Greek 2 Year Bonds hit 18%; Portugal tanking

[mbig]

The Crisis now reaching epic or more appropriate.... Greek Tragedy .. proportion.

Europe debt crisis spreads to Portugal - Yahoo! Finance
Greek debt drops to junk status, Portugal's also downgraded; markets slide on fears of crisis
Nicholas Paphitis/Pan Pylas, AP
Tuesday April 27, 2010, 9:22 pm

ATHENS -- Greece was pushed to the brink of a financial abyss and started dragging another eurozone country -- Portugal -- down with it, fueling fears of a continent-wide debt meltdown.
Stocks around the world tanked after ratings agency Standard & Poor's on Tuesday downgraded Greek bonds to junk status and downgraded Portugese bonds two notches, showing investors that Greece's financial contagion is spreading.
[..........]
Asian stock markets tumbled in early trading Wednesday.....
"We have the makings of a market crisis here," said Neil Mackinnon, global macro strategist at VTB Capital..........One bailout can be dealt with but two will be stretching it, and there are fears that other weak economies could be pulled down in the Greek spiral -- including Europe's 5th-largest, Spain. Can Germany, Europe's effective paymaster, continue to bail out the weaker members of the eurozone?
[...........]
Both Standard & Poor's and the Greek finance ministry insisted that the country will have enough money to make the euro8.5 billion bond payments due on May 19.
Even if it does, Greece faces years of austerity with living standards sharply reduced. Standard & Poor's warned that the Greek economy was unlikely to be as big as it was in 2008 for another Decade.
[...........]
"The latest developments mean that the chances of Greece solving this situation without restructuring its debts are now dim," said Diego Iscaro, senior economist at IHS Global Insight.
German Chancellor Angela Merkel reiterated her position that Greece should first conclude the current negotiations with the IMF and the European Union about austerity measures for the coming years before receiving the international loan package.
Speaking at an election rally Tuesday afternoon, Merkel said it is appropriate to tell Greeks, "You have to economize, you have to become fair, you have to be honest; if not, nobody can help you," according to the German news agency DAPD.
[............]
The FTSE 100 index of leading British shares closed down 2.6%, Germany's DAX slid 2.7% and the French CAC-40 in France ended 3.8% lower.
Greek and Portuguese stocks were pounded -- down 6.7% and 5.4%, respectively -- while their market borrowing costs went through the roof. The interest rate for Greek two-year bonds jumped to a massive 18%.
[.............]

 

[PeteEU]

Ratings agency again... One ratings agency downgrades and the markets go nuts and go in "panic" mode and glee from anti-Euro people is hard to oversee.

First off Portugal is not "tanking". A very poor choice of words when compared to Greece. Sure their markets went down yesterday, but so did the rest of the world. Dow went down 200 points, is the US tanking too? Yes their yields on their bonds are up but no where near the Greek heights, and one has to question why they are up since nothing has changed since last week or 2 weeks ago or 3 weeks ago or longer. My guess, some people are hedging against Portugal like they have against Greece, like they did against the UK long ago, and like they did against Asia in the mid 1990s.

But we get back to these ratings agencies. Even the economics journalists on CNBC are starting to question the agencies since the day after S&P downgraded the Greece and Portugal, they suddenly did the same for Spain...odd timing, and then again, who paid them to do so? Lets not forget, S&P had Leman Brothers at AAA rating the day before it folded.

As the journalists said.. what has changed since a week ago, a month ago or longer with the Spanish or Portuguese economies that prompted this.. the answer is simple.. nothing.

This is S&P.. why have the other ratings agencies not done the same?

 

[Ahlevah]

Ratings agency again... One ratings agency downgrades and the markets go nuts and go in "panic" mode and glee from anti-Euro people is hard to oversee.

Do you really think if there were no ratings agencies Greece could afford its debt without restructuring it or getting a bailout?

 

[PeteEU]

Do you really think if there were no ratings agencies Greece could afford its debt without restructuring it or getting a bailout?

If there was no run on the country by speculators and people betting on a Greek default, then yes under the condition that the Greeks are able to fix their economy with cuts and getting in the taxes they are suppose to be getting in... aka balance the budget. If it had not been for speculators and people betting on a Greek default we would not have seen the yield go up the way we did and the panic, I am pretty sure about that. After all there a countries with worse debts and/or worse budget deficits out there, who are not effected in any way. Problem is the markets have not given the Greeks the time to do anything. It is under a year since we found out that there was a credibility problem, and do you really expect wide ranging changes and miracle fixes happen over night? In what reality does that ever happen?

Listen Greece's problems are bad, but lets stay realistic here. Greek debt is 300 billion last I looked, that is under half of the US bank bailout and far from it all is short term which is the main problem...short term debt that is coming due.

The budget deficit is in part due to the economic crapper the world is in thanks to the US, and in part due to a crappy tax system that does not provide what should be expected in tax revenue. Add to that corruption and so on and you have Greece, but you could have the US, UK or any other country just as well.

Problem is that there is so much money bet on Greece defaulting that it has to happen regardless of the consequences for the world economy, just like when the pound was forced out the European monetary thingy a few decades ago and when oil peaked at 150 dollars. There are few people out there that are going to make (and are making) a killing on this and most likely other countries economic issues. And that is the sad part, that we allow a few people to ruin whole countries for profit.

 

[Ahlevah]

It is under a year since we found out that there was a credibility problem, and do you really expect wide ranging changes and miracle fixes happen over night? In what reality does that ever happen?

Ultimately, what will determine the price of a bond or note is the likelihood of timely repayment. It's almost a certainty that Greece will seek some sort of debt exchange or change of terms lengthening the maturities of its securities. We see protests, strikes, and riots occurring there. That can't be helpful to the prices paid for Greek debt. Investors are asking themselves if the country has the political will to make the cuts in spending necessary to set its fiscal house in order. But the market will be the final arbiter, just as it has for centuries. If there's value in Greek debt, someone will pay for it. If there's not, they won't.

 

[PeteEU]

Ultimately, what will determine the price of a bond or note is the likelihood of timely repayment. It's almost a certainty that Greece will seek some sort of debt exchange or change of terms lengthening the maturities of its securities. We see protests, strikes, and riots occurring there. That can't be helpful to the prices paid for Greek debt. Investors are asking themselves if the country has the political will to make the cuts in spending necessary to set its fiscal house in order. But the market will be the final arbiter, just as it has for centuries. If there's value in Greek debt, someone will pay for it. If there's not, they won't.

The market as it stands now is imperfect because it is being pushed out of even a close equilibrium by speculators.

As for strikes and protests and riots.. people should pick up a "Greece for Dummies" and learn how Greece people normally protest over things.

 

[Wiseone]

The market as it stands now is imperfect because it is being pushed out of even a close equilibrium by speculators.

As for strikes and protests and riots.. people should pick up a "Greece for Dummies" and learn how Greece people normally protest over things.

Speculation is the market, at least this kind of market. People, companies, funds, investors, anyone or anything that buys and sells debt is speculating, its what drives the market because speculating is the only way to make any money.

Now people might criticize speculators over sometimes making decisions based solely off observing other speculators, which in turn leads to more speculators speculating on the same lines because more speculators are all speculating in the same direction. If you can follow that, I made it dilberatly confusing because I'md runk.

But seriously speculation is the name of the game, if one only waited to the point where there was no speculation, well there never is no speculation so lets just say very little, then the risk would be so minor that no profit could be made, because the debt seller would know about the low risk just as much as the buyer. Thats why longer term bonds are riskier and have higher interest rates. For example if I bought a one-day US treasury bond I'd probably make micro-cents for thousands of dollars in investment, because both me and the seller know that tomorrow the US Treasury is going to be able to repay it. However if I bought a 20 or 30 year US T-Bond, I'd make more money on the dollar because the risk is greater as who can say what happens in 20 or 30 years. Now think if it was a Greek 30 year bond, or 5 year bond, which would be even worse. The risk is greater so I expect the potential reward to be too, and if the seller doesn't make that reward high enough it won't sell and they won't get their investment on their debt.

Thats why 2 year T-Bonds yield .94% return but 10 year T-Bonds yield a 3.65% yield.
http://www.marketwatch.com/story/tr...ction-of-week-2010-04-29?reflink=MW_news_stmp

 

[PeteEU]

Speculation is the market, at least this kind of market. People, companies, funds, investors, anyone or anything that buys and sells debt is speculating, its what drives the market because speculating is the only way to make any money.

Yes, but speculation is also when a group of very powerful companies and people get together to make a run at someone or something. Oil at 150 dollars, was purely speculator driven. When certain speculators have such much power that they can actually influence markets in that way then you have to be worried. That George Soros could drive the Pound out of the European tingy (cant remember what was called) shows a problem.. yes he had a lot of help, but it was his comments and actions that made others jump on board.

Now people might criticize speculators over sometimes making decisions based solely off observing other speculators, which in turn leads to more speculators speculating on the same lines because more speculators are all speculating in the same direction. If you can follow that, I made it dilberatly confusing because I'md runk.

I can follow it yes, but as I said I have no problems with normal speculation, where people buy stuff up in the hope of prices will rise and the markets work. I have a problem with speculators that play on the misery of others and actually facilitate or at least add to that misery.

But seriously speculation is the name of the game, if one only waited to the point where there was no speculation, well there never is no speculation so lets just say very little, then the risk would be so minor that no profit could be made, because the debt seller would know about the low risk just as much as the buyer. Thats why longer term bonds are riskier and have higher interest rates. For example if I bought a one-day US treasury bond I'd probably make micro-cents for thousands of dollars in investment, because both me and the seller know that tomorrow the US Treasury is going to be able to repay it. However if I bought a 20 or 30 year US T-Bond, I'd make more money on the dollar because the risk is greater as who can say what happens in 20 or 30 years. Now think if it was a Greek 30 year bond, or 5 year bond, which would be even worse. The risk is greater so I expect the potential reward to be too, and if the seller doesn't make that reward high enough it won't sell and they won't get their investment on their debt.

Thats why 2 year T-Bonds yield .94% return but 10 year T-Bonds yield a 3.65% yield.
Treasurys gain as auction attracts investors Bond Report - MarketWatch

Yea but what if you had the power to influence which way the markets went? Then we are talking about more than ordinary speculation. And my point is, certain companies and people have that power and use it on a daily basis and have used it big time against Greece. We see them often on CNBC and other financial and news shows. Like it or not, the markets are very very influenced
by the media and rumor. Take Greece.. a week or so ago, there was a rumor, a freaking rumor about Greece wanting to renegotiate the deal with the EU. It was instantly denied by everyone, but the rumor was enough to drive up the yields on Greek debt by massive amounts. This is not speculation but market manipulation.

In many ways it is no different than fixing a football game or boxing match. If you can make sure as much as possible of a certain outcome then you will do so would you not? That has nothing to do with fairness or the market, but frankly is criminal if you ask me.

 

[Wiseone]

O yes some groups who speculate do have a huge influence on the market, and at times they can move prices through their speculation which will in turn influence other smaller speculators. I don't really see a solution, even though I do agree it is a problem. I wouldn't be ready to say that huge firms who speculate in the market need to be regulated any more than a if I was speculating with a 1000 dollars in cash, something which obviously won't move the market or change anyone's opinion of whatever I'm buying.

What I would be willing to say is that strict laws and penalties should apply to both the firms and individuals who engage in speculative activity but instead of speculating how the market is going, they are speculating on how the market will react to their own speculation with the explicit purpose of not simply trying to gauge how their billion dollar buy will affect the market, but trying to deliberately force the market out of its natural rhythm to make money.

For example if I was a huge firm and I knew that when I bought something people listened and often copied my moves, then I purchased billions of dollars in something worthless simply to drive up the price as others copied me, then sold it for billions in profit later, leaving everyone else to suffer with this worthless stock/bond/commodity/whatever. The speculation should be on the assets you are buying, not on the other investors in the market.

 

[Djoop]

O yes some groups who speculate do have a huge influence on the market, and at times they can move prices through their speculation which will in turn influence other smaller speculators. I don't really see a solution, even though I do agree it is a problem. I wouldn't be ready to say that huge firms who speculate in the market need to be regulated any more than a if I was speculating with a 1000 dollars in cash, something which obviously won't move the market or change anyone's opinion of whatever I'm buying.

What I would be willing to say is that strict laws and penalties should apply to both the firms and individuals who engage in speculative activity but instead of speculating how the market is going, they are speculating on how the market will react to their own speculation with the explicit purpose of not simply trying to gauge how their billion dollar buy will affect the market, but trying to deliberately force the market out of its natural rhythm to make money.

For example if I was a huge firm and I knew that when I bought something people listened and often copied my moves, then I purchased billions of dollars in something worthless simply to drive up the price as others copied me, then sold it for billions in profit later, leaving everyone else to suffer with this worthless stock/bond/commodity/whatever. The speculation should be on the assets you are buying, not on the other investors in the market.

Pete's position demands you to acknowledge that Greece is in perfect shape, they're making the needed cuts, they have support for it, and they have every intention to repay their debts. There's no reason why the ratings are up, it's all speculation, in a perverted effort to bancrupt Greece. Pete doesn't explain who, why and how, it's simply the reality he sees and everyone else is sorely mistaken.

The picture only starts to make sense when you consider the possibility that Pete might be wrong. In either case, the responsability to solve the problem lies with Greece's government. We're not obliged to buy their debt, and they risked speculation once they made themselves dependant on it. The only part that's unfair, is that they forgot to inform the people about the risky nature of their budget deficits.