Monday, December 03, 2012

Financial Sarcasm Roundup for 12/03/12

My sarcasm spews forth in a torrent of verbiage.  It will cease when I am no longer alive.  No one can silence me; many have tried and none were successful.  I am genius personified.

The fiscal cliff nonsense continues unabated and the non-Beltway media personalities hyping this non-event can't see through the smoke.  Republicans say they want big cuts in Medicare and Social Security.  That position is for the benefit of home audience voters, just as the President's opening offer of massive tax increases on the rich was for the benefit of his party's base.  The intractability of both sides' positions isn't a signal that they can't agree.  They have agreed to disagree for years while raising the debt ceiling time after time.  The dollar's reserve status and the Fed's bond buying have enabled this charade to continue.  Whatever 11th-hour legislation is needed to keep kicking this can has already been drafted and merely awaits some signal from both parties' Congressional leadership that they've "given up" on negotiations.  The can-kicking bill will then fly through a joint session at warp speed and the President will sign it with a wink and nod.  Presto, crisis avoided.  Our elected leaders have done this many times before and are practiced hands at getting it done.  They will continue this behavior until the bond market rejects dollar-denominated sovereign debt.

Europe's leaders have obviously been taking notes on how to avoid solving fiscal problems.  The Continent's finance ministers are coming up with some very creative ways to pretend to bail out Greece.  Athens continues to oblige them with creativity of its own.  I believe Greece will have no difficulty forcing some hedge funds to disgorge the Greek sovereign debt they own at far less than 30% of face value.  All of the cards are on Greece's side in this game; Greece can walk away from buyback talks and immediately tank the secondary market for its debt.  Athens can risk panicking its EU/IMF creditors for a few days because that's all it will take to force hedge funds back to the table.  The half-life of a hedge fund's margin call is a lot shorter than a European finance minister's conference call.  Quite a few hedge fund managers are about to learn that they were too smart for their own good.  The only winners might be the ones who took out short-duration CDS spreads in hope of a blowout.

The European ministers' negotiating leverage with Greece is also deteriorating.  The credit ratings of their bailout funds are in perpetual jeopardy.  Greece knows it can force further downgrades just by making some aggressive noises about noncompliance.  The mechanisms' credit ratings downgrades do not mean Europe's bailout artists will be unable to borrow.  The Federal Reserve's unspoken arrangements will see to it that the funds' coffers are filled, with the U.S. central bank demanding a higher risk premium as appropriate compensation.  This is why the European ministers hold the weakest hand in these multilateral negotiations.  They are simultaneously subject to Greek threats of nonpayment and American threats of higher costs for dollar swaps.  The financial media reports the tips of icebergs.

Sometime next year I'll be laughing very hard at a lot of broke money managers who went long Greek bonds, long the euro, long China, long U.S. housing, and long other things.  I just continue to marvel at how high the ruling elite can stack its house of cards.  They're quite skilled but not omnipotent.