Showing posts from November, 2011

QE in EZ: a war of necessity

I was reading an article in the FT this morning as to how the UK government bonds were being rewarded as "safe haven" status with ultra low yield. I kind of lost it in the comment sections out of disgust.

Of course the tone of article and commentary was all self congratulatory, about, really, how the superior management and responsibility paid off.

What a joke.

Ain't nothing going on but QE
All there is to it is a lot of money printing. Buy enough of your own debt (aka monetizing debt, QE, Printing money) and your yields will go dramatically lower. It is not because they are better or better run or safer it is just the mathematics of demand/offer when one of the players has infinite liquidity at his disposal.

QE as a stabilizer
QE1 in the US has backstopped the negative spiral of depression. Let the records show that much. It can be an effective stabilizer. Those that fret about inflation confuse flow and stock. Yes, printing is of course an inflationary contribut…

Comparing CDO and CDS-like solutions to EFSF leveraging

The confusion is sky high, both in the markets and the officialdom in the EZ. The ideas on how to leverage the fund are rather straight forward but with different implications.

The CDO Structure: Protect the FIRST 20%
This one is floated by the german banks. The idea is to structure the EFSF rescue fund as a CDO where the reserves are essentially equity tranches so that the "FIRST LOSSES" are borne by the EFSF. This means that if the losses are less than say, 20%, then those losses are taken by the fund. For this to work you need to find the financing for the senior tranches upfront. This achieves "leverage" by committing the core capital to the equity tranche and looking for further financing outside for the higher tranches. This is derided by some critics (amongst them Roubini) as a mirror of the subprime debacle in the US. Of course the main difference is that in one you had REAL subprime bonds defaulting at 80%-100% in the second you have EuroZone soverei…

Italy and Miss Market

I call her miss market because she throws tantrums. The sad part is that she has been taught to throw tantrums and expects instant gratification. She is an impossible 6 years old.

Of course the official version is that she is called "Mr market", carries a big manly stick and that he has the wisdom of crowds. Theory of numbers says that truth will be found in the market vote, because it represents the opinions of the multitude where all information resides.

That is the theory. The practice is that in this media driven, internet delivered news world, hysteria and market sentiment fluctuate on a weekly basis. We have gone from despair to euphoria to despair again, in less that 10 days.

Ganging up

There has been various report of the infamous NYC hedge fund get together. This is where "money" gets together in a smoked filled room, sipping on whiskey and decides which target to pick on next. Apparently last year they decided Greece and the Eurozone. There is no end…

The Greek CDS tragedy

I am trying to steady my thoughts on the EU saga following the gyrations in stock prices that are still going on. BNP the leading frech bank, gains 30% to lose 15% the next day. This is all scary price action. And amid it all I am not sure I completely understand what is going on yet.

Follow the CDS thread
The one point that really pricked my ears was the bit about asking for a voluntary haircut from bondholders. Since bondholders most likely have CDS this seems quixotic. A bondholder will WANT the default so as to trigger the CDS. Then of course the question is 1/ who sold the CDS 2/ how much of it is naked.

The numbers get big
If there is 350B oustanding greek debt and if we assume a 10 to 1 naked to covered ratio that means that a 350B default event really means 3T of cash settlement. That is a lot of money to be paying out to speculators. Of course that is what the EFSF wants to avoid. So they are trying to nationalize that market, according to what I have read by becoming …