Preparing for a Greek default.

Via Hussman funds.

The yield on 1-year Greek government debt ended last week at 110%, down slightly from a mid-week peak of 130%. Even with the pullback, the Greek yield structure continues to imply default with certainty. All the markets are really quibbling about here is the recovery rate - what percentage of face value investors can expect to obtain post-default. That figure was still hovering near 50% as of Friday, but was a bit higher than we saw a few days earlier.

Despite a Greek 1-year yield that is already over 100%, it is still possible to kick the can down the road for another few months with another bailout, but the costs of that would now be extraordinarily high because of the low expected recovery rate. Much better to provide the funds to a post-default Greece, or to use them to recapitalize the banking system after losses that now appear inevitable.

Diogenes in the Barrel.

via sentinel investments.


It's a good time to sit tight and stay with cash. It's not uncertainty. We can live with that. It's the certainty of temporary impasse. Here's why.

When Europe gets it wrong, it gets it really wrong. The cycle of tighter budgets, lower growth, higher deficits and higher bond yields is so manifest that you would think some coordinated policy response would be front and center. Not a bit of it. Greece is fast approaching the point where a declining economy cannot support debt repayments. It does not matter if the country embraces frugality or not. There is simply not enough juice to pay off debt. There are plenty of solutions: Consol-type perpetuities, ECB purchases, Eurobonds. All rejected. So now, we have near runs on the banks. European bank stocks are down 37% this year. This week we saw furious denials from leading banks that they did not have funding problems. Euribor OIS spread tells a very different story. It's up 20% in two weeks.

Troika suspends Greece Inspection visit.

VIA Dow zones newswire

ATHENS -- Talks between Greece and a visiting troika of international inspectors were suspended Friday amid a dispute over the country's ability to meet its deficit targets, raising fresh doubts over Greece's continued access to bailout funds.

The talks, which began earlier this week, were previously expected to conclude by Sept. 5, but were suspended after a meeting between the inspectors and Greek finance ministry officials ended abruptly early Friday morning.

At stake is whether Greece will have to take additional fiscal measures this year to secure the next, EUR8 billion disbursement of official aid, as promised under a EUR110 billion bailout the country received last year from its eurozone partners and the International Monetary Fund.

According to a Greek government official, the delegation of inspectors--from the IMF, the European Union, and the European Central Bank--is now expected to return in about 10 days after the Greek government has prepared a draft outline of its 2012 budget.

"They will come back in 10 days when we have a draft of the 2012 budget ready," the official said, adding that there had been differences in opinion over how Greece would address a yawning budget gap that is wider than expected.

"When they return, they will take a look at the draft budget and we'll see how we can resolve the issue," the official said.

Greek Finance Minister Evangelos Venizelos has called a press conference at 0900 GMT, where he is expected to address the current state of the talks. Troika officials could not be immediately reached for comment.

At issue were diverging views over Greece's economic outlook this year and next, and whether the government would have to take additional measures to meet its deficit targets in 2011 and 2012.

Greece's government now says the economy will shrink between 4.5% and 5.3% this year, against a previously forecast 3.9% contraction, and blame the deeper-than-expected recession on the country's inability to meet its 2011 targets.

Government officials say this year's budget deficit could be around 8.1% to 8.3% gross domestic product--compared with an official 7.6% target--although they do not rule out an even worse outcome for the budget gap.

According to officials, the troika says the deficit will reach 8.8% this year and is asking Greece to take additional spending cuts to meet its targets. But Greece's finance minister, Evangelos Venizelos, has publicly stated that no further measures will be necessary if a package of austerity programs passed by the Greek parliament in June are fully implemented.

"The Greek side insisted the missed targets are the result of the recession. The troika said recession played a part, but Greece basically didn't keep up with its commitments so more measures will be needed to make up for the lost ground," said a person with direct knowledge of the talks.

"There is a clear disagreement that can't be bridged today," the person added. "The troika told Venizelos that they will leave Athens late yesterday. We have a clear disagreement on what caused the latest slip-up and what should be done about it."

News that the talks had been suspended sent Athens shares sharply lower with the stock exchange general index falling 3.6% to 895.28--below the psychologically important 900 point level--and with banking stocks tumbling 6.5% on average.

The extra yield demanded by investors to buy Greek bonds also climbed higher with the 10-year yield spread between Greek and German bonds widening by ten basis points to 1544 basis points.

Analyst said that the talks reflect a diverging agenda between the Greek government and the troika.

"The troika is clearly dissatisfied with the implementation of economic policy by Greece," said Anthony Livanios, an independent political analyst.

"On the other hand, the Greek government wants to show that it is pushing troika in order to satisfy demands from labour unions and other pressure groups. Both sides have strong reasons for a break in talks to take place." 

Senseless investment by Qatar Investment authority.

Averaging down on a trade is the only sure way we know to head into eventual trading bankruptcy for there is simply no telling how far  a bad trade can go once it begins to move against you.Ask the folks who bought Enron at $40/share when it was down 60% from its high and appeared "cheap" because of that weakness? They averaged down and watched as Enron's shares made there way to bankruptcy,carrying many of them along with it.Or how about Northern telecom which was once the largest capitalised company on the Toronto stock exchange?Ask those who bought it at $50/share,half way down its run toward $1 share . Or, in the other,bearish, direction, ask those who sold cotton at $1.00/lb,which was historically higher and which appeared expensive and worthy of shorting, as it made its way eventually to $2.15/lb. Or how about spring wheat back in the first half of ’08 when it rose from $5/bushel to $10 and seemed uncommonly expensive and historically unprecedented… as it made its way eventually to$25/bushel before topping out. Averaging down on long positions and/or averaging up on shorts is trading’s correlative to a carcinogen: it kills… sometimes swiftly;sometimes slowly but always, always painfully.                                                                          

 We bring this up in light of the decision by the Qatar Investment Authority’s decision to average down into its horrific previous purchases of Greek banking shares. The QIA made news over the weekend with its decision to inject capital into two Greek banks… Alpha Bank and Euro bank… Greece’s 2nd and 3rd largest banks respectively… and that news lit up the Greek stock market, sending it 10% higher on the day as euphoria broke out on all fronts. But wait a minute; read a bit farther into the press releases and you’ll find that the QIA was a large owner of Alpha Bank previously and its shares are down… and you are a holder of Alpha Bank you know this all too well.. 90% thus far this year alone! The QIA is averaging down big time into the Greek banking system and perhaps this time it shall work. Perhaps this time averaging down will get back all or some of the QIA’s lostmoney, but we have our doubts.We have our doubts because money is leaving Greece by the droves. The “doctors, dentists, accountants and engineer” who are the backbone of any major, first world nation, are taking their demand deposits and time deposits from their long standing Greek banks and moving the money abroad. Any rational person would, and yet into this the QIA is buying… averaging down, remember… by sending €500 million to Alpha bank to buy convertible bonds issued by the bank. If we had to guess, six months or a year from now, that €500 million will be worth next to nothing, and the QIA’s common equity investment will be worth exactly that: nothing.

source:http://terencereilly.wordpress.com/

          bloomberg,reuters