Friday, September 9, 2011

Greek default rumor spooks markets

     Sorry about the late post today, my internet went down again.  

     Rumors of a Greek default roiled markets today sending the German Dax down 4.1% and the London FTSE down 2.5%.  The Euro also cratered today dropping an astounding 1.66% which is a big move in currency markets.  S**t is getting real.

     From ZeroHedge

     Deputy Prime Minister and Finance Minister, Evangelos Venizelos, answering journalists' questions on various reviews and rumors circulated on the Internet alleging that failure of Greece through the weekend, said:

"It is the first time you get this organized wave of "rumors" on alleged failure of Greece. This is a bad game, an organized speculation, which is directed against the euro and the eurozone as a whole.

Basic selection and priority of Greece is the full implementation of the decisions of 21 July and of course the full implementation of obligations arising from agreements with its institutional partners.

This is the clear position of the Greek government that does not take into account any element of political cost. "

    In other words, the rumors are bulls**t and Greece is not going to default.  The bond markets think otherwise. The Greek 2 year bond yield is at 57%!  Just amazing.  The Greek 1 year bond yield is at 98%!  This means the markets expect just a 2% chance that the Greeks will be able to pay off this bond.  Contrast with the US 10 year yield at 1.9% and 2 year yield at .185%.  Here is a chart of the Greek 1 yr bond yield....LOL

     Stocks dropped worldwide as worries about the European debt crisis intensified.  The 10 year yield dropped to a 60 year low at 1.896 which is the lowest since world war 2!!  This is what interest you would get from loaning the government money for 10 years.  Debt markets are very worried about what is going on in Europe.  Traders are putting their money where they know it will be safe, the good ole USA.

     "There is a real danger that a European default or bank failure would lead to a global banking crisis akin to that seen after the fall of Lehman Brothers," said Paul Dales, U.S. economist at Capital Economics in Toronto.

     I am very worried about just this scenario and have been pounding the table the last few days about it.  It is probably time to go short European stocks with EFZ.  If European stocks go down, EFZ goes up.  I am going to look into that.   I am hesitant to short however because I have never had much luck with it and markets can be irrational sometimes and go up on what seems to be bad news.  Perhaps it would be a better idea to buy gold which is a quasi short.  I would have thought gold would be up big on a day like today but it's not.  In fact, it sold off hard early today before recovering.

     At 11:02 AM PST the DJIA is down 315 pts, the SNP 500 is down 32 pts and the NASDAQ is down 63 pts.  Oil is down 3% to 86.50 and gold is up 5 dollars to 1860.


  1. signs of the coming collapse?

  2. how can every country be on the verge of collapse? this is ridiculous

  3. man, I wonder how all of this is going to play out. the worst-case scenario is certainly not very positive.

  4. the problem is the world economy and banking system is all connected. Problems in one area quickly spread and can get out of control if not addressed.

  5. There is a good reason on why the greek bonds are so damn tempting. Even if the bailouts have been aproved, dont rule out the possibility of Greece defaulting.
    I would pick up some greek bonds though

  6. I wouldn't even know how to go about buying Greek bonds but I guess you can't lose too much at 10 cents on the dollar.

  7. Ack, just what I need, more stress.

  8. @Lunatic Pope

    There is a real chance of a collapse in the financial system if Europe doesn't get their act together.

  9. rumors say Greece uses the money given by Germany to buy a submarine, is that true ?

  10. @Linux and Life

    Yes it looks to be true, I hadn't heard about that. Thats a nice little scheme they cooked up there.

  11. Well looks like I'm going short European stocks with EFZ :D!

  12. .. It's getting heated. I hope it will all turn out fine. Let's all hope, because if we start failing, everyone falls.