EU being shaken by the so called Greece Crisis. A lot of participants are stunned because of the rapid change of greece interest rates
Normally a steep inverse yield curve shows expected or actual Central Bank activity such as absorbtion of liquidity from the financial system.Presently this is not the case. The soaring greek yield curve happens because the market for greek bonds lacks sufficient demand. Why this??
Hypotheses
1) Public attention is being dragged off home-made problems such as political, economical and environmental crisises to focus on external problems such as the spell over Greece repeated like a mantra over and over again.
2) The continuous degeneration of the economists becoming econometrists leads to an irresponsible attitude towards managment of all kind of businesses. Also the missing cognitive abilities aggravate this phenomena.
3) Ignorant so-called specialists blab just as the other blabbers do. This without prior nor further investigation.
4) As not to take the blame he independent - whenever independent - Rating Agencies deal finishing strokes to help doing in the prey.
5) Benchmark believing managers of all levels "adjusting" their portfolios hold the stirrups for some cunning speculators. When "adjusting" portfolios the majority of asset managers tend to hardsell the holdings having become "junk" (lower than BBB); they just sell it at market prices, no limitations.
6) Still there are some ignorants believing Countries can go bankrupt. Never ever this is possible.
BOND MARKET
Evaluation of Greek bonds
Rumour mills supply the markets with tales such as up to 50%-haircuts of the nominal amounts of greek bonds when due. This is the reason as to why the yields of USO(sic!)Bonds shot up in the air like rockets. It is easy; e.g. the two year bond's yield shot up to some 16% per annum.
As a rule of thumb - not mathematically calculated - twice 16% equals 32 % price discount for a 2-year bond. Even a basic primary school student can estimate the price of a 10-year bond yielding 10% p.a. For sure their would not be a big-size market if ever tested. Some greenhorns may be going to be ripped off by hedge funds taking advantage of their histerical behaviour.
Most important fact to tune the music
Professional asset managers/investors are bound to portfolio management guidelines. Almost all portfolios must not consist of bonds rated below BBB (tripple B). Even the portion of BBB is limited to some 5 to 10%.Investors mandating rules and regulations are such as Pension Funds, Insurance Companies, Investment Funds, Endowment Funds and others. They concentrate the very bulk of the more and more infantile peoples' funds thus power. It is evident; professional investors are acting forced by the mainstream activity. (sinking ship rule)
POLITICS - Facts
EU-countries' economy and policy
The EU-Countries' economies are independent but for the fact their being on ECB's European Central Bank's leading-string regarding monetary policy [side effects: foreign exchange rates, interest rates] as well as deficit policy. The only way for the market to express the value of a EU-country's economy since the invention of the EUR are yield shifts relative to other EU-member-countries according to their financial situtations. In case of deterioration the yield must increase significantly. Also the spread to other EU-members' yield will intensely widen. Following the rule of water diluting thus spoiling the wine, the entire EUR-yield curve may worsen versus other countries yield curves; e.g. USA. EU-countries' economy and policy
Suggested saving and starving will devastate Greece; the other P.I.G.S. , and then severely hit the European Union
The GDP ppp (purchasing power parity) of the EU with USD 14.51 trillion is slightly ahead of the US with USD 14.26 trillion. China with an accelerating yearly growth rate count for some USD 8.789 trillion will pick up not before long. Already now China is supplying the bulk of U.S.Government's financial needs.
Economy considered warfare
As economy may be considered warfare, attacking Europe is quite palpable. Europe with a GDP of USD 14.51 trillion the most powerful economy nowadays has the same economic power as the United States. The budget discipline of the three most important EU-member countries is far better than the one of the U.S. However, when it comes to overall power the USA are ranking first because of spending a lot of money in its war-machinery as well as in fullfilling its will to gain leadership in space projects.Europe's Achilles' heel was easily spotted; Germany's White Elephant giving Father Christmas by gathering whatever country to join the ranks of the other extras. Anyone becoming too powerful because of human resources (book- and streetwits) must be put in the right shoes. Any underdeveloped country sitting on huge natural resources such as gold and other precious metals, bauxit, diamonds, other precious stones, must be kept ignorant thus kept right where they are; in their shoes as ever since.
Most important Discrepancy between the US and EU
The EU's GDP consists of some 27 particular economies; all countries' situations are thoroughly reported. The transparency of Europe's economy is evident. Under international law the EU is but a international organisation like e.g. the UN.
The EU-president, ministers, parliament and other Bruxelles politicians (advantagicians?) are powerless jumping jacks string-lead by the three most important EU-members. They will never be taken notice of; nobody will talk to nobodies; all political activities are taking place bilaterally. European Union's power people right now means Merkel, Sarkozy, Brown and other Berlusconis.
Recommendation
OPTION 1
EU may free Greece from its bonds with the EU facing all consequences. Give Greeks the opportunity to gain full power on their own home country. Free Greece and give back to it all possible means to remedy its situation.OPTION 1
Major advantages: Equipped with Economic policy, Monetary policy, Foreign Exchange policy Greece will be able to maneouvre at its free will. Devaluation of the then-again Greek money versus the three major currencies will prevent the Greek Administration from helpless state-directed economy.
Positive: The Greek salary structure must not be changed [i.e. fixed, lowered, taxed heavilier] This for the simple reason of slowing down the economy triggering riots thus making it impossible for Greece to get out of the mess.
Negative: Germany is too proud to admit the partial failure of the Euro-Concept. It also is afraid of other member countries' spinoff. The Germans consider the EU fragile enough to fall apart in case of letting Greece out. A great number of countries only recently joined will NOT understand such measure.
OPTION 2
Change the EU from International Organisation a confederate United States of Europe (U.S.E)Like the U.S.A the U.S.E. will report as a sole country. Europe's weak spots will go undercover just as America's have been undercover for the last 200-something years. [heard about New York's bankruptcy, bailed out by UBS?, anybody want to lend money to California?, refinance hillbilly boys' activities?]
Positive: Media-made Greek problem becomes domestic, no one will bother about situations whatsoever.
State-guided economy will not be needed, the competition takes place on cost of production and to a greater extent on labour cost.
All interest rates throughout the EU will converge; EU-members' interest rate spreads will narrow. [e.g. Swiss Confederation consisting of Kantons, Germany consisting of Länders]
Negative: German jib will sail close-hauled, strong wind in the face. The UNSC, United Nations Security Council [permanent members P5: France, Russia, United States of America, People's Rebpublic of China, United Kingdom, elected members 2010-2011: Gabon, Brasil, Bosnia, Nigeria, Lebanon] lead by P5 will convulsively countersteer. Concentration of power in Europe never will be allowed nor wanted by hegemonist US and China seconded by France, Russia and the UK.
OPTION 3
There are NO other options; the measures envisaged right now are inefficient and lead to evil and decay. Impostors in charge try to sell their white elephant to the populations of various states. Financial support swapped for austerity dictated by some politicians will never help. This kind of action will backfire at the souvereign, not the political leaders. The impact will be a slow-down of the economies. Maybe it's wanted . . .
Facit
The European Union, the child just borne, got into severe stomach trouble. As this Union is just a bunch of feeble particular sticks not yet bundeled keep hands off. Do not join if not yet joined. Keep perpetual neutrality; it works.copyright thomas ramseyer
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