Posts Tagged ‘Greece’

Testing . . . one . . . two . . .

Thursday, September 8th, 2011

After the jaw-dropping decline of late July/early August, we’re now in what appears to be a bottom testing phase. It’s probably not an inappropriate metaphor to think of testing the ice on a pond. So far, the testing is going okay. Yesterday’s drop in the S & P 500 stopped right at the trend line defined by the August 9 and 22 lows, meaning that each low has been higher than the previous low, the simplest definition of a trend. Now, if the trend gives way, we’ll be headed back to that August 9 low.

Here’s what the picture looks like.

There is still plenty that can go wrong in the world, and investors are on high alert for them. I’ve maintained for a while that the problem is Europe, and what’s seen as an eventual blow up there is being increasingly referred to as a Lehman Bros. moment, the period of time begun on September 15, 2008, when the market went into freefall. It appears that Greece is circling the toilet bowl, and the sooner the country can be allowed to default–in whatever form it takes–the better. That it might not be the worst thing was on evidence today in the Greek stock and bond indexes. While the 1-year Greek note now yields–I AM NOT MAKING THIS UP–89.18%–yesterday it yielded a mere–I AM NOT MAKING THIS UP–80.483%. That’s a bond that’s not going to get paid back. At the same time, the Greek stock exchange was up by +8%. The fine folks at Miller-Tabak mused that some bond pain might be good for the economy; therefore, bonds down, stocks up.

Please note the +14.5% and +8% (today) pops. To me, those are indications of a severely oversold market. Perhaps one thing that happened over the past month’s equity volatility is that market participants are geared up–maybe inured is a better word (no, not injured, although that, too)–for the worst case scenario in Greece. Anything better than worst would be good (huh?)


Wierd headline: “Safety in Emerging Markets Bonds”

Monday, August 1st, 2011

It used to be that a headline like the one attached to the story below would have seemed incongruous. Now, we just shake our heads and realize it’s a sign of the times and the current state of affairs. (Click on the story for the full version.)


Given the state of global finances, perhaps we shouldn’t find this surprising. Here is a look at debt-to-GDP levels for advanced and developing countries, the constituents of which are defined by FTSE. The developed countries are represented by the blue bars, while the emerging countries are shown in green. Averages are shown in the respective colors.



They’re back…

Wednesday, June 29th, 2011

In his press confence following the FOMC’s June meeting, Gentle Ben Bernanke fielded a question from a New York Times reporter on the potential effects of a Greece default. In his answer was a comment about money market mutual funds that struck fear in the hearts of those who remember 2008, when a money market “broke the buck.” Money market Funds are always priced at $1.00 per share; what changes is their yields. In 2008 it was the result of Lehman Brothers failed, marking the extent of the financial crisis. Prior to that it had only happened once, in 1994.

Here’s part of what he said in response:

So we have asked the banks to essentially do stress tests and ask, looking at all their positions, all their hedges, what would be the effect on their capital be if Greece defaulted. And the answer is that the effects are very small. It’s also the case that — well, we don’t oversee the money market mutual funds. We have been kegeping a close eye on that situation.There again, the situation is similar in some sense in that except — with very few exceptions, the money market mutual funds don’t have much direct exposure to the three peripheral countries which are currently dealing with debt problems. They do have very substantial exposure to European banks in the so-called core countries: Germany, France, etc. So to the extent that there is indirect impact on — on the core European banks, that does pose some concern to money market mutual funds. And is a reason why the Federal Reserve and other regulators are continuing to look at ways to strengthen money market mutual funds.In terms of the impact of the problem in Greece on the United States, as I’ve indicated, the direct exposures are pretty small. And we’re doing all we can to monitor those exposures. However, as we saw in a small situation, a small case last spring, a — disorderly default in one of those countries would no doubt roil financial markets globally. It would have a big impact on credit spreads, on stock prices, and so on.

When thinking of one’s portfolio it’s hard enough to stomach a loss, but in a money market fund it’s unfathomable. Not to worry, dear client, we use the Federated money market funds. They’ve never owned any Greek debt and only hold debt of the best of the best global banks. The contagion effects–get to know that phrase–are what should keep folks up at night. After Greece is Portugal, then Spain.

According to John Mauldin–in his June 25 letter,

“because if Greece is allowed to go, there is real reason to believe that the problems will spread arther quickly to the rest of peripheral Europe…By the way, another source notes that US money-market funds are not rolling over the commercial paper to some of the banks (like Spanish ones), so there is a liquidity squeeze coming to European banks in peripheral countries.”

As Deborah Cunningham, Chief Investment Officer for Federated’s money markets put it in a Wall Street Journal article on the subject,

The problem is perception as much as reality. Though only one fund officially broke the buck in 2008, it caused a crisis for the whole industry. “It’s the contagion effect that people are looking at,” Ms. Cunningham says.

If you’re concerned about your non-Federated money market, one thing to look for is something like “Prime” in the fund’s name. “Federal” or “Government” or “Treasury” should ease your conscience, although prospectuses often leave enough leeway for them to invest in just about anything.


Well, that’s stupid

Friday, June 17th, 2011

The European Banking Authority has issued a directive to European banks to–as CNBC put it–”stress their portfolios for ‘more conservative assumptions.’ ” Unfortunately, the stress tests do not involve the possibility of Greece defaulting!  Some excerpts from a Bloomberg story available here:

  • “Credit default swaps indicates an 82% chance Greece will fail to meet its commitments within five years.”
  • “The EBA can’t include a sovereign default in the stress tests because that would lend credence to the possibility of such an event happening and undermine confidence in the region, said Richard Reid, an economist at the London-based International Centre for Financial Regulation.”

In hindsight, the credit default swaps for Bear Stears indicated the same thing, something that was highlighted in a posting of his on March 8, 2008. So, it would be like instructing U.S. bank, in early 2008, to run scenarios against their portfolios, but scenarios that do not include a Bear Stearns wipeout.

Here’s a look at the pricing on Greece debt default protection. It’s up between 30-40% this week alone.

And this is what happens when the Greek government tells its citizenry that austerity measures are needed.

But, no, European Banks, there’s no need to factor in the possibility of Greece defaulting on its debt.


Weekly Recap & Outlook – 05.27.11

Friday, May 27th, 2011

Tower Private Advisors


  •  Risk on, again?
  • Ugly economics, bouyed consumer, go figure

Today’s theme song comes from the Steve Miller Band…

Time keeps on slippin’, slippin’, slippin’

Into the future

Time keeps on slippin’, slippin’, slippin’

Into the future

Time keeps on slippin’, slippin’, slippin’

Into the future

Time keeps on slippin’, slippin’, slippin’

Into the future