Beware Greeks Baring Gilts

Ok, one of many bad Greek puns in financial headlines today. I want to get your attention: this news item could hammer markets when it comes to fruition. Greek sovereign bonds are now baring to the financial world an impending financial debacle in Euroland. 

Greek sovereign bonds (Treasuries to the US, Gilts to the Brits) are falling off the cliff, and Greece may default within days. This chart from ZH shows the CDS (credit default swap, or insurance premium if you like) spread has gone to 400 bps, and it kept going after this chart was posted to 420 bips. Just a few days ago it was 320, which is also awfully high, but to change this fast means the end is nigh. At this rate it will close the 55 bp gap with Dubai in hours. (In comparison, Treasuries are at 43 and Gilts at 84.)

 

This is the tip of a huge iceberg. The PIIGS spreads are now higher than BRIC spreads. The ECB has tried to hold value in the Euro as all other major countries (including the US) race to the bottom. One of the many incredulous promises of Obama last night - the AP found 10 other whoppers - is to double US exports. How to live up to that promise? Debase the USD by half? Hard to do, especially if the ECB does not sacrifice Euroland and instead joins that race to bail out the PIIGS, one by one. 

The ECB is Titanic in search of that iceberg, and it may be about to hit it. 

The Greek prime minister did the obligatory "we are in fine shape" and "rumours can cause problems." ZH's take is it sounded a lot like Lehman the night before - or Cramer in 2008 on Bear Stearns! The IMF may need to step in and lead the bailout, or it comes from the ECB, which starts the debasing of the Euro. The prime minister had done the obligatory call to the world's lender of last resort - no, not the US, nor the IMF - China!  China is likely to pass, although Goldman is trying their best to package the deal. (For all of Obama's bashing of bankers last night, Goldman can be really useful at times like this.) The Greeks denied the involvement of Goldman. More fools they. The Chinese put is neatly: the Greek bonds are "more risky than US Treasuries." Ouch!

Where this may end is a breakup of the EU. That seems a ways away. Where this starts is with a continued sharp rise of the USD and the beginnings of the next global financial crisis. Problems in PIIGS-land may quickly spillover to emerging markets. Bet on the Dollar, or even the Yen right now.

Comments

[da bear]

It looks like you wanna be in cash for awhile
then move into gold as distrust of ALL fiat currencies takes over.
The global debt deflation is back.

da bear

[CB]

This is the most uninformed comment I have ever seen here.
Greece is 1,5% of Euro zone GDP - it is not going to disintegrate because of this!

It;s like Rhode Island causing the end of the US.

[CB]

I am sorry - that was not refering to the comment above. It was refering to the main article.

[betterdays]

Greece or what, Gordon Brown screw up ... next week a big downdraft. Can the rally gods give an up market on Friday to sell short..or a Friday smash ala October 16,1987 ??

[Greg]

GBP is the next accident to happen and down the road JPY. We are crying about deflation over the last 1-2 yrs but Japan is in it for 20 yrs now. Their debt levels are through the roof. Fly to "quality"? Excuse me!!! As far as UK they have the flexibility to devalue by being outside EMU and - instead - they let GBP appreciate. Have the cake and eat it too kinda Greece.

[nspolar]

Yesterday it was end of 1st wave down, rebound immediately. Today the market threw that one out with the dirty linen.

Today it was end of the world, EU going to fall apart. Buy the dollar .... for the crash at hand.

Maybe the best course of action is to recognize that the trend has in all liklihood changed. When the trend is down, most days are down. When the trend is up, most days are up.

Additionally it is likely both Prechter and Neely are full of ST to IT shit. They both made a mistake and called the 2000 era top a '3' top in all sectors. Not likely, and above all it is just not copasetic to admit mistakes, especially to the fickle subs. The global top was in all liklihood the latter 2007 top. Whether it is a Big 3 top, a i of Big 3 top or what the f ever, who cares. It was in all liklihood a major 5 wave top, following a major BO of global and many many US sector indices.

Now we have to correct back towards the base of that BO. Just the way it has to be. We all know it.

We more than likely have had an A down, a B up and have started a C down; post the latter 2007 top. The down so far is not one continous 5 waver, just ain't. Too much trend channel breakage. Trends and trend channels will beat the pants off of ewavers any day of the week.

C waves are 5 wavers, always. A true 5 waver will have 5 waves, with at least one of the down waves in this case an extended wave. In short we should see 9 waves, with all the odd numbered waves as down waves. Each major down wave of the C wave should remain in a tight channel, unless the C wave is a triangle or even maybe an ED. Not likely here but possible.

The end of the 1st wave of this C wave will probably occur end of Mayish.

Armstrong has it about right for the end of this C wave, 1st qter or 1st half of 2011.

Precther is not out to lunch for his low prediction below 1000 in the Dow, at the bottom.

Fib clusters exist at 5800, 3500 and 670 areas, plus or minus a bit, based on charts going back to '68.

Bears stayed long for the B, incorrectly. Now we are starting off just right for the bears to get some real satisfaction .... a few days into the C down we have had premature calls for the end to the 1st wave.

Instead of so much hype, just use trend channels, and let the rest come as it wants to. The counts will fall out from these. The 60 minute and daily channels, off the top have yet to even be established.

nspolar

[Wavist]

No Greece is just a joke, always has been. It'd be more likely they'd just be kicked out. The Eurozone will fall but as a result of the inefficiency of having a single interest rate for a dozen completely different economies. That's what you get when middle-class politicians take control.

[robert]

I like your assessment nspolar, in particular the third and sixth paragraphs. Sometimes the simplest explanation is the easiest but for some reason a lot of us are hardwired psychologically to believe that our eyes are lying when in fact, they are not.

[Arch Crawford]

Full Moon tomorrow!

[Mamma Boom Boom]

So, ....is this the failed rally before the airpocket?

[Stevie Cohen]

Wrong again Mamma.
Hope you don't actually trade for a living.

LOL!