek Debt Fiasco? Restructuring Via Extension of Maturity Dates
2. A Comparison of Our Greek Bond Restructuring Analysis to that of Argentina

Now, all of you hedge fund guys who are trying to stay ahead of the curve, turn your attention past Greece and back to Portugal - as I have. Reference my past writings...

1. The Truth Behind Portugal's Inevitable Default

2. The Anatomy of a Portugal Default: A Graphical Step by Step Guide to the Beginning of the Largest String of Sovereign Defaults in Recent History

I discussed Portugal's role in the domino effect in illustrative detail in Amsterdam last year...

Other articles of interest on the topic...

1. Ovebanked, Underfunded, and Overly Optimistic: The New Face of Sovereign Europe
2. How Greece Killed Its Own Banks!
3. The Greek Bank Tear Sheet is Now Available to the Public
4. Lies, Damn Lies, and Sovereign Truths: Why the Euro is Destined to Collapse!