April 29, 2010 – It’s All Over But the Crying for Greece

Featured Trades: (GREECE)

1) It's All Over But the Crying for Greece. The home of Socrates and Plato is so deep under water with its finances that only three years of Great Depression conditions could bring them back into balance. Yesterday, Standard & Poor's downgraded the beleaguered nation's debt to junk, causing the yield on its two year debt to soar to a staggering 17.8%. Greek bonds can no longer be accepted as collateral by banks. Short selling was banned on the Athens stock exchange today. There is word today of a‚¬45 billion IMF bailout package, which at best, is a token gesture. Germany is certainly not willing to put up the necessary money, no matter how many Mercedes, BMW's and Volkswagens the Greeks buy. Even if they did cough up, it would only kick the can down the road for a couple of years. But something has to be done to keep the contagion spreading to Portugal, whose credit default swaps are already trading through the roof, as well as Spain, Ireland, Italy, and Heaven forbid, the United Kingdom. That would shrink the EC down to a rump that comprises the old European Coal and Steel Community. It would also flush the euro down the toilet. 'No, no, no, no, no', as inspector Clouseau might say, this would not suit the French. Personally, I don't think the European currency is going to disappear, or even deprecate beyond the $1.20's. But, you'd be hard pressed to find a foreign exchange trader who believes that these days.  One option is to kick Greece out of the EC and bring them back in after rehab, at a lower exchange rate with an independently audited set of books. In this event, losses on Greek debt would amount to 50%-70% of face value. The Germans would rather bail out their own banks than olive-and-feta-cheese-eating foreigners who have a 35-hour work week and a retirement age of 55. Don't think for a second that because all of this is happening on the other side of the world, none of this will affect the US. Who do you think wrote all of those credit default swaps on the PIIGS? It may also be encouraging the Fed to keep interest rates lower for longer, as it whistles past the graveyard. Better plan your summer vacation elsewhere this year. Rioting in the streets does not make for fun family vacations.

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