Is the Euro well and truly buggered?

@cicerone imposter,

cicerone imposter wrote:

That's like reading a comic book; it's all fiction.
..................

The IMF agrees with you. Here is a summary of their "confidential debt sustainability analysis", IMF text first, translation into human speech following:
http://av.r.ftdata.co.uk/files/2012/02/Greece-DSA.pdf

Quote:

“… uncertain whether market access can be restored in the immediate post-programme years…” (I mean, would you lend your own money to this lot?)

“Debt dynamics under an alternative unchanged policies scenario” (Think of it like alternative comedy…. It’s not the worst case scenario — jeez, you definitely don’t want to see that…)

“The Greek authorities may not be able to deliver structural reforms and policy adjustments at the pace envisioned…” (Hey, can you blame them? They have to live there…)

“Greater wage flexibility may in practice be resisted by economic agents” (Turkeys don’t vote for Christmas…)

“Service market liberalisation may continue to be plagued by strong opposition from vested interests” (Expect more riots…)

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@cicerone imposter,

Got to say, my favorite quote from that IMF DSA report (really a science-fiction tale) was this one, halfway down the link

Quote:

...The debt trajectory is extremely sensitive to program delays, suggesting that the program could be accident prone, and calling into question sustainability

Translation, aw alright I'll get working on Greek bailout III right away Laughing

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@High Seas,

I hope you have about $250 billion sitting around someplace that you don't need right away. Rolling Eyes

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What are you guys doing over in Europe?!?!? Greece is in default and you need to stop bullying their creditors into not claiming their credit default swaps!

I understand having a lot of your banks suddenly being forced to pay out tens of billions of dollars is the last thing you need right now (although I think you'll find that a lot of the payout will be coming from US banks).

However, the one thing that could possibly be worse than a Greek default, is a Greek default where investors are forced to pretend that there is no default in order to deny them an insurance payout.

How much do you think the debt of other European nations will be worth once it sinks in that insurance on EU debt is a scam???

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@oralloy,

Quote:

How much do you think the debt of other European nations will be worth once it sinks in that insurance on EU debt is a scam???

I am not sure that is a deal breaker.....the money needs to go somewhere, where do you suggest it go? China, US and Japan are all deeply economically and politically troubled people as well. As all those people who believed "diversify and you will be fine" found out differently in 2008 sometimes (usually?) in a true collapse there is no safe harbor from the storm.

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@oralloy,

I'll be in Greece next month just for two days; one day in Delphi, and the last in Athens - mostly on tour. It'll be at the end of a Dalmatian Coastal Cruise.

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@hawkeye10,

I don't think it'll be a deal breaker, because the other Euro countries can't afford to let Greece go kaput. Greece is asking bond holders to replace them with longer term, lower interest bonds. Most will take a cleaning/haircut on them no matter what games they continue to play.

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@hawkeye10,

hawkeye10 wrote:

oralloy wrote:
How much do you think the debt of other European nations will be worth once it sinks in that insurance on EU debt is a scam???

I am not sure that is a deal breaker.....the money needs to go somewhere, where do you suggest it go? China, US and Japan are all deeply economically and politically troubled people as well. As all those people who believed "diversify and you will be fine" found out differently in 2008 sometimes (usually?) in a true collapse there is no safe harbor from the storm.

Since I posted that, the EU has relented from their insanity, and have allowed people to claim insurance on Greek debt.

But no, if the EU had continued to try to cheat people out of legitimate insurance payments, it would have been bad for them in the marketplace.

You don't see people still trying to invest with Bernie Madoff do you?

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@oralloy,

Greece was a credit event for sure, ISDA admits as much, but not all the CDS will pan out, and some counterparties are really shaky, so nothing is finalized yet. What's really interesting is that CDS on the new, improved, Greek bonds are also starting to trade at fairly bleak prospective assessments. As of March 13 these were the prices - for Greece and Portugal close to market prices for their bonds - and even serial bankrupts like Russia and Argentina have managed to do better!

http://bespokeinvest.squarespace.com/storage/countrycds313.png?__SQUARESPACE_CACHEVERSION=1331661556033

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@High Seas,

HS, Thanks for sharing that default risk chart. I'm trying to digest what the meaning is, and determine how risky any country's bonds are relative to others on the list.

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@cicerone imposter,

I should have said these are the 5-year credit default swaps, but you're right, it's a bit more complex than just default, there's risks like deflation, devaluation, etc
Good article on the relative risk calculations here: http://www.rotman.utoronto.ca/~hull/downloadablepublications/HPWPaperonCDSSpreads.pdf

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@High Seas,

Quote:

As of March 13 these were the prices - for Greece and Portugal close to market prices for their bonds - and even serial bankrupts like Russia and Argentina have managed to do better!

Interesting and useful, but we must remember that over the last decades the elites have done an incredibly poor job of properly evaluating risk, and there is zero reason to believe that they have improved.

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@hawkeye10,

Good observation there, hawk, but we must not only be careful about the incompetence of those that evaluate risk, but must also educate ourselves in how to best preserve our assets.

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@cicerone imposter,

cicerone imposter wrote:

Good observation there, hawk, but we must not only be careful about the incompetence of those that evaluate risk, but must also educate ourselves in how to best preserve our assets.

Agreed, which is why this is useful information. But we must remain clear headed about what it means, about which part likely represents the psychology of the observers and which part is a proper evaluation of the strength of the global economic system foundations. I think that if I were putting money in I would not care much about the global credit default swap prices other than as a statement of psychology , I would care about the evaluations presented by a handful of people whom I trust to do the evaluation correctly.

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@hawkeye10,

I try to keep well informed about the macroeconomics of the world's economies and its impact on the US currency and economy.

On private investments of our retirement funds, we have done very well. Except for 2008 where the average investor lost 40%, our net loss after spending $100,000 to upgrade and remodel our home was only about 14% decrease.

I transferred 50% of my IT Bond funds into equities on June 30, 2011; a bit early, but it's paying off quite well for 2012.

My guesses have been pretty accurate over the years, and I keep track of our finances quite frequently - almost daily.

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@cicerone imposter,

What is your point....that amateurs can do this with no expert guidance? I like the sound of that, but the record of amateur day traders is so bad that almost no one is doing it anymore, and small investors have vacated the equity markets in droves. Maybe you are the exception that proves the rule....or maybe your luck will run out.

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@hawkeye10,

You wrote,

Quote:

What is your point....that amateurs can do this with no expert guidance?

That's your assumption, not mine. When you talk about "expert guidance," you're not saying very much. It's been shown that throwing a dart at the stock page of any newspaper can be more rewarding than using an "expert."

There are fundamental principles in investing; it's universally known, and should be followed, but most guide their investment with emotion and not good investment principles. When the stock market started to tank, many sold their stocks; that was the wrong move. One simple principle of investing is buy low and sell high. They've done just the opposite.

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@cicerone imposter,

CDS auction is over for Greece. Final bid 21.5% for the restructured bonds (ie bondholders lost almost 80%). There may be some holdouts but not many.

http://av.r.ftdata.co.uk/files/2012/03/120319-auction-final.jpg

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@High Seas,

Even at that level, Greece is in no position to pay on it. It's simple economics and math; no rocket scientist need apply.

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@cicerone imposter,

I couldn't agreee with you more. All analyst reports so far also agree with you - here's one from one of the NY investment banks who submitted bids:

Quote:

.... Greek banks might be natural buyers of the new bonds on offer, but it seems unlikely they will be bidding in size ahead of their bailouts. Moreover, many of these holders will probably not be familiar enough with CDS auctions to want to use the opportunity either to buy or sell large quantities of bonds, or at least be nervous enough of the unusual mechanics to be cautious. Therefore, the most significant investor buying or selling will probably be French, German, UK or international banks as well as non-banks. On balance we think these investors will be under less pressure than before to hold Greek bonds and are more likely to use the opportunity to sell, rather than buy, more assets.

Big buyers of defaulted debt may also be less active than usual in this auction. Distressed debt investors tend to prefer recovery plays which are more dependent on micro-analysis than the politics of the EU, ECB, IMF and Greek government. Equally, the new bonds that are likely to be delivered are long dated, with a small 2% coupon. This is likely to prove an unattractive combination for many distressed investors, who typically prefer high coupons and short maturities, potentially reducing the size of the bid that one might otherwise expect.

On balance, therefore, we think there is more potential for a squeeze down in price than a squeeze up.

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Is the Euro well and truly buggered?

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