Calendars here. Get your calendars here. Can’t follow the Greek debt crisis without a calendar!
Have to have one. This crisis will either blow over in the next two months or so or run until the end of 2010 and threaten to take down Greek and German banks (German banks look like the biggest holders of Greek government and bank debt) and the euro. It all depends on how the chronology plays out.
Deadline #1. End of March. Standard & Poor’s said two days ago (February 23) that it may lower the credit rating on Greece’s sovereign debt again at the end of March if political opposition prevents the government from delivering on its plans to reduce a budget deficit now running at 12.7% of GDP (gross domestic product.). A downgrade would raise the interest rates that Greece has to pay on its debt and make it harder to sell new bonds to repay those that mature in May.
Deadline #2: May. Greece needs to refinance about $27 billion in debt that matures in May, according to calculations by Bloomberg. Already investors are demanding a 3.48 percentage point premium over the benchmark German bonds before they’ll buy Greek 10-year debt. That premium is four-times the average premium of the last five years.
Deadline #3: June-July. If the bond sales go badly and if the Greek government’s plan for cutting the budget deficit looks dead in the water, Standard & Poor’s could cut the country’s credit rating again and Moody’s, which has kept its rating on Greece the same since December, could join in. That could take the credit rating on Greek bonds below investment grade. A junk-bond-like rating for Greece would send Greek interest rates higher yet and usher in a new stage in the crisis.
Deadline #4: The end of 2010. The fourth quarter is crunch time. The European Central Bank has said it wants to remove the emergency measures that let banks use below investment grade debt as collateral for loans from the bank. If the bank, as it has indicated, removes that emergency measure at the same time as the credit ratings on Greek sovereign debt fall below investment grade, it will set off a crisis at Greek banks. Greek banks are big holders of Greek national debt, which they then use as collateral for loans at the European Central Bank. Those loans are essential to the ability of Greek banks to fund themselves. No loans and the Greek banks wind up sitting on a huge supply of Greek sovereign debt that they would have to sell into what would become a market rout in order to remain liquid.
If this crisis gets to Deadline #4 without a resolution, it reaches a new level of seriousness because the operation of the entire Greek banking system comes into question. And if liquidity in the Greek banking sector freezes up, then so does the Greek economy.
And that would set the dominos falling as banks in other European countries, especially German banks with their relatively large holdings of Greek government and bank debt, would face rapidly declining prices for debt in their portfolios.
It’s the vulnerability of German banks to a Greek crisis, oddly enough, that’s the best guarantee that the German government, whatever its current rhetoric, will intervene to prevent a Greek collapse. The Merkel government in Berlin knows that at some point the consequences of not acting will be felt in Frankfurt as much as in Athens.
My calendar, unfortunately, isn’t a crystal ball. It can’t predict when “at some point” will be. Until then, expect the euro to continue its retreat. The euro was trading at a one-year low to the yen this morning and had fallen below $1.35.
And Jim Jubak is the best damb lemonade maker I know!
If I havent said it enough Mr. Jubak, thanks for all you do!
DJ,
I know. I was kidding you.
Seriously though, I love your posts, and keep up the great work!
As for investment strategies, optimism and pessimism may not make good investment strategies, but opportunism works pretty good! When the markets hand you a lemon, it’s up to you to figure out the lemonade recipe.
That said, watching which way the wind blows and deciding to sail, paddle, or get the hell out of the water helps. . .
EdMcGon
That was my optimistic view. . .
ps: optimism, or pessimism for that matter, is not a successful investing strategy. . .
> If us little folks get these parasites angry,
Speaking of parasites, here is a website where you can find anything and everything about Goldman Sachs:
http://www.goldmansachs666.com/
“…Blankfein reassured employees. “In a year that proved to have no shortage of story lines,” he said, “I believe very strongly that performance is the ultimate narrative.””
Yes, they performed ultimately, investing in treasuries with money borrowed at 0%, without raising their butts off their chairs. You know, some people still believe big companies take big risks.
Tax’m. Tax’m all very high!…
-bloodsuckingdogoodervampire
Run26.2…
As an educator for years, drugs, gangs, and teenage pregnancy were the primary “evils”, but this article in the N.Y. Times has just raised the bar to another level, which is too many blatantly dishonest folks running big business! Bad enough what’s going on with Congress! Geeze, will this merry-go-round ever stop?!!
Thanks for sharing this…
Speaking of greed… here’s how the greed at the top rots the rest of the fish (or tomatos in this case):
http://www.nytimes.com/2010/02/25/business/25tomatoes.html?em
DJ,
Always the optimist, aye?
Banks that helped mask debt are betting against it.
http://www.nytimes.com/2010/02/25/business/global/25swaps.html?hp
I guess Wall Street won’t be satisfied until they have brought down a developed country. If us little folks get these parasites angry, what’s to stop them from doing the same to the US. They just need to get the ball rolling and then the panic feeds itself.
How to worry–and when–in 2010
#1,6,7,8 all seem to be apparent right now (Although given your morning post #1 may cause additional pain throughout the year, which I agree with, EU debt, and then UK, and then US will play out very painfully and much longer then anybody would like, followed by ever increasing house defaults through 2013.
So the question I have been asking myself for the last month is, should I sell everything, or would this just be a “twitchy” reaction.
If China is the current “growth” engine, but they can’t sell much to the US, because were not buying, if they can’t sell much to the EU, because before long THEY won’t be buying, if banks in the EU are facing a domino effect of defaults from the PIIGS problems, who will have money to buy from China to keep China growing?
And once China stops growing at 9+% what do we have left? The US? Brazil? India? The developing economies ? I don’t think so…
I don’t believe this is just going to be a hard year for investors, I think this will be a seminal year for very bad news in the banking, finance and government institutions worldwide, much worse then we have heard to date.
And by the way, I believe the vast majority of Americans, at 10% unemployment, and 25% of mortgages of all homeowners in the US underwater, will not be visiting Europe no matter how cheap the currency.
Didn’t always feel this way over the last year, but I think what we have seen so far in the US will pale in comparison to what’s next. Germany may feel themselves obligated, out of self interest, to help Greece (Germany hold the lion’s share of Greece’s debt) but what happens when Spain and the rest of them run into trouble, which banks owns that bad debt? How will these banks survive if the dominos start to fall?
And we haven’t even begun to talk about the UK, and the US long term debt problems yet (Not to mention Chinas underperforming loans held by banks…)
But, on the bright side, the Euro will be cheap. . .
The purpose of leaving the Euro zone would be to recover again the possibility of devaluing one’s currency, which, in the short run, is good for the economy.
In April 2008, you could get 1.6$ to the Euro. We are now at 1.35. At the outset, it was something like .85$ to the Euro.
Should we get back to that rate, it would amount to a 47% of the euro compared to the April 08 rate: quite a plunge, making, by the way, Europe very attractive to US tourists again.
I, for one, think that the Euro zone will make it.
I would add to Run26.2’s comment that Spain has a major debt refinancing in July. Should anything happen that impacts that, it should be remembered that Spain has a far bigger economy than Greece. If Spain goes under, even Germany won’t be able to bail them out.
You know, the rich pays so much tax, untaxed money in the Swiss bank accounts should be ignored.
-Swiss say will no longer accept untaxed money
http://finance.yahoo.com/news/Swiss-shun-untaxed-cash-seek-rb-3512156026.html?x=0
The Euro’s Next Battleground: Spain
http://online.wsj.com/article/SB10001424052748704454304575081481536661858.html
A quote:
Mr. Lachman of the American Enterprise Institute is among the pessimists who doubt the government will take this course. He thinks Spain’s chronic inability to restart growth will lead it to contemplate a third option: splitting the euro zone asunder by withdrawing from the common currency. That would permit a devaluation that would, at a stroke, increase Spain’s competitiveness and allow the economy to grow again.
A more mainstream view holds that no government, Spain’s included, would dare to brave the financial chaos such a move would unleash.
“It’s extremely costly to leave the euro,” said Jean Pisani-Ferry of Bruegel, a pro-European think tank in Brussels. The moment a government hinted at a possible devaluation, there would be a run on the banks and an effective default on every euro financial contract with that country. “The day you start to admit that you’re thinking about it, you’re in a financial mess.”
unemployment is a lagging indicator
unemployment is a lagging indicator
unemployment is a lagging indicator
Purewater…thanks a bunch!
Seaturtlelady, Rather than use terms that everyone can understand like “Buy, Sell or Hold” many banks/analysts use more muddled terms like Overweight or Underweight. Anyhow, basically all they’re saying is they like Marvell Technology and they recommend you buy it.
Good Morning…could someone please explain what this statement means?? Good or bad thing??
Marvell Technology Started At Overweight By JPMorgan >MRVL