Mish's Global Economic Trend Analysis

Slope of Hope vs. Reality: Greek Assets Hammered, 3-Year Yield Near 17%; Worst Day Ever for Greek Bank Stocks
MarketWatch Infomercial: Can Millennials Finally Afford a Home?
Clash Over Sanctions: Syriza Opposes Sanctions on Russia, Calls Them "Neocolonial Bulimia"; Negotiation Rules

Slope of Hope vs. Reality: Greek Assets Hammered, 3-Year Yield Near 17%; Worst Day Ever for Greek Bank Stocks

Posted: 28 Jan 2015 02:29 PM PST

Investors who plowed into Greek assets ahead of Mario Draghi's QE €60 billion a month bond-buying spree figuring the ECB could paper over this mess have been pounded almost nonstop recently.

Today alone, Greek bank shares plunged 22-29%, and yield on the 3-year Greek treasury hit 16.97%.

Worst Day in History for Greek Bank Shares

Bloomberg reports Greek Markets Hammered as Fears Grow Over New Government.

Greek bank shares suffered their worst one day loss on record on Wednesday, as anxiety grew over the new government's plan to renegotiate Greece's €240bn bailout.

The country's four biggest lenders saw their stock prices plummet by an average of more than 25 per cent just two days after Alexis Tsipras, leader of leftwing party Syriza, was sworn in as prime minister. It was the third day of double-digit share slides for the banks.

In the space of a few hours, the yield on three-year Greek bonds jumped 2 percentage points to almost 17 per cent, as investors wondered whether Greece would honour its debts in the near term.

Shares in Piraeus, Greece's largest bank by assets, whose stock price has halved over the past month, plunged 29 per cent. National Bank of Greece and Eurobank each fell 25 per cent and Alpha Bank 26 per cent.

Greek banks have been tapping the European Central Bank's "emergency liquidity assistance" facility to replenish funds in the face of withdrawals by depositors and foreign banks' reluctance to lend.

A few charts will confirm the above picture.

Greek 3-Year Bond

Greek 3-Month Bond Yield

Greek Yield Curve

3-Month: 4.530%
3-Year: 16.970%
5-Year: 13.666%
10-Year: 10.865%
15-Year: 10.342%
30-Year: 8.635%

The yield curve may look strange to some, but here's the three-part explanation:

Mid-range bonds will be hammered the most in any haircut deal.
Yield on the 3-month bond spiked since the end of December.
The market is pricing in the possibility of a default, but not within 3 months.

National Bank of Greece 15-Minute Chart

Shares of National Bank of Greece closed about 22% lower today. At one point they were down about 28%. Let's investigate the broader picture for this fine company.

National Bank of Greece Monthly Chart

NBG has plunged from 67.60 in September of 2007 to 1.03 today. That's a plunge of 98.5%

Greece FTSE 20 Index

Slope of Hope vs. Slope of Reality

In June of 2012 the Greek-20 hit a low of 8.77. It hit a high of 25.76 in March of 2014. It was downhill from there, much faster than it went up. Today's decline was a modest 11.61%.

Run on the Banks

From Bloomberg (link above):

Deposits have declined by an estimated €12bn since December from a private-sector deposit base of about €164bn in November, according to Moody's.

Those deposit declines looks like the start of a run on Greek banks. If so, it is necessary to get out before Greece imposes capital controls or the ECB shuts down the ELA (Emergency Liquidity Assistance) program for Greece.

Repeat Warning

Once again I repeat my January 9 warning regarding Greece: Another Run on Greek Banks Begins; Get Out While You Still Can; Buy Gold

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

MarketWatch Infomercial: Can Millennials Finally Afford a Home?

Posted: 28 Jan 2015 11:25 AM PST

The Outside the Box MarketWatch Opinion of Damian Maldonado is Millennials Can Finally Afford Homes with New Mortgage Rules.

Let's start with a look the new rules.

New Rules

The administration earlier this month cut the premium that borrowers with a Federal Housing Administration loan must pay for mortgage insurance to 0.85% from 1.35%. The half a percentage point reduction will reduce the cost of the average FHA loan by about $1,000 per year.
Fannie Mae and Freddie Mac last month dropped the minimum down payment to 3% from 5% on some of its mortgages. FHA requires a 3.5% down payment.
Grant programs, such as CHFA in Colorado, allow home buyers to purchase a home with as low as a $1,000 down payment.

Hoop Jumping

Maldonado jumps through all sorts of hoops to justify the new rules, pretending that "new regulations, should stop the problems that led to the subprime mortgage crisis".

He concludes "Perhaps this will be the year this generation will leave their expensive rentals, or their parents' basements, and move into their own homes and live the American Dream."

I propose that after this relentless rally in home prices, the above "new rules" are too risky. Low down payments would have made more sense actually at the bottom of the market, when standards tightened.

This is typical regulatory BS, lowering lending standards when they should be tightened, and tightening them when arguably they could be lowered.

The cure in this case is to get rid of Fannnie Mae, Freddie Mac, and the FHA, all useless organizations that have done nothing but raise the cost of housing by promoting houses as the "American Dream".

Nonetheless, I offer this musical tribute.

Link if above video does not play: Andy Williams - The Impossible Dream (The Quest)

Questions

Before you get too teary-eyed over the American dream, let's investigate two questions.

Question Number 1: Who is Damian Maldonado?

Answer Number 1: Damian Maldonado is CEO and co-founder of national mortgage lender American Financing.

Question Number 2: Why the hell is MarketWatch running infomercials for American Financing?

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Clash Over Sanctions: Syriza Opposes Sanctions on Russia, Calls Them "Neocolonial Bulimia"; Negotiation Rules

Posted: 28 Jan 2015 12:16 AM PST

The Blowout Victory of Syriza has taken on some new meaning outside of Grexit possibilities.

Please consider Greeks Rebuff EU Call for More Russia Sanctions.

A spokesman for the ruling coalition of Alexis Tsipras, prime minister, said Greece had not approved a statement from EU heads of government that asked their foreign ministers to review further sanctions in response to the latest flare-up of violence in eastern Ukraine, blamed by the US and most European nations on Russian-backed separatists.

The Greek statement raised questions over whether the new government, led by the radical leftist Syriza party, would support a continuation of existing EU sanctions, including visa bans and asset freezes on Russian officials and Moscow-supported separatists, when they come up for renewal in March.

German chancellor Angela Merkel warned last month that Moscow was trying to make some Balkan states "politically and economically dependent".

[Mish comment: But hey - political and economic dependence on Germany and the Troika is of course perfectly acceptable]

Nikolai Fyodorov, Russia's agriculture minister, suggested on January 16 that, if Greece's debt woes forced it to leave the EU, the Kremlin would help Athens by lifting a ban on Greek food exports that forms part of the measures adopted by Moscow in retaliation for western sanctions.

Syriza has already given a taste of its foreign policy outlook in the European Parliament, where, since last May's elections, its MEPs have adopted a number of pro-Russian positions, including voting against a EU-Ukrainian association agreement.

Costas Isychos, a Syriza foreign affairs spokesman, last year derided western sanctions on Russia as "neocolonial bulimia" and praised the military efforts of the Kremlin-backed separatists in Donetsk and Lugansk in eastern Ukraine.

Syriza's 2013 party manifesto demanded Greece's exit from Nato and the closure of a US navy base on the island of Crete.

Though a Nato member, Greece in modern times has often enjoyed warm relations with Russia, and the Soviet Union before it, no matter what the political complexion of the government in Athens. The two countries are culturally close, with a shared Orthodox religion, and leftwing Greeks in the cold war used to have an anti-US, anti-imperialist outlook very close to the views of Moscow.

"Neocolonial Bulimia"

That's a good term. It applies to the Troika as well. The IMF is not out to save Greece, it's out to loot Greece for the benefit of external bondholders.

Greece's Coming Clash in Europe Starts With Russia Sanctions

Bloomberg reports Greece's Coming Clash in Europe Starts With Russia Sanctions.

Prime Minister Alexis Tsipras's Syriza-led coalition said it opposed a European Union statement issued in Brussels Tuesday paving the way to additional curbs on the Kremlin over the conflict in Ukraine, and complained it hadn't been consulted.

"Greece doesn't consent," the government said in a statement. It added that the announcement violated "proper procedure" by not first securing Greece's agreement.

Greece's new foreign minister, Nikos Kotzias, has the opportunity to block further sanctions at an EU meeting in Brussels on Thursday.

Sanctions require unanimity among the 28 governments. A Greek veto would shatter the fragile European consensus over dealing with Russia, potentially robbing Syriza of early goodwill as it lobbies for easier terms for Greece's bailout.

"Anyone who thinks that in the name of the debt, Greece will resign its sovereignty and its active counsel in European politics is mistaken," Kotzias said at the ceremony to take over the Foreign Ministry. "We want to be Greeks, patriots, Europeanists, internationalists."

The new government also includes Yanis Varoufakis, an economist who has called Greece's bailout agreement a destructive "trap," as finance minister. He advocates defaulting on the country's debt while remaining in the euro.

"Tsipras's initial decisions, especially his coalition with a nationalist-hooligan party, point toward an exit from the euro," Luis Garicano, an economics professor at the London School of Economics, said on Twitter. "If he wanted to negotiate, he'd have teamed up with To Potami, he wouldn't have opposed sanctions against Russia."

Negotiation Rules

The position of Economics professor Luis Garicano is laughable.

In regards to EU sanctions, 1 vote out of 28 can kill the deal. That's a lot of leverage, especially when 27 on the other side want something from you. What are they willing to offer in return?

In contrast, when it comes to bailouts, Greece is outvoted by a huge margin, perhaps 18-1 within the Eurozone block. In this case, Greece desperately wants something from the other 18 instead of the other 27 wanting something from Greece.

The only way to negotiate when it's 18-1 against you (and you are the one who needs something) is to have some leverage. If Syriza teamed up with To Potami and agreed to sanctions, Tsipras may as well put all his cards on the table saying "here, take the ones you like".

Brick in the Face

The way to get things serious in a hurry is to figuratively hit the Brussels nannycrats smack in the face with a brick. Letting Brussels know you will kill sanctions if you do not get what you want would do just that.

Of course, sanctions are pure idiocy in the first place. So hitting the nannycrats with a brick in the face is precisely what needs to happen. That brick will set the tone for better negotiations on other matters as well.

This is likely to get very interesting in a hurry.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

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Mish's Global Economic Trend Analysis

Mish's Global Economic Trend Analysis

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