These past few days have been recovery days on wall st. Volume on the NYSE (NY Stock Exchange) on Monday, first trading day after the Giants win, was the lowest non-holiday trading day volume in over a decade with the markets ending slightly lower. (zerohedge) Barring any radical events transpiring with the Greek summits involving bond holder agreements the markets should trade in a very narrow range. Everyone is expecting a quiet week…but you never know, things have the potential to get interesting as the Greek talks have been pushed off until Wednesday.
On a very high level, the Greek talks deal with restructuring their sovereign debt; ie bond payments/interest rates. Current interest rates are unsustainable, the current 2 year Greek Bond’s yield is trading well north of 170%, a similar US Govt Bond is at .25%. At these rates, Greece will be unable to pay back their creditors,( banks, citizens, hedge funds). Original agreements between the bondholders and Greece (EU/IMF) had creditors taking around a 50% haircut, but those numbers have now increase to around 70%. Some hedge funds are unwilling to take a big haircut (less than face value of current bonds). Hedge funds will hold out for the best deal possible, as a creditor SHOULD, There is wide speculation that they don’t really care about a Greece default, because they have protected themselves with Credit Default Swaps. CDS pay par value (usually) in an event of a default for the face of the bond by the issuers of the CDS. March 20th, Greece has a $14.5 Billion Euro (18 Bill USD) bond payment due, and its widely speculated they will be unable to pay in full on their commitment.
A couple very interesting things have transpired today, that I’m sure went widely unreported. This morning gold was trading at a low around $1715 an oz, but then Ben Bernanke spoke and the price of gold closed shy of 1750 an oz. Bernanke’s policies since the financial crisis have been to provide unlimited liquidity, print more money and keep interest rates at record lows; great ways to bring inflation. And inflation’s behavior is similar to that of a drunk girl, it cannot be kept under control.
Our current economic situation is very strange. Some economic indicators come in well above Wall Street expectations, but yet there are some reports that conditions are worst they have been in years, or have ever been. The Baltic Dry Index, a measure of commodity shipping costs, has crashed; going form11,500 in 2008, to 4,500 in early 2010 to 800 presently. There has been no demand to ships goods. Glencore, a top commodity (trading) firm in the country, (I played them a few weeks ago in a corporate basketball game) was able to hire a commodity ship at zero cost and had the operators of the ship, Global Maritime Investments, Ltd. pay $2,000 a day towards the fuel costs for the first 60 days of the charter. This is what happens when overcapacity meets flat-to low demand. Low Demand due to recession???
Until next time…………where I will touch upon the history of the Futures Market
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