The Financial Recovery

Good news from Greece:


Huge investor demand for Greek five year bond


Greece's deputy prime minister Evangelos Venizelos said demand for 3bn euros (£2.4bn) worth of five year bonds proved the country's debt is sustainable.


The sale attracted interest from 550 investors.


Greece is retuning to the capital markets for the first time since its economy nearly collapsed in 2010.


The Greek government had initially priced the bond to provide a return of between 5% and 5.25%.


But with investor orders running at 20bn euros (£16.5bn) it was able to lower the yield to 4.95% - far lower than analysts had expected.


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Last month, Greek lender Piraeus Bank sold its first bond in more than four years. The bond offered investors a yield of 5.125% and now trades with a yield of about 4.125%.


http://www.bbc.com/news/business-26967027

Let's look under the hood....



“Investors in the new bonds aren’t buying into Greece – they are buying the euro,” said Don Smith, economist at ICAP.


Analysts said the European Central Bank’s declaration of support for the eurozone and the indication that it may consider a programme of quantitative easing could be driving investor interest in European government debt.


http://www.ft.com/intl/cms/s/0/7202c81c-c006-11e3-9513-00144feabdc0.html#axzz2yYuOyq8l



Germany's Bundesbank opens door to QE in Europe | Reuters

http://www.reuters.com/article/2014/03/25/us-ecb-weidmann-idUSBREA2O1K320140325


Lagarde Urges Central Banks to Continue Easy-Money

http://blogs.wsj.com/economics/2014/01/09/lagarde-urges-central-banks-to-continue-easy-money-policies/


On Europe's move toward QE to prevent deflation

http://www.creditwritedowns.com/2014/04/on-europes-move-toward-qe-to-prevent-deflation.html



Does anyone really think Greece is recovering?


Nearly four years after Greece set off the European debt crisis, the Hellenic Republic is being allowed to borrow from global bond markets again, [paywall] with a projected €2 billion ($2.76 billion) debt offering today.



Let’s be clear. This makes no sense.



For one thing, Greece’s debt load has gotten much worse over the last few years, not better. Greece’s debt-to-GDP ratio in 2010 was an impossible to manage 148%. Last year it was an even more impossible 174%.


Why would investors lend any money to Greece?


As we’ve said before, it’s not because of the country’s dynamic economy. Nor is it because Greece’s debt load has been restructured in a way that makes it possible to manage over the long term. Nor is it because of the country’s track record as a debtor. (Reinhart and Rogoff famously noted that the country has been in default for roughly half of the years since it gained independence from the Ottoman Empire in the 1832.)



No, the answer must be that a consensus is building in the markets, that the European Central Bank now stands behind Greek government debt in a way that it didn’t before. After all, the bonds of all the troubled European nations—Portugal, Ireland, Italy, Greece and Spain—have been enjoying a gobsmacking rally since ECB chief Mario Draghi vowed to do “whatever it takes” to preserve the euro back in July 2012.



Savvy investors know it will be tough for the ECB to disabuse the markets of this notion. Is Draghi going to come out and specify that his “whatever it takes” comments don’t pertain to Greece? He can’t. It would immediately set the markets on a hunt for the next country where “whatever it takes” doesn’t apply.


http://qz.com/197020/ridiculously-investors-are-about-to-let-greece-borrow-again/





So to summarize --- Greece's debt has actually worsened and continues to increase.... the unemployment situation remains dire....


So why would anyone buy Greek debt?



Obviously it is because the EU is suggesting that it will announce a massive QE programme --- Germany - who opposed money printing vociferously in years past --- has indicated they are now open to the idea...



And of course QE means that the EU will backstop all members debt with hundreds of billions or even trillions of printed money.


So if I am a fund manager and I see that I can buy Greek debt and pick up a sweet 5% yield with an EXPLICIT GUARANTEE from the ECB that they will back Greece with printed money ---- well hey --- I am all over that!


Where can you get a 5% return these days risk free????




In conclusion - what this means is that the EU and ECB have determined that the situation in Europe is so dire that they must do --- as Japan, China, the UK, and the US have done --- print money to prevent a deflationary collapse.



The fact that Greek bonds have found a willing market is not a signal that Europe is recovering rather --- it is a signal that the EU is sinking deeper into desperation --- so desperate that even Germany is now willing to turn on the printing press.



As the axiom says --- if it seems too good to be true --- it always is....

All Hail The Draghi Put: The Global Bond Market Is Now Well And Truly Broken


Even the New York Times figured out that this week’s ballyhooed “return to the market of Greece” was a complete farce:


Investors may be playing a dicey game, but in the case of Greece and other shaky euro zone countries, they have been assuaged by the belief that the European financial machine will kick into gear should anything go wrong. European Central Bank President Mario Draghi has pledged to do “whatever it takes” to keep the crisis from reigniting.


They even found one of the remaining sane spokesman for the EC apparatus to clear the air and verify that the offering had nothing to do with “price discovery”—-the ostensible purpose of capital markets:


“Investors don’t look to the long-term health of economies,” said Simon Tilford, the deputy director of the Center for European Reform in London. They are looking at whether they can extract gains “without losing their shirts. At the moment, they figure they can, but that doesn’t tell us much about the sustainability of the euro zone or whether governments have taken it on a path to sounder footing.”



More http://www.zerohedge.com/news/2014-04-11/all-hail-draghi-put-global-bond-market-now-well-and-truly-broken

And for good measure one should always kick the tires to make sure it's not a clunker....



Europe has subjected the Greek people to a cruel experiment


Greece’s triumphant sale of five-year bonds to hedge funds (1/3) and global in investors – half based in London – tells us a great deal about the mental and emotional state of investors.


It tells us very little about the state of the Greek economy or Greek society. It is certainly not evidence that Greece is safely out of the woods. It is even less a vindication of EU/IMF Troika policies, an epic failure that will be studied years hence by scholars.


Normally when a country emerges from the trauma of an IMF austerity regime it has at least a tolerable level of debt, and if need be a devalued currency to restore competitiveness. Tough reforms matched by condign relief. The country is put on a viable path towards recovery.


This has not happened in Greece. Public debt is still 178pc of GDP, despite a haircut of private creditors near 70pc in effective terms, and despite (or because of) serial EU-IMF loan packages – the “occupation loans” as they are known in Greece. This level remains untenable for a country without a sovereign central bank and currency.


Markets know this. They are snapping up Greek bonds at yields of 4.75pc because we have returned to the pre-Lehman frenzy where they will buy almost anything, and this is all that's left. They are betting that the EMU authorities will prop up Greece for the next five years by stretching out maturities and offering rock bottom rates. They are also betting that Greek politics will not blow up.



Have a look at this disturbing graph of how Greek GDP is still sinking and read the rest:

http://blogs.telegraph.co.uk/finance/ambroseevans-pritchard/100027028/europe-has-subjected-the-greek-people-to-a-cruel-experiment/

I have not watched this yet but understand it is a fascinating documentary on the situation in Greece:



The creators of Debtocracy analyze the shifting of state assets to private hands. They travel round the world gathering data on privatization in developed countries and search for clues on the day after Greece’s massive privatization program.


The documentary uncovers the forthcoming results of the current sell-off of the Greek public assets, demanded in order to face the country’s enormous sovereign debt.


Turning to the examples of London, Paris, Berlin, Moscow and Rome, Catastroika predicts what will happen, if the model imposed in these areas is imported in a country under international financial tutelage.


Slavoj Zizek, Naomi Klein, Luis Sepulveda, Ken Loach and Greg Palast talk about the austerity measures, the Greek government as well as the attack against Democracy on Europe, after the general spreading of the financial crisis.


Academics and specialists like Dani Rodrik, Alex Callinicos, Ben Fine, Costas Douzinas, Dean Baker and Aditya Chakrabortty present unknown aspects of the privatization programs in Greece and abroad.


http://www.youtube.com/watch?v=RORPpFL21dM (click captions to run the English substitles)