Wednesday, November 21, 2012

Greece Issue Headed For A Solution In 6 Days

Greece's international lenders failed for the second week running to agree how to get the country's debt down to a sustainable level and will have a third go at resolving their most intractable problem in six days' time. After nearly 12 hours of talks through the night during which myriad options were discussed, eurozone finance ministers, the International Monetary Fund and the European Central Bank failed to reach a consensus, without which emergency aid cannot be disbursed to Athens.

However the markets should be taking the following comments more closely:

"We are close to an agreement but technical verifications have to be undertaken, financial calculations have to be made and it's really for technical reasons that at this hour of the day it was not possible to do it in a proper way and so we are interrupting the meeting and reconvening next Monday," Eurogroup chairman Jean-Claude Juncker told reporters.

"There are no major political disagreements," he said.

There appears to be no other way except for the lenders to somehow come up with a solution for the Greece debacle.

Nonetheless, sharemarkets around the world reacted negatively, while the euro extended its fall against the US dollar in response. A document prepared for the meeting  declared that Greece's debt cannot be cut to 120 percent of GDP by 2020, the level deemed sustainable by the IMF, unless euro zone member states write off a portion of their loans to Greece. The 15-page document, circulated among ministers, set out in black-and-white how far off-track Greece is in reducing its debt to the IMF-imposed target, from a level of around 170 per cent of GDP now.

The document set out various ways Greece's debt could be reduced between now and 2020, but concluded they would not be enough without eurozone creditors taking a hit on their own holdings - something Germany and others have said would be illegal.

The document did say Greek debt could fall to 120 per cent of GDP two years later - in 2022 - without having to impose any losses on euro zone member states or forcing through a buy-back of Greek debt from private-sector bondholders. But International Monetary Fund chief Christine Lagarde rejected such an extension at similar talks last week. Without any corrective measures the document said Greek debt would be 144 per cent in 2020 and 133 per cent in 2022, figures first reported exclusively by Reuters last week.

The view of the IMF, which has played a role in both Greek bailouts so far, is critical since it provides international legitimacy and credibility for the efforts the euro zone is making. If the IMF were to withdraw its support for the bailout programmes, it could have a deeply damaging market impact.
The document appeared designed in part to convince the IMF that Greek debt could be made sustainable just two years behind schedule if only it would soften its stance.

It remains possible that Lagarde could provide further wiggle room, but she is believed to favour the idea of eurozone member states taking a writedown on some of the loans extended to Greece in order to stick to the 120 per cent in 2020 goal.

Among the main measures under consideration to bring Greece's debt burden down as rapidly as possible is a debt buy-back under which Greece would offer to purchase bonds from private investors at a discount to their nominal value.

Several options are under consideration, officials have said and the document makes clear, including using about 10 billion euros to buy back bonds at between 30 and 35 cents in the euro.
There are also proposals to reduce the interest rate on loans already extended by euro zone countries to Greece, to impose a moratorium on interest payments and lengthen the maturities on loans, all of which would cut the debt burden.

Pressure for the eurozone to come up with a solution is high not just because Greece is running out of money and financial markets want a dependable solution, but because Athens has initiated virtually all the steps demanded of it to cut spending, raise taxes and overhaul its economy.

"Greece has delivered. Now it's up to us to deliver," Juncker said.

Because of the latest delay, the ministers were unable to give a go-ahead for the next tranche of up to 44 billion euros of emergency funds to be paid to Athens. The payment would provide short-term relief to Athens, but it is long-term debt that is the core issue.

Hence it looks its going to hurt the EU more if they fail to come up with something for Greece, having seen Greece doing its part already. All in, despite the negativity surrounding the developments, its actually a positive because it all points to a MUST solution in 6 days.


bruno said...

From what is to be expected,the Greece problem will most probably be resolved on Monday.

Having gone to the side lines since Monday evening,I went through the daily charts of the S&P 500,Euro and Swissie this evening after the turkey dinner.I was able to observe unbias that the Euro'S recent rally of over 200pips,Swissie's rally of 175 pips and S&P's over 40 pts was merely a correction or a sucker's rally.Euro and Swissie's daily scholastics have shot to the overbought in these last few days,and they are at lower highs.

For the last ten trading days it was the Euro and Swissie who was adding meagre pips to their hard gains and not the greenback.That is the reason whatever chance comes,grab the short breaks and take a vacation.Even a couple or handful of days break will make a huge difference.

If I am correct in my calculations,the greenback will bottom against the majors sometime Friday or latest early next week.That will mean one thing.The market will fade the rally of the Greek debt solution.In other words it is the buy the rumours,sell the fact thing.

Tonight or tomorrow morning I will try to fade the Euro and the Swissie.This time around I will avoid the S&P as the stakes are higher,in case I am wrong in my assesment.This trade is for high risk takers only.My feel the pain stop loss is at 175 pips from entry.

bruno said...

Last week the soybeans dropped below 14.00 only to recover to closed slightly above 14.00 for a six months low.

A couple of months ago CPO dropped to 2,180 for a three year's low.It then corrected 300 to 2500.It has since dropped to 2,300.Could this be the wave lower to 2,000-1,750 level.Next year CPO could trade as low as 1,500.Maybe only,but a very strong possibility.

I think that soybeans still has a lot of room to go much lower.Maybe 12.00-10.00 dollars level,in the next few months.It has already dropped 3.50 from its recent highs.

Plantation stocks will go much lower after the GE,as the Umno GOM will not have to order the cronies to support the FGVH shares anymore.How low can FGVH go?

bruno said...

Like the Thanksgiving tradition,the greenback is co-inciding with the goods on the shelves.It is also on sale.

Good day for bottom fishing for contrarians.With 1 hr RSI at 30% the lows of today should be near if not hit already.I feel pretty good about this trade.

The pretty lady in the picture is a beauty and makes my mood better.That makes me feel more confident that this trade will be profitable.Cheers.

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