Day in Limbo
Research for Online Investors

02/08/12

Today looks like another day in limbo.  Investors and traders are watching the negotiations in Greece drag on.  There were protests yesterday in Athens.  The Greek Prime Minister is walking a tightrope to broker an agreement on three different fronts.  The market is treating this as a done deal because failure could throw Europe into a financial crisis.

Is this akin to driving a mountain road?  You know it would be certain death if you missed a curve, but drive too fast anyway!  From all reports, the deal with private bondholders is as good as done.  All the details need to be signed off on, but cannot be until more eurozone rescue money is locked in.  Greece will use some of the new bail-out funds they are negotiating for from the “troika” to pay a token for bonds when the private bondholders exchange them for 30-year bonds at 50% of face value.

Money from the troika of the European Commission (EC), IMF and European Central Bank (ECB) is not assured until the Greek government meets their demands.  Greece is going to have elections in the next few months, perhaps as soon as April.  The troika wants all political parties to sign off on the bailout conditions before any money is advanced to the government as part of a new $172 billion dollar bailout.

A meeting of the political leaders was held on Sunday outlining the conditions that Greece had to agree to if they were to receive more money from the troika.  Another meeting was scheduled for Monday.  It was cancelled.

Political leaders wouldn’t attend until they had the minutes of Sunday’s meeting in writing.  The meeting was cancelled again on Tuesday, again waiting on the minutes of Sunday’s meeting.

Today’s meeting has been cancelled, because one of the political leaders wouldn’t look at the minutes until they were translated into Greek.  These minutes contain the troika’s austerity demands to advance bail-out funds.

Greece has payments on maturing bonds due on March 20th.  They cannot make these payments without additional funds from the troika.  The problem for Greece is other governments do not trust them to follow through on their commitments.

Greece ran a budget deficit of over 15% of GDP in 2009, 10.6% in 2010 and 9.6% in 2011.  They seem willing to promise to lower spending, increase taxes and sell off state assets to get money, but then fall short on their execution of the programs.  In 2010, Greece promised to sell off $65 billion dollars worth of state owned enterprises and real estate.  As of last month, they had raised less than $2 billion from the sale of assets.

Last year, Greece promised to reduce the public workforce by 150,000 by 2015, but has done little.  The announcement of 15,000 job cuts Monday brought out protesters and claims it was unconstitutional to terminate state employees.

The eurozone has little interest in the details of how Greece cuts spending, but in the face of broken promises, is now spelling out the cuts that must be agreed to.  They want the minimum wage cut at least by 20% and pensions cut by 15% to 20%.

The frustration with Greece is creating a situation where other eurozone country’s leaders are planting their feet with a no more negotiation attitude.  Angela Merkel commented Monday she was “bewildered” at what the Greek leaders hoped to achieve by the delays.

Reuters reports the Dutch Prime Minister said the eurozone could live without Athens if it did not keep its side of the bargain.

The Eurozone Finance Ministers are waiting to reschedule their meeting that was to be held yesterday.  They are charged with approving the final agreement reached with Greece before money can be advanced.

The market waits.

The ECB is planning on another round of Long-Term Loans to banks on February 29.  There is speculation as to the size, with some reports that it will be at least as large as the $639 billion dollars in December and perhaps even bigger.

This is bullish. This much money pumped into the eurozone banks is like helium in a flat balloon.  They are still technically insolvent, but can borrow money cheap and buy eurozone bonds to make a fat interest rate spread.

The mailbag:
You should submit “Statistical Manipulation” to the mainstream press.  Hopefully, some would actually report what is going on.  Great work.---subscriber R.J.

John’s reply:  They only report what fits their perception.  I try to give our readers info they may not get other places.

Who would run in the market on this fake data?  Would you?  No.  The bankers?  Only if they know the fix is in by the Fed.---subscriber T.M.

John’s reply:  I am starting to wonder about the fix!

The information presented in this newsletter is based on generally available news releases, corporate filings, current events, interviews and the editor’s opinions.  It may contain errors and you should not make investment decisions based solely on what you believe you have read here.  Do your own research, it is your money.  If you lose it, it is your responsibility, not ours or your grandmothers!  The editor may or may not have a position in any securities discussed.  The editor may have held a position in a security earlier, or in the future.

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