The Greek tipping point and zee price stability


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Markets are currently "risk on" in the belief that the eurozone issues are solved for the short term as discussed in the recent platinum/palladium discussion. Rumors abound that Greece is about to completely capitulate their last vestige of true wealth.

However, we've watched this saga with Greece play out before. Markets are being pushed around with news headlines that are ... premature to say the least.

It wasn't but a few days ago that rumors were circulating that a timetable was set for a Greek default. Now Jim Sinclair has issued an email alert to his subscribers warning of the same:
... Sinclair also states that a major financial event will take place between March 17th & 20th as Greece effectively defaults, the ISDA labels the default a voluntary restructuring, and the debt market implodes in the aftermath. With the Greek gold being held hostage over it's debt, Sinclair looks for repatriation requests ala Hugo Chavez to rapidly pick up in pace and volume.

More (highly recommended to read Jim's full letter posted here):

"Beware the Ides of March" indeed.


Once they get their gold, and once they have bled every single dollar they can force Greece to beg, borrow or steal, they will simply let her shit the bed. The international community will walk away and let them starve. The IMF and ECB have no love for Greece, and they know that they do not produce enough under their own steam to survive without tourism, so they know that unless they let this country default or exit the union, Greece will starve to death. Without tourism Greece is dead in the water with no hope of survival.
Once they get their gold, and once they have bled every single dollar they can force Greece to beg, borrow or steal, they will simply let her shit the bed.

...that is pretty much unofficial, but official - in the leaked Troika documents, they state openly, that "austerity measures" that were the matter of public theater/WWF match, are not nearly enough to effectively reduce Greece's debt, also the "estimated" growth predictions are nothing short of ludicrous/lunatic:

The Greece piece starts at 15:00, but it is worth viewing. I'd strongly suggest to subscribe to the above YT channel (CapitalAccount), if you haven't already done so.
This european observer isn't blinded by the headlines:
This week-end's G-20 came and went without any real new information. Yes, the policy makers wants us to believe ultimately IMF will have 2 trillion US dollars at its disposal.

No, the US, UK and rest of non-Europe is not really interested before we all get more clarification on how Europe will ring fence the debt crisis.
Chancellor Merkel is weaker, week after week. She soon will have to rely on SPD votes if she continues down this path. 62 percent polled over weekend are against giving more money to Greece and 2/3 don't believe Greece can be saved according to German newspaper Bild.

Finland will have an interesting vote this week. Follow it closely.

The G20 did not give more credibility to more funds but they sure talked the talk of extend-and-pretend dogma.

Geopolitical Risks

Crude: We are potentially a few weeks from some sort of confrontation unfortunately. IEA report from Iran is due this week. Israel's time window is closing if you believe the media coming out of Israel. Iran's finances are running out of time as well. Iran failed to pay for Indian rice last week.

High energy prices will soon spill-over into gasoline and survey data and will start to impact data and sentiment negatively.

Greece Controlled Default: Greece will have a controlled default and a vacation from Europe.

Portugal CDS Spreads: Portugal is the real issue and containment is almost impossible. CDS spreads suggest the probability of default within five years is about 65 percent.
Following on the heels of Fitch:
Feb 27 - Rating Action
On Feb. 27, 2012, Standard & Poor's Ratings Services lowered its 'CC' long-term and 'C' short-term sovereign credit ratings on the Hellenic Republic (Greece) to 'SD' (selective default).

Our recovery rating of '4' on Greece's foreign-currency issue ratings is unchanged. Our country transfer and convertibility (T&C) assessment for Greece, as for all other eurozone members, remains 'AAA'.

We lowered our sovereign credit ratings on Greece to 'SD' following the Greek government's retroactive insertion of collective action clauses (CACs) in the documentation of certain series of its sovereign debt on Feb. 23, 2012. The effect of a CAC is to bind all bondholders of a particular series to amended bond payment terms in the event that a predefined quorum of creditors has agreed to do so. In our opinion, Greece's retroactive insertion of CACs materially changes the original terms of the affected debt and constitutes the launch of what we consider to be a distressed debt restructuring. Under our criteria, either condition is grounds for us to lower our sovereign credit rating on Greece to 'SD' and our ratings on the affected debt issues to 'D'.

As we have previously stated, we may view an issuer's unilateral change of the original terms and conditions of an obligation as a de facto restructuring and thus a default by Standard & Poor's published definition (see "Retroactive Application Of Collective Action Clauses Would Constitute A Selective Default By Greece," Feb. 10, 2012, and "Rating Implications Of Exchange Offers And Similar Restructurings, Update," May 12, 2009). Under our criteria, the definition of restructuring includes exchange offers featuring the issuance of new debt with less-favorable terms than those of the original issue without what we view to be adequate offsetting compensation. Such less-favorable terms could include a reduced principal amount, extended maturities, a lower coupon, a different payment currency, different legal characteristics that affect debt service, or effective subordination.

We do not generally view CACs (to the extent that they are included in an original issuance) as changing a government's incentive to pay its obligations in full and on time. However, we believe that the retroactive insertion of CACs will diminish bondholders' bargaining power in an upcoming debt exchange. Indeed, Greece launched such an exchange offer on Feb. 24, 2012.
If the exchange is consummated (which we understand is scheduled to occur on or about March 12, 2012), we will likely consider the selective default to be cured and raise the sovereign credit rating on Greece to the 'CCC' category, reflecting our forward-looking assessment of Greece's creditworthiness. In this context, any potential upgrade to the 'CCC' category rating would inter alia reflect our view of Greece's uncertain economic growth prospects and still large government debt, even after the debt restructuring is concluded.

If a sufficient number of bondholders do not accept the exchange offer, we believe that Greece would face an imminent outright payment default. This is because of its lack of access to market funding and the likely unavailability of additional official financing. The revised financial assistance program provided by most of the eurozone governments and the Stand-By Credit Arrangement with the International Monetary Fund are predicated on a successful exchange offer.

Our T&C assessment for Greece, as for all other eurozone members, is 'AAA'. A T&C assessment reflects our view of the likelihood of a sovereign restricting nonsovereign access to foreign exchange needed to satisfy the nonsovereign's debt-service obligations. Our T&C assessment for Greece expresses our view of the low likelihood of the European Central Bank restricting nonsovereign access to foreign currency needed for debt servicing.

If Greece were to withdraw from eurozone membership (which is not our base-case assumption) and introduce a new local currency, we would reevaluate our T&C assessment on Greece to reflect our view of the likelihood of the Greek sovereign and its central bank restricting nonsovereign access to foreign exchange needed for debt service. Contrary to the current case, in this scenario, the euro would be a foreign currency, and the Bank of Greece would no longer be part of the European System of Central Banks. As a result, under our criteria, the T&C assessment can be at most three notches above the foreign-currency sovereign credit rating.

Note that Standard & Poor's is not the ISDA, so this doesn't mean CDS are going to pay out, but that doesn't mean there aren't consequences:
The European Central Bank said Greek debt will temporarily be ineligible as collateral for loans after Standard & Poor’s yesterday cut Greece’s credit rating to “selective default.”

The ECB “has decided to temporarily suspend the eligibility of marketable debt instruments issued or fully guaranteed by the Hellenic Republic for use as collateral in Eurosystem monetary policy operations,” the Frankfurt-based ECB said in a statement today. ...
Fitch goes full bore:
Fitch Ratings has downgraded Greece's Long-term foreign and local currency Issuer Default Ratings (IDRs) to 'RD' ('Restricted Default') from 'C' following today's confirmation from the Greek government and eurozone officials that the exchange of Greek government bonds will proceed.

The downgrade to 'RD' reflects Fitch's previous commentary that the exchange would constitute a sovereign default event under the agency's distressed debt exchange (DDE) rating criteria, and follows the downgrade of Greece to 'C' from 'CCC' on 22 February. Greece's Short-term foreign currency IDR remains unchanged at 'C'. The euro area Country Ceiling, which is applicable to all euro area member states, also remains unchanged at 'AAA.'
Now.. watch the CDS not trigger and force more deleveraging by institutions who were using CDS as hedges.
If this turns out to be true, it would be a major surprise:
Bloomberg reports that ISDA declared the greek psi a credit event.
I was MIA this afternoon. Glad to see the banks (err ISDA) hasn't completely jumped the shark yet.

This is just the first of many financial earthquakes to come I think.
Apparently the CDS will only get triggered on debt that held out and refused the "voluntary gun-to-the-head" writedowns. Those holders of Greek debt will be allowed ot file a claim. What I am reading is that the process to recover is onerous and difficult. If all the "i" and "t" are not dotted and crossed the first time are fucked.
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