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PIIGS / Europe's Debt Troubles

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PIIGS / Europe's Debt Troubles

Portugal, Ireland, Italy, Greece, Spain, etc.

=====================================================

 

I don't think we have a general Portugal/Italy/Ireland/Greece/Spain thread yet, but please feel free to merge if we do!

 

This news is not very encouraging.. they were only trying to raise money for ONE YEAR notes and failed.

http://www.bloomberg.com/apps/news?pid=20601085&sid=achpanjSq3AI

 

Portugal sold 300 million euros ($417 million) of 12-month bills today

after indicating it planned to issue 500 million euros

The securities were sold to yield 1.38 percent, compared with 0.93 percent at a Jan. 20 auction.

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How to properly do a tax-strike... Billy Bragg where are you!?

 

http://www.bloomberg.com/apps/news?pid=206...NNLQ&pos=13

Spain’s Tax-Cheat Landlords Add to Rising State Debt

Feb. 3 (Bloomberg) -- More than half of Spain’s landlords are dodging taxes as the rental market expands, depriving the financially strapped government of more revenue each year.

 

Owners are asking for payment in cash from tenants to avoid tax on 2.5 billion euros ($3.5 billion) of earnings annually, the Gestha union of tax inspectors estimates. An increase in rental properties nationwide hasn’t generated any more tax revenue.

 

The Spanish government, seeking to pull the country out of its deepest recession in 60 years, needs all the money it can get right now.

 

Rent fraud is just the tip of the iceberg, with Spaniards avoiding tax on income of 240 billion euros, equivalent to 23 percent of the economy, according to Gestha.

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http://www.bloomberg.com/apps/news?pid=206...eMKqg&pos=5

Italy Seizes Bank of America, Dexia Assets Amid Probe

Feb. 3 (Bloomberg) -- Italy’s financial police are seizing 73.3 million euros ($102 million) of assets from Bank of America Corp. and a unit of Dexia SA as part of a probe into an alleged derivatives fraud in the region of Apulia.

...

The region, also known as Puglia, joins more than 519 Italian municipalities that face 990 million euros in derivatives losses, according to data compiled by the Bank of Italy. In Milan, prosecutors seized assets from four banks including JPMorgan Chase & Co. and UBS AG in April and requested they stand trial for alleged fraud.

...

The seizure of Apulia’s semi-annual repayment of the bond will neither affect the interest payments bondholders receive nor will it affect the final repayment, the prosecutor said. Apulia is rated A1 by Moody’s Investors Service, four levels below the top investment grade.

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The region, also known as Puglia, joins more than 519 Italian municipalities that face 990 million euros in derivatives losses, according to data compiled by the Bank of Italy.

This is just incredible. Who tricked these (rural?) municipalities into playing with derivatives first place? No wonder they seize the banksters' assets now.

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http://www.bloomberg.com/apps/news?pid=206..._ainY&pos=4

Spanish Borrowing Costs Jump at 2.5 Billion-Euro Bond Auction

By Matthew Brown

 

Feb. 4 (Bloomberg) -- Spanish borrowing costs rose at a sale of three-year notes on concern that the government will struggle to narrow its budget deficit.

 

The government sold 2.5 billion euros ($3.5 billion) of the securities to yield 2.63 percent today, compared with 2.14 percent the last time the notes were issued on Dec. 3. The sale attracted 4.6 times as many bids as securities on offer, up from 1.72 at the last sale.

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The sale attracted 4.6 times as many bids as securities on offer, up from 1.72 at the last sale.

...

yield 2.63 percent today, compared with 2.14 percent the last time the notes were issued on Dec. 3

 

Interesting that the bid-to-cover was so high, yet the yield went up so much.. ? hmm... something smells fishy.

 

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Interesting that the bid-to-cover was so high, yet the yield went up so much.. ? hmm... something smells fishy.

Yes, I wondered too. Is it just that people are interested in the debt as long as the yield is right? Sounds almost too simple to be true.

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Yes, I wondered too. Is it just that people are interested in the debt as long as the yield is right? Sounds almost too simple to be true.

Yes, almost like the 'Primary Dealers' (if they have such a thing in Portugal) were told they had to bid, and the enthusiasm was so intense that the yield went up 25%.

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A VERY WORRYING article... got insurance?

 

Regarding the last line, Ithink it was CGNAO who said the derivative beast has now grown larger than individual countries.....

http://www.telegraph.co.uk/finance/economi...o-Portugal.html

Greece under EU protectorate as funds shift fire to Portugal

The European Commission has ordered Greece to slash public spending and spell out details of its austerity plan within "one month", invoking sweeping new EU Treaty powers to impose a radical shake-up of the Greek economy.

 

Greece's labour federation immediately called a general strike for February 24, dashing hopes that Europe's provisional backing for Greek crisis policies would restore investor confidence.

 

Brussels invoked new EU powers under Article 121 of the Lisbon Treaty, allowing it to reshape the structure of pensions, healthcare, labour markets and private commerce – a step-change in the level of EU intrusion.

 

One banker described events as eerily similar to market confusion before the failure of Bear Stearns and Lehman Brothers in 2008, this time involving sovereign states rather than banks.

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From above:

 

The gap between what EU demands and what ordinary Greeks seem willing to accept is so wide that it may prove extremely hard for Mr Papandreou carry the country. The top union bloc said the government had "succumbed to the will of the markets" but would now have to face the stronger will of the people.

 

Samir Patel, from the consultancy BH2, said austerity plans will "almost certainly send Greece into a deflationary spiral", and tip its banking system "into the Mediterranean Sea". Greece is being told to carry out IMF-style retrenchment without the IMF cure of devaluation.

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Yes, almost like the 'Primary Dealers' (if they have such a thing in Portugal) were told they had to bid, and the enthusiasm was so intense that the yield went up 25%.

 

In practice it works mechanically differently to the way you are describing it in words. The interest rate per face value remains constant and you get to buy them cheaper if others dont want them. If you think you can get them cheaper because of a temporary crisis you will aim to buy more at a cheaper price with the same fixed interest. As you know of course.

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In practice it works mechanically differently to the way you are describing it in words. The interest rate per face value remains constant and you get to buy them cheaper if others dont want them. If you think you can get them cheaper because of a temporary crisis you will aim to buy more at a cheaper price with the same fixed interest. As you know of course.

yes sure, thanks. I think you are trying to say:

The coupon remains as the issuer set it, but the price the Primary Dealer pays might go below par if they aren't very enthusiastic. This means the Yield would go above the coupon.

 

It's the level of enthusiasm that's surprising, IMO. I would not want govt debt unless it were at MUCH higher yields. The CBs are setting a trap I think. Holding on to 2-3% yield to maturity when IR's hit 10% is a huge loss over 10+ years .. and the bond prices will reflect that if and when it happens. Bonds don't seem such a safe investment to me.

 

 

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I guess it makes sense that the buyers are there when the yield looks right.

 

Meanwhile AEP on Spain:

Fears that the slow fuse on Spain's political crisis may soon detonate a timebomb is creeping into the markets.

 

 

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yes sure, thanks. I think you are trying to say:

The coupon remains as the issuer set it, but the price the Primary Dealer pays might go below par if they aren't very enthusiastic. This means the Yield would go above the coupon.

 

It's the level of enthusiasm that's surprising, IMO. I would not want govt debt unless it were at MUCH higher yields. The CBs are setting a trap I think. Holding on to 2-3% yield to maturity when IR's hit 10% is a huge loss over 10+ years .. and the bond prices will reflect that if and when it happens. Bonds don't seem such a safe investment to me.

 

I have no doubt that the cbs give the players the nod to buy this stuff with the reassurance they can be sold to the CB's at some profitable amount if the time comes. The ECB for example wants inflation and is desparate to remove the current 'abnormal constraints in the supply of credit' so that the current small recovery can be maintained.

 

Meanwhile we get this kind of news from top european companies:

 

Konecranes Q4 pretax dives 75 pct yr/yr

 

and

 

"According to the Confederation of Finnish Industries´ January business tendency survey, the very weak business cycle continued to weigh down Finnish companies," the EK added.

 

"Significant recovery has not yet taken place, even though the business outlook did gradually stabilise towards the end of last year."

 

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A comment on the AEP article:

http://www.telegraph.co.uk/finance/economi...o-Portugal.html

"Yields on 10 year Portugese government bonds jumped 21 basis points yesterday as funds switched their fire to the next "domino".

 

As Chelyabinsk has noted before, the City/Canary Wharf speculators and Mayfair hedge funds are hoping for a re-run of the 1996 SE Asia currency crises. Except this time the "dominoes" are sovereign bond markets not national currencies.

These same speculators will turn their attention on UK bond markets and sterling, if not stopped, especially as the Bank of England today is ending its programme of quantitative easing. The UK bond market is looking highly vulnerable.

Fingers crossed for sterling and UK gilts, otherwise UK interest rates will rocket.

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This is just incredible. Who tricked these (rural?) municipalities into playing with derivatives first place? No wonder they seize the banksters' assets now.

 

Bloomberg folks used the wrong word there, they should have used "regions, provinces and townhalls" and I bet most of them are hardly rural. Puglia is not a municipality but a region of over 4 million people.

From what I read on Italian websites, BoA and another Italian bank (Crediop) made investments in funds on behalf of these state institutions. Guess the returns where not that good.

 

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I don't think we have a general Portugal/Italy/Ireland/Greece/Spain thread yet, but please feel free to merge if we do!

 

I have a long term thread (since 2008) on the euro going to hell where i have been monitoring the bond spreads to detect the first signs of a country likely to come under pressure to leave the euro. But, our threads are sufficiently different and so no point merging. Back in 2008 i wrote the following:

 

The spread between 10 yr bunds and other key € bonds as of 18th July is:

 

Greece 64 basis points, Italy 54 points, Portugal 45 and Spain 30. I will monitor these spreads going forward.

 

These spreads seemed quite large at the time, though obviously not flagging the problems that we now have. They are now obviously massively bigger and signalling real problems.

 

http://www.greenenergyinvestors.com/index....mp;#entry155266

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Sounds like Iceland all over again... they too were buoying bank shares through shell companies iirc.

 

http://www.bloomberg.com/apps/news?pid=new...id=aIxF2nwtfmxE

Billionaire Whistle-Blower Loses $730 Million Alleging Fraud

Feb. 4 (Bloomberg) -- On a December afternoon in 2007, billionaire Jose Berardo walked into the attorney general’s 18th-century headquarters in Lisbon to rat out executives at the Portuguese bank on which he had staked his fortune.

 

Berardo, whose 7 percent share in Banco Comercial Portugues SA was worth about $1 billion at the time, says he met with Attorney General Fernando Pinto Monteiro for two hours. The investor handed Portugal’s top prosecutor several folders of evidence showing that executives at Portugal’s largest publicly traded bank had allegedly used offshore companies to try to boost the share price and their own bonuses. Berardo says he hoped his disclosure would spur the prosecution of the Oporto- based bank’s chairman, with whom the investor had clashed over governance issues

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Couple of good articles by Cliff Wachitel on the PIIGS

 

http://fxmarketanalysis.wordpress.com/2010...s-the-solution/http://fxmarketanalysis.wordpress.com/2010/02/04/the-piigs-are-everyones-problem-heres-the-solution

 

Essentially C.O.M.E. is the solution (joking aside);

 

"Global economic leaders Coordinated Organized Monetary Expansion (COME), or some other acronym for this global monetary orgasm. Quietly, (OK, very quietly) economic leaders to agree to coordinate expansion so that theoretical debasement of their currency values is equal, no currency gains on another. From the outside, all appears OK."

 

It this happened after the initial de-leveraging then Gold and Silver could go stratospheric

 

A further article on seekingalpha.com;

 

http://seekingalpha.com/article/186890-pii...cy?source=hp_wc

 

 

In this latter one he explains how the CDS rising could develop in to a feeback loop where as it rises more people get in on the trade and it rises further. I'm reminded of George Soros concept of relexivity here. The rising price of PIIGS CDS causes others to get in making the prices rise further, the rising CDS prices then begin to feedback and further deteriorate the fundamental problem underlying the PIGS (rising interest rates etc), causing circular action that could further potentiate a default.

 

 

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