Over a few postings I have written about Greece. The most recent development is that the euro countries promise to support Greece when no other option remains. Furthermore, the descision to support Greece has to unanimous. No amounts have been presented, again only abstract promises. The famous line from the movie Jerry Maguire comes to mind, "Show me the money". Until the cash dedicated to Greece's rescue has put on the table, any promise is not for real, or just another round of bazooka waving. The problem is that every time a useless agreement like this is made regarding Greece, the EU's confidence is deteriorating bit by bit and the market will eventually see the bazooka for what it really is, a pea-shooter.
So what if Greece is saved? It is of little concern since within the euro zone the PIIGS remain, and within the EU also the UK is loaded with debt at an alarming rate. Maybe the agreement will really hold for Greece, but the EU will not be able to bail out every country in the EU that needs an bailout.
The above is especially interesting since over the last week, the US sovereign bonds crashed. It may or may not be realted to the bond auctions taking place, or the health care bill that was passed, but the fact of the matter is that, since inflation still is non-existing, risk in sovereign debt is picking up significantly. When risk increases, so does interest rates, and with increased interest rates, financing costs for almost everyone increases too. To me the only unknown is for how long central banks will be able to keep short term interest rates at the present low levels. This is key since short term borrowing is financing ever more of the debt and if and when short term interest rates starts to rise, many borrowers ranging from home owners to countries will find that they have no place to go, but into default.
When monoliners such as MBIA and Ambac went bankrupt it was said that a company whose core business idea was to have a high rating is bound to go under. Something similar can be said about governments and low interest rates: When the only way to survive is to keep interest rates low, then you will soon find that lenders require a higher compensation for the increased risk in the form of higher interest rates. Eventually you find yourself between a rock and a hard place. All that debt, you should have avoided it in the first place.
March 29, 2010
March 09, 2010
The market is a forceful master
As Sweden learned two decades ago the market is a forceful master. It then first forced interest rates up to 500% and later it forced Sweden to abandon its currency peg. However Sweden learned from its mistakes and is now in pretty good shape, at least for the moment. This is confirmed by the CDS prices on Swedish sovereign debt which are about the same as the US at slightly under a 3% cumulative probability of default over the next 5 years. As a reference, Norway is in the lead with 1.36% and Argentina is found in the other end at 49%. Greece is in the 9th worst position at 21%.
With respect to Greece there have been quite a bit of a blame game as to why the debt has arisen in the first place. According to Greek ministers anyone but themselves are to be blamed and the list ranges from since 65 years extinct Nazi Germany to present day “unprincipled speculators” according to Bloomberg. The Greek prime minister also stated that “Europe and America must say ‘enough is enough’ to those speculators who only place value on immediate returns, with utter disregard for the consequences on the larger economic system.” and by doing that he clearly shows his disrespect and ignorance for the market. In fact, specuators are extrememly principled. The only principle they follow is the opportunity to make money, they do not create the opportunity themselves. Another way of regarding an opportunity is as an inbalance in the market. In the long run the inblanaces will disappear one way or the other, speculators force the inbalances to be taken care of sooner rather than later, in fact as soon as they are discovered and of sufficient magnitude. Were it not for speculators, Greece would continue running its larger and larger deficits for as long as it could. Only fraud made it possible for Greece to continue for as long as they did. Still they blame others for the situation they find themselves in. Political rationale at its finest!
So why is Greece's problems of such an interest to Swedish Waves? Well, for one, it is the canary in the coal mine in the sovereign debt spiral that will soon start unwinding. Where Greece is now, others will follow. Second, it is a real test of the Euro as a reserve currency. Unfortunately the track record of Europe's politicians honouring agreements, principles and discipline is not overwhelming. One pillar of the euro co-operation is the 3% budget deficit requirement. Greece is not the first country to break it. France and Germany already have, along with several others, and it started immideately from the euro's inception.
European leaders now have a choice to make. Save Greece (for now at least) but at the same time let the world know that austerity, honesty and discipline is not the European way of politics. As I said earlier, Greece will soon be followed by the remaining PIGS, and Europe will not be able to deal with all of then without sacrificing the worth of the euro. The alternative to bailig out Greece is to let it default on its debt. In that case Greece would suffer a depression over a couple of years but afterwards it would think twice before cooking its books again. But it would also send a clear message to all speculators out there that the euro represents trust, and trust is the one thing a fiat currency cannot live without.
With respect to Greece there have been quite a bit of a blame game as to why the debt has arisen in the first place. According to Greek ministers anyone but themselves are to be blamed and the list ranges from since 65 years extinct Nazi Germany to present day “unprincipled speculators” according to Bloomberg. The Greek prime minister also stated that “Europe and America must say ‘enough is enough’ to those speculators who only place value on immediate returns, with utter disregard for the consequences on the larger economic system.” and by doing that he clearly shows his disrespect and ignorance for the market. In fact, specuators are extrememly principled. The only principle they follow is the opportunity to make money, they do not create the opportunity themselves. Another way of regarding an opportunity is as an inbalance in the market. In the long run the inblanaces will disappear one way or the other, speculators force the inbalances to be taken care of sooner rather than later, in fact as soon as they are discovered and of sufficient magnitude. Were it not for speculators, Greece would continue running its larger and larger deficits for as long as it could. Only fraud made it possible for Greece to continue for as long as they did. Still they blame others for the situation they find themselves in. Political rationale at its finest!
So why is Greece's problems of such an interest to Swedish Waves? Well, for one, it is the canary in the coal mine in the sovereign debt spiral that will soon start unwinding. Where Greece is now, others will follow. Second, it is a real test of the Euro as a reserve currency. Unfortunately the track record of Europe's politicians honouring agreements, principles and discipline is not overwhelming. One pillar of the euro co-operation is the 3% budget deficit requirement. Greece is not the first country to break it. France and Germany already have, along with several others, and it started immideately from the euro's inception.
European leaders now have a choice to make. Save Greece (for now at least) but at the same time let the world know that austerity, honesty and discipline is not the European way of politics. As I said earlier, Greece will soon be followed by the remaining PIGS, and Europe will not be able to deal with all of then without sacrificing the worth of the euro. The alternative to bailig out Greece is to let it default on its debt. In that case Greece would suffer a depression over a couple of years but afterwards it would think twice before cooking its books again. But it would also send a clear message to all speculators out there that the euro represents trust, and trust is the one thing a fiat currency cannot live without.
March 02, 2010
Make or break Primary 3 onset
I have assumed that Primary wave 3 began the 11th of January. This assumption is now put to trial considering that corrective Minor wave 2 is approaching 100% retracement of Minor wave 1. Right now it presents a perfect 76,4% retrace which, from a Fibonacci perspective which the final obstacle to a full retrace. Below is one possible count from the assumed Primary wave 2 end, but regarding Minor wave 2 there are several open possibilities.
There are some interesting aspects of the presented plot. First, there is the distinct possibility that the Minor wave C is terminated by a Minuette ending diagonal (yellow lines in the plot). This is one of the best patterns for identifying a reversal. Second, the possible ending diagonal is supported by a decreasing volume (violet line in the Volume segment) during the all of Minuette wave 5 which must be interpreted as weakness in the present advance. Ending diagonals end in a bang meaning that what should be expected is a swift reversal of the uptrend down to its onset which in this case is at 1086 in the S&P cash index and 1084,50 in the S&P mini-future. If and when that happens, we will know that the major downward trend is still alive.
There are some interesting aspects of the presented plot. First, there is the distinct possibility that the Minor wave C is terminated by a Minuette ending diagonal (yellow lines in the plot). This is one of the best patterns for identifying a reversal. Second, the possible ending diagonal is supported by a decreasing volume (violet line in the Volume segment) during the all of Minuette wave 5 which must be interpreted as weakness in the present advance. Ending diagonals end in a bang meaning that what should be expected is a swift reversal of the uptrend down to its onset which in this case is at 1086 in the S&P cash index and 1084,50 in the S&P mini-future. If and when that happens, we will know that the major downward trend is still alive.
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