Comments on: Europe’s lethal uncertainty A slice of lime in the soda Sun, 26 Oct 2014 19:05:02 +0000 hourly 1 By: y2kurtus Wed, 07 Sep 2011 01:33:51 +0000 Felix,

I don’t see how these two sentences fit togeather:

“even if it does have “AAA backing”. That backing will be in the form of long-dated zero-coupon collateral which is hard for bondholders to extract, and the new debt will still have a low credit rating and a large amount of default risk ”

How can the new bonds have both AAA collateral backing and default risk? How is this not different from having FDIC insured deposits in the 100 weakest banks in the country. Sure there are some forms to fill out and you might not get your check until next Thursday but you know you’ll get your principal and interest.

If you can buy some Greek bonds at 50c swap them for 79c worth of new Euro backed bonds you’ve made what looks like a pretty safe profit. It will be interesting to see if Bill Gross is doing this in size.

By: FifthDecade Tue, 06 Sep 2011 23:38:19 +0000 Felix, hardly a plunge. The DAX fell 1%, the BE 500 0.7% and the STOXX was down 1.29%. Seven European indexes actually went up so why use an emotive word such as ‘plunge’?

It does seem popular to invent Euro bashing stories at the moment. If the Euro really was so weak, why is it within 10% of its lifetime high against the USD? Why is it 66% higher than its weakest ever value against the USD? Doesn’t that say more about the USD being the sick man here? The European politicians may be slow to move, but the US politicians are in horrendously self-destructive opposition to each other.

If the US doesn’t sort itself out and start working together I can see a future with the US being broken up as the only solution to politicians that only seek to undermine the other party, even at great cost to the Nation. As the parties are predominantly regional (blue coasts and red middle) a split along those lines could be the outcome.

@DanHess actually Europe does have elected politicians that are directly elected to the European Parliament.

By: DanHess Tue, 06 Sep 2011 20:06:49 +0000 The problem with Eurobonds is that they would create a defacto dictatorship. They would create a new country, “Europe”, that does not answer to any electorate.

Breakup seems like rough sailing but it would force real solutions. Why do Greeks still get to retire so much earlier than Germans? Isn’t Germany’s ‘success’ partly a fiction due to lending to uncreditworthy countries who then buy its stuff? Doesn’t this give the same fake success that we saw during years of the US housing bubble?

Breakup would probably be seen as the cause of a huge recession, but in reality it would not be the cause. Similarly, Lehman was not the root cause of the recession. The cause was the bad lending and poor asset allocation during the bubble. If Lehman didn’t trigger things, something else would have.

Perhaps when Europe is in a full-blown recession anyway the polical difficulty of breakup will be less.

By: SteveHamlin Tue, 06 Sep 2011 19:50:11 +0000 @Danny_Black: “so an expenditure of around a trillion over a decade is the same as a DEFICIT of over a trillion in one year?”

That’s not what ‘datascientist’ wrote, nor what he meant, and you know both of those facts, which is unfortunate because you normally add value around here. Less trollish next time?

By: klhoughton Tue, 06 Sep 2011 19:22:50 +0000 “the Greek bond maturing on January 11 is trading at par — the market expects it to be paid in full, and the yield on the bond is in single digits. But the Greek bond maturing on March 20 is trading at about 63 cents on the dollar, for a yield well into triple digits. Meanwhile, the bond maturing on May 15 is trading in the low 80s, for a yield of around 30%.”

Fairly simple to explain that barbell. random_trader noted half of it: not exactly a liquid, trading market.

The other half is the Good Story issue: you can meander through Q4 with Euro extensions and the like, but by mid-to-late–but not necessarily early–January, the flows for the year will be clear.

By March, there will be need for another bailout. Expecting to be paid then is a mug’s game. Once the queue forms, you might not get paid for months. Many months. Treat a 3/2012 maturity as a 9/2013 or 3/2014 zero and the yield drops into line.

By May, Something will have happened, and a 30% yield is barely enough protection for the (implicit) currency risk of UnEuroBundled Greece.

By: Danny_Black Tue, 06 Sep 2011 18:25:08 +0000 datascientist, so an expenditure of around a trillion over a decade is the same as a DEFICIT of over a trillion in one year?

By: random_trader Tue, 06 Sep 2011 16:49:07 +0000 There might be quotes for the very short term bonds that are printing in the high 90’s but I don’t see any recent trades.

By: datascientist Tue, 06 Sep 2011 16:12:51 +0000 Meanwhile back here in the US, we continue to watch the deficit hawks (who didn’t seem to mind spending for the Iraq/Afghan military efforts) continue to drag down the economy. The fact is the stimulus helped cushion the blow of the financial crisis. One need look at the current budget shortfalls of many states. The deficit reduction crowd don’t seem to get that the states are hurting badly, and the consequences of not acting will be felt mostly by those already suffering from long term unemployment. To see how another round of stimulus might help, see this chart which sizes the budget shortfall & stimulus grants per capita (in a few critical states): 2012.htm#s5