Day: October 27, 2011

Thursday, 27 October 2011

08:45 – How could I have been so wrong? The EU authorities announced this morning that they’d hammered out a comprehensive plan overnight to address the euro crisis. And they’re right. They pretended to deal with every issue facing them (except the important ones), and so far the markets are pretending to believe them. I predict that’ll last 24 to 48 hours before reality sets in.

Private lenders agreed to accept a “voluntary” 50% writedown on Greek bonds. In reality, they accepted an 85% writedown, because what they ended up with was 15% in cash and the rest in 30-year Greek paper, which the market will quickly value at zero, or close to it. And I have my doubts about that 15% cash ever actually being paid. But at least Greek debt has gone from unsustainable to, well, unsustainable.

They’ve also announced that they’re pretending to increase the bailout fund to €1 trillion, although they’re not actually going to commit any more of their own money to it. They plan to use a combination of leveraging (AKA smoke-and-mirrors) and hoping that non-EU countries will be foolish enough to put in pots of money to back worthless EU sovereign bonds. Meanwhile, they’ve papered over the ECB issue simply by not mentioning the ECB at all.

So, the net result of this pathetic effort is that they’ve bought themselves a bit more time. I’d guess they’re hoping for weeks, but I think they’ll be lucky if it’s more than a few days. Keep a close eye on Italian bond yields over the coming few weeks for the real story.

Regular readers probably won’t believe me, but last night I was pumping iron–lifting free weights. Barbara called Mary Chervenak yesterday to ask if she could borrow some weights for a week or two, until she could start going to the gym again. Mary stopped over after dinner and dropped off a pair of 15-pound (6.8 kilo) weights. I actually picked one of them up and carried it into the house. Dense little sucker. Barbara carried the other one.

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