Tuesday, November 27, 2012


They almost got it right.  The again, it was never about "getting it right;" it was always about getting Frau Merkel thru the election and with this "agreement" late last nigh that mission has probably been accomplished.

Yesterday I said they should probably extend Greek maturities for 50 years, cut the interest rate to 3%, establish no repayments for 10 years and tell the Greeks to go away.  They almost got there.  Maturities will be extended, 1% will be knocked off the interest rates, the Greeks will be allowed to engage in a buy-back (from whom?) at a discount and the ECB will return profits from their bond operations.  All this will apparently get the debt to GDP down to 124% by 2020 which, according to Chrissie, allows her to continue to  lend as Greek debt is now "sustainable."  And so, after a few minor glitches are fixed, Greece will get it's 35 billion Euros sometime next week which will be round-tripped to its creditors and we will go happily into 2013 with Oktober  fest but ten months away and Angie still as pure as the driven snow in the eyes of the German voters...or so it is hoped.

From the standpoint of Greece it is all rubbish of course and changes nothing of substance.  The country is, and will remain, a mess.  Frankly, I was surprised to see that the markets seemed to have figured this out as they barely moved today after the announcement. That in itself may be a positive note as the only air of reality hanging about these days are the markets and then only occasionally.  But the Christmas Tide is upon us and after the disbursement of next week look to the hills of Switzerland and Italy to find the politicians and bankers.  We'll be done until 2013.

Not on this side of the pond, however.  The fiscal cliff is looming and I can state with some degree of certainty that no one is sure with the resolution is going to be. The Leader has a very powerful hand and as a politician first, his inclination is to bet on it.  The problem is, I think, despite all of the bluff and bluster on both sides of the political fence, none of the players are really sure that their predictions on what will occur if no agreement is reached are correct.  In short, we are in no man's land with no history to guide us.  My historical perspective tells me that at some point markets will Have to take a second look and ask themselves whether they wish to continue to finance this mess at this price but just the other day, Little Paulie Krugman and cousin Mark were sounding the call that as long as we can print money there's not a thing about to worry.  I don't know, maybe they are right; I just can't get my arms around the change in the flow of historical indicators to that degree.  It will not be an Arab Spring kind of thing; it'll be a lousy auction or perhaps even a failed auction that sets the thing off.  The small event to which the surprised response will be, "Holy ____!"  Or maybe that will never happen.  My problem is that this government has convinced itself that it never will and no doubt has no Plan B if it does.  That's the new, continuing story.  Keep watching.

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