As you read this feel free to replace the word 'Greece' with 'America' and '2009/2010' with '2022-2025'. If not for the fact the US still enjoys its role as the world's reserve currency, and has a central banker who has no qualms in throwing the savers of the nation under the bus to keep the mirage going, I would not be talking 2020s. The US is playing the highest form of poker... but on current course, it only appears when, not if we're called out. [Nov 23, 2009 - NYT: Wave of Debt Payments Facing US Government] Think it's impossible? Tell me what you thought was impossible around April 2007.
- Greece is disturbingly close to a debt compound spiral. It is the first developed country on either side of the Atlantic to push unfunded welfare largesse to the limits of market tolerance. Euro membership blocks every plausible way out of the crisis, other than EU beggary.
- When the European Central Bank's Jean-Claude Trichet said last week that certain sinners on the edges of the eurozone were "very close to losing their credibility", everybody knew he meant Greece.
- The interest spread between 10-year Greek bonds and German bunds has jumped to 178 basis points. (it's jumped yet again, just since the article was published on the 22nd) Greek debt has decoupled from Italian debt. Athens can no longer hide behind others in EMU's soft South.
- "As far as the bond vigilantes are concerned, the Bat-Signal is up for Greece," said Francesco Garzarelli in a Goldman Sachs client note, Tremors at the EMU Periphery.
- The newly-elected Hellenic Socialists (PASOK) of George Papandreou confess that the budget deficit will be more than 12pc of GDP this year, four times the original claim of the last lot. (the United States of Debtors is now up to 13% of GDP due to "emergency measures to *save* the economy"... hmm, about 4x the normal range, imagine that) After campaigning on extra spending, it will have to do the exact opposite. "We need to save the country from bankruptcy," he said. (So the Keynesian theory no longer can work in Greece, even as it is "saving" the US)
- Mr Papandreou has mooted a pay freeze for state workers earning more than €2,000 a month. This has already set off an internal party revolt. "There is enormous denial," said Lars Christensen, emerging markets chief at Danske Bank. "They don't seem to understand that very serious austerity measures are needed." he said.
- Brussels says Greece's public debt will rise from 99pc of GDP in 2008 to 135pc by 2011, without drastic cuts. (US fast approaching 100% WITHOUT taking into account unfunded liabilities of Medicare and Social Security, at current pace just the budget deficit should be 200% of GDP by the end of the 2010s... again, putting our head in the sand regarding he unfunded liabilites which DWARF the budget deficit)
- Modern economies have reached such debt levels before, and survived, but never in the circumstances facing Greece. "They can't devalue: they can't print money," said Mr Christensen. ("thankfully" we Americans can reduce the standard of living for our citizens by this action - all hail Ben)
- Greece has long been skating on thin ice. The current account deficit hit 14.5pc of GDP in 2008. External debt has reached 144p (IMF). Eurozone creditors – German banks? – hold €200bn of Greek debt.
Key point below... by being inside the Euro Union, Greece was able to borrow far below where it should. Instead of taking advantage of that, and paying off debt or realigning the economy, it squandered it by doing even more fiscally irresponsible behavior. Sound familiar? Just switch the phrase "by being inside the Euro Union" with "by having the world's reserve currency"....
- Athens squandered its euro windfall. For a decade, EMU let Greece borrow at almost the same cost as Germany. It was a heaven-sent chance to whittle down debt. Instead, the country dug itself deeper into a hole by running budget deficits near 5pc of GDP at the top of the boom.
Snap. Crackle. Pop.
- Austerity may prove self-defeating, without the cure of devaluation. Greece risks grinding deeper into slump.
- .... the danger for EMU laggards is that the ECB will begin to tighten before they are out of trouble. It is German recovery that threatens to stretch the North-South divide towards breaking point.
- The EU can paper over this by transfering large sums of money to Greece. (works in America) But will Berlin, Paris – and London, also on the hook – feel obliged to bail out a country that has so flagrantly violated the rules of the club, not least by holding Eastern Europe's EU entry to ransom over Cyprus? That is neither forgotten, nor forgiven.
- During the panic last February, German finance minister Peer Steinbruck promised to rescue any eurozone state in dire trouble. He is no longer in office. The pledge was, in any case, a bounced political cheque even when he wrote it. Greece can assume nothing.
Mark's equity focus is identifying secular growth trends, and the companies most likely to benefit from these macro trends. Stocks are identified through fundamental analysis, although basic technical analysis is used in determining entry and exit points.
With a degree in Economics from the University of Michigan, a broader understanding of the economy as a whole, along with interpreting investor psychology is also a major interest for Mark. His career background has focused on financial analysis in corporate America. Visit Mark's website at http://www.fundmymutualfund.com/
With a degree in Economics from the University of Michigan, a broader understanding of the economy as a whole, along with interpreting investor psychology is also a major interest for Mark. His career background has focused on financial analysis in corporate America. Visit Mark's website at http://www.fundmymutualfund.com/
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1. Robert Sprinkel says on Nov 29, 2009 at 3:12 AM:
Read and then re-read and then re-read this article. This is the United States in a few years. It's not too late to prepare yourself, but it will be very soon. Act now.
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2. Jgarbon says on Nov 29, 2009 at 10:47 AM:
Many of your comments are unfounded and untrue. You copied and pasted an article that has many factual errors. Why don't you check your posts before you post them??? But wait, that would actually require you to do some work....
1) Greece has never "held Eastern Europe's EU entry to ransom over Cyprus." You probably mean Turkey here, last time I checked a map Turkey was not in Eastern Europe. The Turks don't even consider themselves Eastern European. Can you find Turkey on a map? Maybe Google can help you with this. If anything Greece has been a strong supporter of Turkey's EU entry, other countries such as France and Austria have been opposed. Greece has also strongly supported Eastern Europe's EU expansion by entry supporting Romania and Bulgaria's entry among other Eastern countries. 2) How in the world are you comparing Greece to the U.S.? Just because both countries have large amounts of debt doesn't make them the same. Both countries are 100% different and have vastly different capital markets, GDP drivers, corporate demographics, etc..etc..
3) Nice quote by Lars Christensen, of course I can't find the entire quote except what was published by The Telegraph. Why not post Lars' entire speech? Oh wait, that may show his quote is taken out of context....
4) English papers have always had a certain negative slant against Greek papers over the Cyprus issue. Remember who use to "own" Cyprus? The UK.
5) You quoted Lars Christensen from DB, why not quote someone else? Or are you too lazy to do work on this besides copy over a UK article? Here, let me take 5 minutes and do it for you:
Morgan Stanley Research EuropeNovember 27, 2009
Bottom line: In our view, Greece will not default, nor will it come close to default. In the short term, however, pressure on Greek assets may persist until the government produces a credible fiscal consolidation plan.
CitigroupNovember 26, 2009Greek Market – Today’s Underperformance
Greece today fell 2.3% (down c4% at some stage) and c18% since October’s high. It has decoupled from the European markets and banks (-3%). The Greek 10-year bond spread rose from 140bp to 179bp this month – still well below the 300bp in early 2009, with significant pick-up in volumes...We are surprised by such concerns. The ECB in Oct 2008 lowered the requirement for collateral from A to BBB- (with haircut or BBB without a haircut). This now suggests that it will need a significant 4-notch downgrade by S&P / Fitch (Greece now at A-, there is BBB+, BBB, BBB-) and a 6-notch by Moodys (now at A1, then A2, A3, Baa1, Baa2, Baa3) before the collateral cannot be used. Such extreme, and in our view, unlikely events could have bigger issues for Greece’s ability to borrow and not just the banks.Despite the high macro risk we struggle to see how Greece will be allowed to fail in an EU/EMU context.
1) Greece has never "held Eastern Europe's EU entry to ransom over Cyprus." You probably mean Turkey here, last time I checked a map Turkey was not in Eastern Europe. The Turks don't even consider themselves Eastern European. Can you find Turkey on a map? Maybe Google can help you with this. If anything Greece has been a strong supporter of Turkey's EU entry, other countries such as France and Austria have been opposed. Greece has also strongly supported Eastern Europe's EU expansion by entry supporting Romania and Bulgaria's entry among other Eastern countries. 2) How in the world are you comparing Greece to the U.S.? Just because both countries have large amounts of debt doesn't make them the same. Both countries are 100% different and have vastly different capital markets, GDP drivers, corporate demographics, etc..etc..
3) Nice quote by Lars Christensen, of course I can't find the entire quote except what was published by The Telegraph. Why not post Lars' entire speech? Oh wait, that may show his quote is taken out of context....
4) English papers have always had a certain negative slant against Greek papers over the Cyprus issue. Remember who use to "own" Cyprus? The UK.
5) You quoted Lars Christensen from DB, why not quote someone else? Or are you too lazy to do work on this besides copy over a UK article? Here, let me take 5 minutes and do it for you:
Morgan Stanley Research EuropeNovember 27, 2009
Bottom line: In our view, Greece will not default, nor will it come close to default. In the short term, however, pressure on Greek assets may persist until the government produces a credible fiscal consolidation plan.
CitigroupNovember 26, 2009Greek Market – Today’s Underperformance
Greece today fell 2.3% (down c4% at some stage) and c18% since October’s high. It has decoupled from the European markets and banks (-3%). The Greek 10-year bond spread rose from 140bp to 179bp this month – still well below the 300bp in early 2009, with significant pick-up in volumes...We are surprised by such concerns. The ECB in Oct 2008 lowered the requirement for collateral from A to BBB- (with haircut or BBB without a haircut). This now suggests that it will need a significant 4-notch downgrade by S&P / Fitch (Greece now at A-, there is BBB+, BBB, BBB-) and a 6-notch by Moodys (now at A1, then A2, A3, Baa1, Baa2, Baa3) before the collateral cannot be used. Such extreme, and in our view, unlikely events could have bigger issues for Greece’s ability to borrow and not just the banks.Despite the high macro risk we struggle to see how Greece will be allowed to fail in an EU/EMU context.
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3. Jgarbon says on Nov 29, 2009 at 10:48 AM:
Many of your comments are unfounded and untrue. You copied and pasted an article that has many factual errors. Why don't you check your posts before you post them??? But wait, that would actually require you to do some work....
1) Greece has never "held Eastern Europe's EU entry to ransom over Cyprus." You probably mean Turkey here, last time I checked a map Turkey was not in Eastern Europe. The Turks don't even consider themselves Eastern European. Can you find Turkey on a map? Maybe Google can help you with this. If anything Greece has been a strong supporter of Turkey's EU entry, other countries such as France and Austria have been opposed. Greece has also strongly supported Eastern Europe's EU expansion by entry supporting Romania and Bulgaria's entry among other Eastern countries.
2) How in the world are you comparing Greece to the U.S.? Just because both countries have large amounts of debt doesn't make them the same. Both countries are 100% different and have vastly different capital markets, GDP drivers, corporate demographics, etc..etc..
3) Nice quote by Lars Christensen, of course I can't find the entire quote except what was published by The Telegraph. Why not post Lars' entire speech? Oh wait, that may show his quote is taken out of context....
4) English papers have always had a certain negative slant against Greek papers over the Cyprus issue. Remember who use to "own" Cyprus? The UK.
5) You quoted Lars Christensen from DB, why not quote someone else? Or are you too lazy to do work on this besides copy over a UK article? Here, let me take 5 minutes and do it for you:
Morgan Stanley Research EuropeNovember 27, 2009
Bottom line: In our view, Greece will not default, nor will it come close to default. In the short term, however, pressure on Greek assets may persist until the government produces a credible fiscal consolidation plan.
CitigroupNovember 26, 2009Greek Market – Today’s Underperformance
Greece today fell 2.3% (down c4% at some stage) and c18% since October’s high. It has decoupled from the European markets and banks (-3%). The Greek 10-year bond spread rose from 140bp to 179bp this month – still well below the 300bp in early 2009, with significant pick-up in volumes...We are surprised by such concerns. The ECB in Oct 2008 lowered the requirement for collateral from A to BBB- (with haircut or BBB without a haircut). This now suggests that it will need a significant 4-notch downgrade by S&P / Fitch (Greece now at A-, there is BBB+, BBB, BBB-) and a 6-notch by Moodys (now at A1, then A2, A3, Baa1, Baa2, Baa3) before the collateral cannot be used. Such extreme, and in our view, unlikely events could have bigger issues for Greece’s ability to borrow and not just the banks.Despite the high macro risk we struggle to see how Greece will be allowed to fail in an EU/EMU context.
1) Greece has never "held Eastern Europe's EU entry to ransom over Cyprus." You probably mean Turkey here, last time I checked a map Turkey was not in Eastern Europe. The Turks don't even consider themselves Eastern European. Can you find Turkey on a map? Maybe Google can help you with this. If anything Greece has been a strong supporter of Turkey's EU entry, other countries such as France and Austria have been opposed. Greece has also strongly supported Eastern Europe's EU expansion by entry supporting Romania and Bulgaria's entry among other Eastern countries.
2) How in the world are you comparing Greece to the U.S.? Just because both countries have large amounts of debt doesn't make them the same. Both countries are 100% different and have vastly different capital markets, GDP drivers, corporate demographics, etc..etc..
3) Nice quote by Lars Christensen, of course I can't find the entire quote except what was published by The Telegraph. Why not post Lars' entire speech? Oh wait, that may show his quote is taken out of context....
4) English papers have always had a certain negative slant against Greek papers over the Cyprus issue. Remember who use to "own" Cyprus? The UK.
5) You quoted Lars Christensen from DB, why not quote someone else? Or are you too lazy to do work on this besides copy over a UK article? Here, let me take 5 minutes and do it for you:
Morgan Stanley Research EuropeNovember 27, 2009
Bottom line: In our view, Greece will not default, nor will it come close to default. In the short term, however, pressure on Greek assets may persist until the government produces a credible fiscal consolidation plan.
CitigroupNovember 26, 2009Greek Market – Today’s Underperformance
Greece today fell 2.3% (down c4% at some stage) and c18% since October’s high. It has decoupled from the European markets and banks (-3%). The Greek 10-year bond spread rose from 140bp to 179bp this month – still well below the 300bp in early 2009, with significant pick-up in volumes...We are surprised by such concerns. The ECB in Oct 2008 lowered the requirement for collateral from A to BBB- (with haircut or BBB without a haircut). This now suggests that it will need a significant 4-notch downgrade by S&P / Fitch (Greece now at A-, there is BBB+, BBB, BBB-) and a 6-notch by Moodys (now at A1, then A2, A3, Baa1, Baa2, Baa3) before the collateral cannot be used. Such extreme, and in our view, unlikely events could have bigger issues for Greece’s ability to borrow and not just the banks.Despite the high macro risk we struggle to see how Greece will be allowed to fail in an EU/EMU context.
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