The Economissed: Default: Simply One Person’s Version of Events…

As the long awaited summit approaches on Thursday the real behind the scenes work starts tomorrow. Eurozone officials will convene Wednesday at a meeting designed to try to narrow down the choices they have to make Greek Debt more sustainable and to then present proposals to the Eurozone leaders for signing on Thursday.

Iʼm thinking this is the perfect time to set shorts prior to what many will no doubt think is yet another damp squib of a meeting. There are various reasons to think that we may be at a turning point. Technicals – as patterns are at extremes (call in for details) and although a last run higher can not be ruled out the topping signals are everywhere from Demark to Wave counts & extended Momentum Indicators to falling Open Interest data.

The flow recently in the Eurozone Govt. Bond markets has almost come to a grinding halt. Volumes yʼday were well down on normal levels – a pattern that has been gathering pace for a number of months. We are certainly at the point where many participants are exasperated when it comes to the slowness of the Authorities to act and that has led to a dearth of sellers in RX and TY which both play at being some kind of safe haven here (everythingʼs relative!) .

But what kind of a fix can we expect Thursday? And could it be that the Market may be caught wrong-footed? Well, at the meeting of Deputy Finance Ministers, Treasury Heads and Junior Central Bankers will be joined by the closest advisors to the EuroZone leaders. What is clear from Merkelʼs comments yʼday is that she will attend to sign this off and for no other reason. As we know ALL options remain on the table it seems relatively clear cut that an act of desperation to save the Euro in its present form is likely. That all options remain on the table is actually where the process is becoming intolerable. According to one insider:

“Basically, all the options you can possibly think of are still under discussion and you can imagine how complicated it gets. If only we could rule out something, but that has not happened yet.”

Recent history has taught us to be cautious when it comes to Europe finding a fix, indeed up until now there has been nothing but extreme disappointment with regard to the process of can-kicking. Further comments make compelling reading, however, as another source said: “It is possible to have reasonable assurances that a selective default would be only on a very temporary basis, then it could of course be tolerated.”

Another official added “temporary” meant a few weeks or a month at max…..hmmm….no doubt similar to the UKʼs National Insurance Tax being only a temporary measure to finance fighting Napoleon…..What is becoming increasingly clear is the spat emerging as the Raters and the Eurozone Officials go at it hammer and tongs – and as Napoleon himself said; “History is the version of past events that people have decided to agree upon.”

This weekʼs version of history is without doubt in the hands of the Elite of Europe and the choices are as follows…

EU Financial officials have three broad options to secure private sector role in second greek bailout package:

• First option would involve Greek debt buyback and credit enhancements for private sector, but would likely cause at least selective default.

• Second option is based on French proposal, would offer no credit enhancements to private sector, sees no debt buyback. Second option would also involve lowering of rates and lengthening of maturities on Greek EFSF loans.

• Third option would involve a tax on the financial sector, lower rates and longer maturities on Greek EFSF loans, no buyback.

The Third option is the only one that does not see default or selective default as likely and therefore is the one the raters will abhor and the powers that be like the most.

PLAN A: Tax the bankers – extend maturities – catch out the CDS speculators by banning short sovʼs & create ones own version of history… European leadership at its best.

Dax vrs Zew:

(click for sharper image)

The Economissed is produced by Paul Wiggins head of Futures & Options at Market Securities in London.

Charts courtesy of Bloomberg

Related posts:

1. The Economissed: Vorsprung Default Technik….
2. The Economissed: From now on Greece will be known as… South Rhine-West’s Failure
3. The Economissed: What next for Greece?
4. The Economissed: …oh the youth of today – go get a haircut!
5. The Economissed: Scream if you want to go slower

Link to this article: : http://www.goldmadesimplenews.com/markets/the-economissed-default-simply-one-person%e2%80%99s-version-of-events-4630/

Posted by Paul Wiggins on Jul 19 2011. Filed under Analysis, Markets. You can follow any responses to this entry through the RSS 2.0. You can leave a response or trackback to this entry