Greece is in trouble and its getting worse.
The bonds it only-just managed to sell Monday, got dumped Tuesday. So many of Monday’s buyers wanted rid of them one day later, they were selling them for less than they paid for them. For those who want to know the ‘yield’ (It’s like the interest but rises and falls depending on the price of the bond at any moment) rose by a quarter of a percent!
The bid to cover ratio of the original sale had been very low. Only just enough buyers to sell all the bonds. Of course the official line was it was fine, we sold them – what’s the problem? Well apart form the massive sell off, the problem is that the low bid to cover ratio got worse. Tuesday Greece tried to sell a little more debt in the form of 12 year bonds. They only wanted to sell €1B. The auction failed. They only got bids for €390M. Even though the bonds came with 6% interest.
Greece has to sell at the very least another €17B to avoid default and bail out. In addition it has to re-finance about €20B. The question now has to be, at what rate can they manage to get buyers? And the real nut cruncher for them, as I mentioned Monday, is that the entire Greek ‘plan’ depends on only having to pay around 4.5% interest. This is why you keep hearing the Greek PM pleading for ‘support from Europe to help bring our borrowing costs down.’ If they don’t come down, let alone if they go up, as these failed auctions suggest they will, then there is no plan and there will be no recovery.
So what can a Greek boy do? Don’t answer that. But with that rude, gratuitous and uncalled for segue, let’s move on to Germany.
Germany is supposed to bail out Greece and then Portugal and even Spain right? But then we hear today that forecasts ( Oh how I love forecasts – see earlier post) have been revised down. Surprise surprise! Down from 1.5% to 1.2% growth. That’s a downward revision of 20%! Don’t you wish you could be a financial expert and regularly get things wrong by 20% and still be admired by your peers, and draw a fat salary and bonus?
Oh, I know! Let’s not expect Germany to do it on their own. Let’s pass round the hat to all Germany’s EU partners. France will help. How about Ireland? Oh wait, they have just had to bail out all their banks AGAIN. €8.5B for Anglo Irish bank alone and that one bank will need another €10B before the year is out. And the government is going to spend at least €40B buying up bad loans to prevent the other banks from imploding. But the government’s good for it right? All those austerity measures? Well actually the Irish budget deficit is 12.3% (Greece is 12.7%) and it’s growing not shrinking. Ireland’s national debt is €75B, double what it was in January 2008 and is set to double again by 2014.
So on reflection perhaps we won’t ask the Irish.
How about the Portuguese? Ah, well perhaps not them either. Lots of municipal loans getting very near the cliff edge later this year. Spain? Unemployment at 17%+ and property prices at the bottom of a dark hole – maybe not. The UK then?! Oh yeah, they’ll just whip out that good-will checkbook and bounce you a check like nobody’s business. QE anyone?
Oh hell yes! Rally on Garth!