Nov
12
If we have to go by the track records of bailouts of EU countries in this crisis then Italy is knocking on the doors. Italian 10Yr. bond spread against German Bonds is at record level and above these levels countries start asking for bailout. I doubt Italy can be bailed out for long.
Permanent link to this article: http://www.wealthson.com/1752/italy-entering-a-zone-where-countries-eventually-ask-for-bailout
Nov
12
Government bond yields of a country tell lot about the confidence of investors in the economy of that country. Here is a graph to show how investors rank the European Union countries. It may also be an indication of the order in which the countries might default. No matter how hard the political will be, European debt crisis will eventually meet with defaults and investors know this thing very well now. Bond yield of more than 200% now on Greek debt is enough to tell the whole story and if someone out there disagrees with me then I may like to ask him that why is he not buying Greek Bonds ? He can more than triple his money!
Permanent link to this article: http://www.wealthson.com/1745/european-union-countries-and-their-government-bond-yields
Nov
11
As the attention shifts from Greece to Italy, next in lineup is France and its AAA rating. Mainstream media as already started bringing up France’s problems. S&P’s mistaken downgrade of France can’t just be a mistake, something was cooking in there. May be S&P was ready to surprise the markets again, not in this way though, and the news somehow came out in weirdest way. Well, the unintentional surprise sent jitters into the markets for sometime before S&P came up with an apology note. Now it would be interesting to see how markets react to S&P’s next downgrade as investors would look to check if it is real or mistaken update. Whatever it may be, the France mistaken downgrade showed how much afraid the markets are and how much reactive it could be if it actually happens.
Mainstream media has caught the French connection to future problems. Here are the extracts of some articles:
San Francisco Chronicle: France Plans EU7 Billion in Taxes, Cuts to Save AAA Rating
France unveiled tax increases and spending cuts amounting to 7 billion euros ($9.6 billion) for next year to defend its triple-A rating as growth slows and Europe’s debt crisis deepens.
The country will increase some levies on large companies, push up the lower end of its range of value-added taxes and curb welfare spending, Prime Minister Francois Fillon said today.
"French people must roll up their sleeves," Fillon said at a press conference in Paris. "We have one goal: to protect the French people from the severe difficulties faced by some European countries."
Los Angeles Times: Eurozone debt jitters creeping into French bonds
The European debt crisis has gone from bad to worse as Italian government bond yields have soared, threatening the solvency of the Eurozone’s third-largest economy.
But things could go from worse to worst if bond yields keep rising in France, the continent’s No. 2 economy after Germany.
The French government knows it can’t afford for the bond market to turn on it. Paris announced a new round of spending cuts last week aimed at ensuring that the country holds on to its coveted AAA credit rating.
Moody’s Investors Service warned last month that it might put a negative outlook on France’s top-rung rating if Paris made too many commitments to back up its banks or other Eurozone states with tax dollars.
But France’s need to protect itself also raises doubts about its ability to extend help to Italy as Rome’s debt nightmare worsens.
French Government Bond Yields are spiking high with every negative news. Situation may get worst from hereon as Italian yields continue to hover in dander zone. French banks stock prices are on roller coaster ride with every news related to European Debt Crisis, yet the down trend is more evident.
Good Luck, France
Permanent link to this article: http://www.wealthson.com/1742/welcome-to-the-core-france-is-jittery-and-media-knows-it
Oct
31
Funny picture..
Permanent link to this article: http://www.wealthson.com/1739/what-happened-last-week-at-eu-barber-shop
Oct
23
It seems finding a feasible solution to Greek crisis may not be possible for the European leaders as they have had 9 meetings in past 5 days and still no one have come up confidently and said that they will find the fix to the Greek Debt. It seems that there are conflicts at every meetings while leaders try to solve complex mathematics of Greece’s finance.
Here is the list of meetings that have gone through in past few days:
This excludes some pretty major conferences, such as the impromptu pow-wow for Jean-Claude Trichet’s retirement in Frankfurt last Wednesday, and a bilateral summit between Angela Merkel and Nicolas Sarkozy on Saturday.
Permanent link to this article: http://www.wealthson.com/1736/european-leaders-are-struggling-to-find-a-solution
Oct
21
Currency markets just saw slide of DOLLAR/YEN to lowest level since World war II. Reasons of the fall are still not clear but I see it is because of expectations of QE3/QE4 (as you may conceive it) which lead to breaking of technical support levels. This lead to Dollar/Yen dive below 75.80 level, never seen since WW2.
Here is the chart:
Well time for BOJ to intervene. Japanese exports are already suffering from Yen’s gains in past months. BOJ has said government would intervene soon.
Permanent link to this article: http://www.wealthson.com/1733/dollar-dumped-dollaryen-falls-most-post-world-war-ii-level
Oct
15
UBS’ Stephane Deo comes up with amazing analysis where he says that 50% hair cut being proposed by Euro leaders wont work and it would effectively amount to just 22% hair cut. According to Deo, Greece would need 100% hair cut which would then be effectively equal to 50%.
Here is how he proves his point:
Why a 50% haircut does not work at the time of writing, Greece has total debts of €346.4bn. About a third of this debt is in public hands (34.8% is attributable to the IMF, ECB and European governments), roughly another third is in Greek hands (28.8%, essentially for banks) with the remainder (36.4%) held by non-Greek private investors.
The problem with the above is that some of the debt cannot be included in a haircut. This is almost certainly true in the case of the IMF debt. It has been suggested that the IMF debt could actually be included in the restructuring, but this would be unprecedented and we attach a very low probability to such a decision. Similarly, the bilateral loans are de jure pari passu, but we think it is nevertheless difficult to envisage a haircut on that part of the debt.
More debatable is the ECB case: the ECB has not been party to public-sector involvement (PSI), as it was a “voluntary” exercise and the ECB did not volunteer. However, in the case of a coercive default, it would be legally difficult for the ECB not to participate. Hence, in Chart 6 below, we provide two simulations: one with ECB participation and the other without ECB participation. In the case of ECB participation, if we assume the ECB holds €55bn in Greek bonds, and has purchased these bonds at an average of around €¢70, it would mean that a 50% haircut would leave the ECB with a loss of about €11bn.
Last, while the Greek banks would naturally be subjected to any haircut, the difficulty is that they are undercapitalized. According to our equity analysts, Greek banks currently have a core tier 1 ratio of around 8% (Marfin Popular Bank – 8.6%, National Bank of Greece – 8.5%, Alpha Bank – 8%, EFG Eurobank Ergasias – 6.4% and Piraeus Bank – 7.2%). This means that any haircut affecting their debt portfolio would push their capital lower and trigger the need for a recapitalization. Consequently, every euro saved by the government on its debt via the haircut would be injected into the Greek banks. This is equivalent to having the Greek debt in Greek banks excluded from the haircut.
Hence, Greece would need a hair cut of complete 100% for actual reduction of 50% of debt. I doubt leaders would be even thinking of 100% hair cut but if we want to get out of the Greek Debt problem then it might be needed.
Permanent link to this article: http://www.wealthson.com/1721/why-greece-needs-a-100-hair-cut
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Name: Hitesh
