I will release the haircut model to professional and institutional subscribers about 12 to 18 hours after I get the bailout rates and amounts, which are slated to be released today sometime.

Published in BoomBustBlog

Greece has been in the news a lot over the last 24 hours. Let's recap:

 Bloomberg: Greece May Find Lukewarm U.S. Reception for Its Bonds

April 7 (Bloomberg) -- Greece may discover it’s no cheaper to sell bonds in the U.S. than in Europe as the government seeks to persuade investors it can plug the region’s biggest budget deficit.

Investors may demand a yield of as much as 7.25 percent to buy Greek 10-year dollar bonds, 410 basis points more than benchmark German bunds and 330 basis points more than Treasuries, according to Paris-based Axa Investment Managers, which oversees about $669 billion. TCW Group Inc., which manages $115 billion in assets from Los Angeles, says Greece may have to offer a premium of as much as 400 basis points over Treasuries.

Petros Christodoulou, director general of Greece’s Public Debt Management Agency, said March 31 the country planned a “roadshow” in the U.S. and maybe Asia to drum up investor demand for a sale of dollar-denominated bonds. The country may offer as much as $10 billion of the securities, the Wall Street Journal reported the same day. Greece is struggling to tackle a budget deficit that is equivalent to 12.7 percent of gross domestic product, more than four times the European Union’s 3 percent limit.

Anybody present at these road shows should print out a copy of the post Lies, Damn Lies, and Sovereign Truths: Why the Euro is Destined to Collapse! and"Greek Crisis Is Over, Region Safe", Prodi Says - I say Liar, Liar, Pants on Fire!. Be sure to have the salespersons answer the hard questions posed in those pieces. Subscribers can feel free to whip out the subscription material and ask for explanations and clarifications - File Icon Greece Public Finances Projections. I am anxious to hear what would be said in response. At this point, I see a Greek effective default as a foregone conclusion.

More on this topic: Euro, Greek Bonds Drop on Rescue Concern; Most U.S. Stocks Gain

From CNBC: Greek Banks Hit by Money Moved Offshore: Report

Greek banks are being hit by a wave of redemptions as rich citizens and companies look to move their money to big global banks or offshore as the country's debt crisis rages, the Telegraph newspaper reported on its website.

The report appeared to contradict recent data from the European Central Bank and comments to Reuters by analysts and Greek banking sources, who said there was no clear evidence of a major, extended deposit outflow from Greek banks.

The UK newspaper said late on Monday that big depositors have been clamoring to move their cash to international financial firms such as HSBC or France's Societe Generale, which operate large branches in the country.

They are among those to have received several billion euros of new money, it said without specifying sources.

... More than 3 billion euros ($4.05 billion) of deposits held by Greek households and companies left the country in February, while in January about 5 billion euros of deposits were moved out, the Telegraph quoted figures from Bank of Greece as showing.

Switzerland, the UK and Cyprus have been the largest recipients of the money, with the wealthiest Greeks looking to move their deposits to Swiss banks accounts to escape the more punitive tax measures many fear will be introduced in the wake of the country's economic crisis, the newspaper said.

Subscribers should reference:

From the Greek banking site, bankingnews.gr: [coarsely translated] Greek long bond investors - At 450 bps premium still will not lend to Greece - In 382 m.v.to spread  

 

The alarm sounding clearly leading market players and officials of foreign banks saying that realizations from real money accounts ie real long-term investors that occurred yesterday is a clear warning that unless a reduction in the spread immediately and climb to 450 bp everyone unload bonds and then completely lost control. 
Today logically must react and reduce the spread sparingly and if that does not happen then just completely lost control and even very briefly highlighted the www.bankingnews.gr the morning and indeed no reaction as the spread falls to 382 bps with selective purchases from JP Morgan.
According to sources confirmed when the spread was at 300 basis points and estimated that it will move to the 400 bp 2 weeks earlier, indicating that 
1) Apart from the special short yesterday sold many long-term investors. The short want to test whether an instrument of support from the EU and the IMF reach the boundaries of Greece, although they risk but the returns they achieve are less striking because of the huge amount of holding spreads. 
But at least inspire concern that sell and long-term investors. 
hit stop losses and mandatory sold their investment positions. 
The crucial point is the 450 basis points if the spread up to where it will just completely lost control at bends. 
The 450 bp activate all mechanisms for the realization of direct positions in Greek bonds. 
2) The 450 bp are but a milestone in the bond market as more than just levels the state will not be able to borrow. 
According to well informed sources have already reported cases of investors who have indicated that over 450 bp longer be interested in bonds bearing in mind that the 10-year yields for example have reached or will tend to reach 8%. 
3) Today also when the spread slipped to 405 basis points late was the statement of Finance Minister, Mr Papaconstantinou that Greece has not requested any change in support mechanism from the EU and the IMF . 
Some sources say that the statement was made at the last minute and while the market was closed to prevent far worse. 
Please note that the mix of change in terms of device support, new scenarios and bankruptcy sales were short and long resulted in the spread be found by 405 basis points is to rise 65 basis points is a historical record.
 Please remain cognizant of the fact that a 400 basis point spread over treasuries is dead center in junk bond territory, with the likes of QVC Network, and the ilk!
 
The insane asylum has issued a statement. G-Pap has seen that his country would be Friendo'ed if Greece does not agree to austerity (which was part of the original agreement but whatever) and so has issued the following statement: "Responding to questions by journalists regarding actions taken by Greece to change the recent EU summit aid mechanism, the Greek Finance Minister clarified that there has not been any action on behalf of our country to change the terms of the recent EU Summit agreement." In the meantime rich Greeks have likely moved pretty much all their domestic deposits to some other Goldman Sachs controlled provenance. 

Greece has been in the news a lot over the last 24 hours. Let's recap:

 Bloomberg: Greece May Find Lukewarm U.S. Reception for Its Bonds

April 7 (Bloomberg) -- Greece may discover it’s no cheaper to sell bonds in the U.S. than in Europe as the government seeks to persuade investors it can plug the region’s biggest budget deficit.

Investors may demand a yield of as much as 7.25 percent to buy Greek 10-year dollar bonds, 410 basis points more than benchmark German bunds and 330 basis points more than Treasuries, according to Paris-based Axa Investment Managers, which oversees about $669 billion. TCW Group Inc., which manages $115 billion in assets from Los Angeles, says Greece may have to offer a premium of as much as 400 basis points over Treasuries.

Petros Christodoulou, director general of Greece’s Public Debt Management Agency, said March 31 the country planned a “roadshow” in the U.S. and maybe Asia to drum up investor demand for a sale of dollar-denominated bonds. The country may offer as much as $10 billion of the securities, the Wall Street Journal reported the same day. Greece is struggling to tackle a budget deficit that is equivalent to 12.7 percent of gross domestic product, more than four times the European Union’s 3 percent limit.

Anybody present at these road shows should print out a copy of the post Lies, Damn Lies, and Sovereign Truths: Why the Euro is Destined to Collapse! and"Greek Crisis Is Over, Region Safe", Prodi Says - I say Liar, Liar, Pants on Fire!. Be sure to have the salespersons answer the hard questions posed in those pieces. Subscribers can feel free to whip out the subscription material and ask for explanations and clarifications - File Icon Greece Public Finances Projections. I am anxious to hear what would be said in response. At this point, I see a Greek effective default as a foregone conclusion.

More on this topic: Euro, Greek Bonds Drop on Rescue Concern; Most U.S. Stocks Gain

From CNBC: Greek Banks Hit by Money Moved Offshore: Report

Greek banks are being hit by a wave of redemptions as rich citizens and companies look to move their money to big global banks or offshore as the country's debt crisis rages, the Telegraph newspaper reported on its website.

The report appeared to contradict recent data from the European Central Bank and comments to Reuters by analysts and Greek banking sources, who said there was no clear evidence of a major, extended deposit outflow from Greek banks.

The UK newspaper said late on Monday that big depositors have been clamoring to move their cash to international financial firms such as HSBC or France's Societe Generale, which operate large branches in the country.

They are among those to have received several billion euros of new money, it said without specifying sources.

... More than 3 billion euros ($4.05 billion) of deposits held by Greek households and companies left the country in February, while in January about 5 billion euros of deposits were moved out, the Telegraph quoted figures from Bank of Greece as showing.

Switzerland, the UK and Cyprus have been the largest recipients of the money, with the wealthiest Greeks looking to move their deposits to Swiss banks accounts to escape the more punitive tax measures many fear will be introduced in the wake of the country's economic crisis, the newspaper said.

Subscribers should reference:

From the Greek banking site, bankingnews.gr: [coarsely translated] Greek long bond investors - At 450 bps premium still will not lend to Greece - In 382 m.v.to spread  

 

The alarm sounding clearly leading market players and officials of foreign banks saying that realizations from real money accounts ie real long-term investors that occurred yesterday is a clear warning that unless a reduction in the spread immediately and climb to 450 bp everyone unload bonds and then completely lost control. 
Today logically must react and reduce the spread sparingly and if that does not happen then just completely lost control and even very briefly highlighted the www.bankingnews.gr the morning and indeed no reaction as the spread falls to 382 bps with selective purchases from JP Morgan.
According to sources confirmed when the spread was at 300 basis points and estimated that it will move to the 400 bp 2 weeks earlier, indicating that 
1) Apart from the special short yesterday sold many long-term investors. The short want to test whether an instrument of support from the EU and the IMF reach the boundaries of Greece, although they risk but the returns they achieve are less striking because of the huge amount of holding spreads. 
But at least inspire concern that sell and long-term investors. 
hit stop losses and mandatory sold their investment positions. 
The crucial point is the 450 basis points if the spread up to where it will just completely lost control at bends. 
The 450 bp activate all mechanisms for the realization of direct positions in Greek bonds. 
2) The 450 bp are but a milestone in the bond market as more than just levels the state will not be able to borrow. 
According to well informed sources have already reported cases of investors who have indicated that over 450 bp longer be interested in bonds bearing in mind that the 10-year yields for example have reached or will tend to reach 8%. 
3) Today also when the spread slipped to 405 basis points late was the statement of Finance Minister, Mr Papaconstantinou that Greece has not requested any change in support mechanism from the EU and the IMF . 
Some sources say that the statement was made at the last minute and while the market was closed to prevent far worse. 
Please note that the mix of change in terms of device support, new scenarios and bankruptcy sales were short and long resulted in the spread be found by 405 basis points is to rise 65 basis points is a historical record.
 Please remain cognizant of the fact that a 400 basis point spread over treasuries is dead center in junk bond territory, with the likes of QVC Network, and the ilk!
 
The insane asylum has issued a statement. G-Pap has seen that his country would be Friendo'ed if Greece does not agree to austerity (which was part of the original agreement but whatever) and so has issued the following statement: "Responding to questions by journalists regarding actions taken by Greece to change the recent EU summit aid mechanism, the Greek Finance Minister clarified that there has not been any action on behalf of our country to change the terms of the recent EU Summit agreement." In the meantime rich Greeks have likely moved pretty much all their domestic deposits to some other Goldman Sachs controlled provenance. 

Sunday, 04 April 2010 19:00

Easter Weekend News Update

Canadian Dollar Too Strong? Bloomberg.com:

  • Minority opposition in Canadian Parliament is growing over strengthening Loonie
  • Leaders fear fallout in exports from CAD nearly at parity with USD
  • CAD strength is directly tied to Chinese commodity demand (is the CAD bubblicious, too?)

Relevant BoomBustBlog content (we gave you an explicit warning of this in early January): China's Most Expensive Export: Price Inflation

Ukraine is dangerously close to the brink http://www.bloomberg.com/apps/news?pid=20601095&sid=aNw4Q7ntlMqc

  • Ukraine is about to use up the remainder of a $16.4 billion IMF loan
  • Premier Mykola Arazov has applied for another loan to "reform the economy" (what the hell did they do with the first $16.4 billion?)
  • Ukraine has needed assistance to make good with about 20 lenders

We have went through this in exquisite detail, both in the public sections of the blog and particularly in the subscriber-only content. See The Depression is Already Here for Some Members of Europe, and It Just Might Be Contagious! Professional and institutional subscribers should carefully reference "Banks Exposed to CEE & SEE" while all paying subscribers should review the "Greek Banking Industry Tear Sheet".

Sunday, 04 April 2010 19:00

Easter Weekend News Update

Canadian Dollar Too Strong? Bloomberg.com:

  • Minority opposition in Canadian Parliament is growing over strengthening Loonie
  • Leaders fear fallout in exports from CAD nearly at parity with USD
  • CAD strength is directly tied to Chinese commodity demand (is the CAD bubblicious, too?)

Relevant BoomBustBlog content (we gave you an explicit warning of this in early January): China's Most Expensive Export: Price Inflation

Ukraine is dangerously close to the brink http://www.bloomberg.com/apps/news?pid=20601095&sid=aNw4Q7ntlMqc

  • Ukraine is about to use up the remainder of a $16.4 billion IMF loan
  • Premier Mykola Arazov has applied for another loan to "reform the economy" (what the hell did they do with the first $16.4 billion?)
  • Ukraine has needed assistance to make good with about 20 lenders

We have went through this in exquisite detail, both in the public sections of the blog and particularly in the subscriber-only content. See The Depression is Already Here for Some Members of Europe, and It Just Might Be Contagious! Professional and institutional subscribers should carefully reference "Banks Exposed to CEE & SEE" while all paying subscribers should review the "Greek Banking Industry Tear Sheet".

The IMF has recently released the results of their staff consultations with Greece. Some may find it interesting, particularly where it intersects with relevant BoomBustBlog research. Let's not mince words here. Greece is going to effectively default on its debt, one way or another, and it is probably going to do it relatively soon. Shall we walk through the IMF findings from LAST YEAR and how they are actually optimistic compared to the facts that my team and I have dug up?

IMF Consultation: Greece (2009)
Context:

·    After joining the EU, the income gap between Greece and the Eurozone fell on lower interest rates and the resulting “demand boom”
·    Through the boom, fiscal deficits stayed at >95% of GDP, fiscal condition continues to aggravate 10 year spreads & contributes to credit downgrades (arguably a lagging indicator)
·    Private Greek debt is below the Eurozone average, as is the case for non-financial corporations (governments and financial services therefore must be the source of Greek leveraging)
·    Even as output has dropped, Greek wages have remained comparably high, and saw a 12% nominal increases in from 2008 - 2009
·    Quality of assets on Grecian balance sheets continues to erode with end of credit based consumption in Southeastern Europe (SEE)
·    Household and corporate credit growth has slowed, probably due to rising interest rates causing the opportunity cost of taking on new debt to be unmanageable (directly causing revenue shortfall at the government level)

Projections:
·    IMF forecasted uncertain, and potentially negative growth from 2009 through 2010 on stagnant trade and policy based mistakes
·    The EU had a much rosier forecast, citing a rise in tourism, lower dependency on trade, and government based infrastructure projects (that are paid in money taken from bond offerings and paid to construction workers at far greater than average Eurozone wages)

I have sourced the accuracy of both the IMF and the EU's forecasting in "Lies, Damn Lies, and Sovereign Truths: Why the Euro is Destined to Collapse!. If your well being relies on this stuff, you would be well served to subscribe to our research services. Let's take a visual perusal of what I am talking about in regards to Grecian GDP, the IMF and the EU.

image005.png

The EU/EC has proven to be no better, and if anything is arguably worse!

image031.png

Here are our considerably more realistic forecasts (premiums content: Greece Public Finances Projections). 

The IMF has recently released the results of their staff consultations with Greece. Some may find it interesting, particularly where it intersects with relevant BoomBustBlog research. Let's not mince words here. Greece is going to effectively default on its debt, one way or another, and it is probably going to do it relatively soon. Shall we walk through the IMF findings from LAST YEAR and how they are actually optimistic compared to the facts that my team and I have dug up?

IMF Consultation: Greece (2009)
Context:

·    After joining the EU, the income gap between Greece and the Eurozone fell on lower interest rates and the resulting “demand boom”
·    Through the boom, fiscal deficits stayed at >95% of GDP, fiscal condition continues to aggravate 10 year spreads & contributes to credit downgrades (arguably a lagging indicator)
·    Private Greek debt is below the Eurozone average, as is the case for non-financial corporations (governments and financial services therefore must be the source of Greek leveraging)
·    Even as output has dropped, Greek wages have remained comparably high, and saw a 12% nominal increases in from 2008 - 2009
·    Quality of assets on Grecian balance sheets continues to erode with end of credit based consumption in Southeastern Europe (SEE)
·    Household and corporate credit growth has slowed, probably due to rising interest rates causing the opportunity cost of taking on new debt to be unmanageable (directly causing revenue shortfall at the government level)

Projections:
·    IMF forecasted uncertain, and potentially negative growth from 2009 through 2010 on stagnant trade and policy based mistakes
·    The EU had a much rosier forecast, citing a rise in tourism, lower dependency on trade, and government based infrastructure projects (that are paid in money taken from bond offerings and paid to construction workers at far greater than average Eurozone wages)

I have sourced the accuracy of both the IMF and the EU's forecasting in "Lies, Damn Lies, and Sovereign Truths: Why the Euro is Destined to Collapse!. If your well being relies on this stuff, you would be well served to subscribe to our research services. Let's take a visual perusal of what I am talking about in regards to Grecian GDP, the IMF and the EU.

image005.png

The EU/EC has proven to be no better, and if anything is arguably worse!

image031.png

Here are our considerably more realistic forecasts (premiums content: Greece Public Finances Projections). 

Implied volatility for the big banks is down across the board, just about where it was before the system went into convulsions. This implies the coast is clear, as do the share prices of many banks.

Hard core forensic and fundamental analysis implies otherwise. So does the Fed's actions, which still incorporates ZIRP policy, as well as the waffling at FASB. We will either have smooth sailing from this point on out or there is a nasty surprise waiting (on and off balance sheet) for bank investors in the near future. I invite readers to weigh in with their opinions.

image001.png

As you can see, we are just about where we were in 2007 in terms of average volatility. 

Implied volatility for the big banks is down across the board, just about where it was before the system went into convulsions. This implies the coast is clear, as do the share prices of many banks.

Hard core forensic and fundamental analysis implies otherwise. So does the Fed's actions, which still incorporates ZIRP policy, as well as the waffling at FASB. We will either have smooth sailing from this point on out or there is a nasty surprise waiting (on and off balance sheet) for bank investors in the near future. I invite readers to weigh in with their opinions.

image001.png

As you can see, we are just about where we were in 2007 in terms of average volatility. 

On March 26, EU endorsed the proposal of extending aid to Greece (in case it faces shortage of funds to meet the refinancing and new debt requirements) wherein each euro nation would provide loans to Greece at bend over market rates based on its stake in the European Central Bank. EU would provide more than half the loans and the IMF would provide the rest. The official estimates for the size of the planned assistance have not been disclosed since it would depend on Greece's actual need.  Erik Nielsen, Chief European Economist at GS, estimates Greece will need an 18-month package of as much as €25 billion, with the IMF providing about €10 billion of that. The French newspaper Le Figaro reports that German officials are estimating the total assistance of nearly €22 billion.

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