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Fat Tuesday & Greece News: Drink Heavily
By: Kenneth Polcari, Expert Contributor
So did they or didn’t they? Headlines say they did...that they "inched" their way, “haggled" their way to another temporary solution at best. Consensus seems to be that this “remedy” is far from a solution.
Massive austerity commitment, Draconian measures, Oppressive conditions, Brutal reality, imminent bankruptcy are all adjectives to describe an ever worsening Greek and Euro zone crisis situation. Economists around the globe agree that “they have just kicked the can down the road” yet again -leaving Greece and the Euro zone contemplating an even deeper crisis down the road – if that is possible.
On Friday we heard of the ECB swapping out old bonds for “new ones” so that they do not get caught up in the use of Collective Action Clauses (CAC) – which will surely be put to the private creditors.
Just for clarity – CAC’s are provisions specifying that a super majority of bondholders can change the terms of a bond – they introduce flexibility in situations of financial crisis by forcing renegotiation – in its absence – bondholders have no incentive to come to the table. Thus, if they (the ECB) own 100% of the new bonds - that clearly represents a super majority - and then they can change the terms of the Greek bonds avoiding a loss to themselves and imposing a loss on the private creditors.
The rules are changing on an hour by hour basis, and what we thought we knew we now realize that we don’t. I am sure that there are many homeowners in the states that would be happy to impose CAC’s on their banks! This is better than the movies!
So what becomes of a possible credit event triggering the CDS’s that exist on all of this debt? Well – Scene 1 - you can have all of the bondholders agree to the new terms which means that no credit event happens (unlikely - though it seems that this is the result being reported), or you can have Scene 2 - some holdouts which force the Greeks to hit them with a collective action clause and BOOM – you just triggered a credit event – (more likely).
But then watch for the spin…here it comes…
They will turn this into something other than a “default” – praising themselves for a job well done; and in the end this is somehow an isolated event that only happens every 500 yrs. So not to worry…The
question remains – Is this priced into the markets?
Dow 13K did not happen yet; they gave it the "good 'ol College try" on Friday but could not pull it off overnight and early this morning futures were up some 58+ pts - just tickling the number only to back off as European mkts digested the news of the Greek deal.
The deal includes a haircut of 53% for private bondholders forces the ECB to forego any profits on their Greek bond holdings. The top secret Greek sustainability study done by the ECB and IMF though reveals a more dire situation, in fact a "nightmare" scenario - noting that Greece will need another bailout package soon after this money runs out.
"Austerity measures being imposed on Athen's risks a recession so deep that Greece will not be able to climb out of the debt hole..." The question remains: Will (Can) the Greek gov’t stick to the plan after the April elections? We should all hope that by this time – the Euro zone will have put into place stronger firewalls that will withstand the coming implosion…and the saga continues.
European mkts were higher initially and have now sold off - nothing too dramatic yet but all mkts are in the red as the deal continues to be dissected. Christine LaGarde trying desperately to "put on a happy face" seems to be sending a dual message - one of words and one of body language - and the message is NOT the same: FTSE - 0.3%, CAC 40 - 0.7%, DAX - 0.67% and Eurostoxx Index - 0.75%.
Friday – stocks ended a bit higher – as traders expressed some sense of caution going into the long weekend. The Fed keeps pumping money into the system forcing the risk trade, forcing stocks and commodities higher (food and energy).
You see – hidden in the depths of the CPI report (which was viewed as positive) was this little bit of info – the 12 month inflation rate for energy is 6.1% and for food, 4.4%. But don’t worry – inflation in food and energy are not counted in the gov’ts measure of “core inflation” so we keep paying higher prices for the basics while we are told that inflation is “under control”.
The July highs in the S&P were 1356 - They are currently +2 trading at 1361. If the next move takes us up and through - then this level becomes new support – if in fact the mkt moves lower, 1356 will prove resistance. 1340 would be a first level of support - then 1325.
Expect though that there is plenty of interest in the mkt - lots of cash on the sidelines that is looking for an entry point and with the US economy, US elections and the Fed all working in concert - then the US mkts will draw capital setting us up for a muted downside and a potentially rewarding move higher.
Dow futures are now up 33 pts at 12962, all of the news stations are positioned outside the building just waiting for Dow 13k to hit.
Take good care -
KP
Here is a dish that incorporates the great tastes of Artichokes and Pancetta...this is a classic Italian dish that I first had years ago at the home of very dear friends. This is easy to make and always, always a great first dish to serve at a dinner party.
Linguine w/ Artichokes And Pancetta
For this you need: 8 Small Artichokes (use frozen but thaw first) cut Into Pieces, Olive Oil, 1 diced yellow Onion, 2 Cloves Garlic - minced, Pancetta Diced, Dry White Wine, s&p, Chopped Fresh Parsley, 1 Pound of Linguine (or spaghetti even a buccatini), splash of lemon juice and fresh grated Parmegiana.
Bring a pot of salted water to a rolling boil.
In a sauté pan, heat the oil and add the onion and pancetta. Cook over medium heat until the onion is soft and the pancetta is cooked maybe 10 minutes. Now add the garlic and cook another minute or two.
Next add the artichokes, some white wine and a squeeze of fresh lemon juice - bring to a boil.
Reduce the heat to low and cook until the artichokes are tender - maybe 10 minutes. Season with s&p. Toss in the chopped parsley and mix.
Now cook the linguine until al dente - like 8 mins or so.....drain - always reserving a mugful of the pasta water. Toss the linguine into the lg sauté pan and mix well. Keeping the heat on low. If the pasta absorbs all of the liquid - add in some of the reserved water to remoisten. Toss - add in a handful of cheese - toss again and serve immediately in warmed bowls. Have extra cheese on the table for your guests. Serve with your favorite chilled white wine.
Buon Appetito
On Friday we heard of the ECB swapping out old bonds for “new ones” so that they do not get caught up in the use of Collective Action Clauses (CAC) – which will surely be put to the private creditors.
Just for clarity – CAC’s are provisions specifying that a super majority of bondholders can change the terms of a bond – they introduce flexibility in situations of financial crisis by forcing renegotiation – in its absence – bondholders have no incentive to come to the table. Thus, if they (the ECB) own 100% of the new bonds - that clearly represents a super majority - and then they can change the terms of the Greek bonds avoiding a loss to themselves and imposing a loss on the private creditors.
The rules are changing on an hour by hour basis, and what we thought we knew we now realize that we don’t. I am sure that there are many homeowners in the states that would be happy to impose CAC’s on their banks! This is better than the movies!
So what becomes of a possible credit event triggering the CDS’s that exist on all of this debt? Well – Scene 1 - you can have all of the bondholders agree to the new terms which means that no credit event happens (unlikely - though it seems that this is the result being reported), or you can have Scene 2 - some holdouts which force the Greeks to hit them with a collective action clause and BOOM – you just triggered a credit event – (more likely).
But then watch for the spin…here it comes…
They will turn this into something other than a “default” – praising themselves for a job well done; and in the end this is somehow an isolated event that only happens every 500 yrs. So not to worry…The
Dow 13K did not happen yet; they gave it the "good 'ol College try" on Friday but could not pull it off overnight and early this morning futures were up some 58+ pts - just tickling the number only to back off as European mkts digested the news of the Greek deal.
The deal includes a haircut of 53% for private bondholders forces the ECB to forego any profits on their Greek bond holdings. The top secret Greek sustainability study done by the ECB and IMF though reveals a more dire situation, in fact a "nightmare" scenario - noting that Greece will need another bailout package soon after this money runs out.
"Austerity measures being imposed on Athen's risks a recession so deep that Greece will not be able to climb out of the debt hole..." The question remains: Will (Can) the Greek gov’t stick to the plan after the April elections? We should all hope that by this time – the Euro zone will have put into place stronger firewalls that will withstand the coming implosion…and the saga continues.
European mkts were higher initially and have now sold off - nothing too dramatic yet but all mkts are in the red as the deal continues to be dissected. Christine LaGarde trying desperately to "put on a happy face" seems to be sending a dual message - one of words and one of body language - and the message is NOT the same: FTSE - 0.3%, CAC 40 - 0.7%, DAX - 0.67% and Eurostoxx Index - 0.75%.
Friday – stocks ended a bit higher – as traders expressed some sense of caution going into the long weekend. The Fed keeps pumping money into the system forcing the risk trade, forcing stocks and commodities higher (food and energy).
You see – hidden in the depths of the CPI report (which was viewed as positive) was this little bit of info – the 12 month inflation rate for energy is 6.1% and for food, 4.4%. But don’t worry – inflation in food and energy are not counted in the gov’ts measure of “core inflation” so we keep paying higher prices for the basics while we are told that inflation is “under control”.
The July highs in the S&P were 1356 - They are currently +2 trading at 1361. If the next move takes us up and through - then this level becomes new support – if in fact the mkt moves lower, 1356 will prove resistance. 1340 would be a first level of support - then 1325.
Expect though that there is plenty of interest in the mkt - lots of cash on the sidelines that is looking for an entry point and with the US economy, US elections and the Fed all working in concert - then the US mkts will draw capital setting us up for a muted downside and a potentially rewarding move higher.
Dow futures are now up 33 pts at 12962, all of the news stations are positioned outside the building just waiting for Dow 13k to hit.
Take good care -
KP
Linguine w/ Artichokes And Pancetta
For this you need: 8 Small Artichokes (use frozen but thaw first) cut Into Pieces, Olive Oil, 1 diced yellow Onion, 2 Cloves Garlic - minced, Pancetta Diced, Dry White Wine, s&p, Chopped Fresh Parsley, 1 Pound of Linguine (or spaghetti even a buccatini), splash of lemon juice and fresh grated Parmegiana.
Bring a pot of salted water to a rolling boil.
In a sauté pan, heat the oil and add the onion and pancetta. Cook over medium heat until the onion is soft and the pancetta is cooked maybe 10 minutes. Now add the garlic and cook another minute or two.
Next add the artichokes, some white wine and a squeeze of fresh lemon juice - bring to a boil.
Reduce the heat to low and cook until the artichokes are tender - maybe 10 minutes. Season with s&p. Toss in the chopped parsley and mix.
Now cook the linguine until al dente - like 8 mins or so.....drain - always reserving a mugful of the pasta water. Toss the linguine into the lg sauté pan and mix well. Keeping the heat on low. If the pasta absorbs all of the liquid - add in some of the reserved water to remoisten. Toss - add in a handful of cheese - toss again and serve immediately in warmed bowls. Have extra cheese on the table for your guests. Serve with your favorite chilled white wine.
Buon Appetito
