Greece is bad. Very, Very Bad!
Trichet trashed Greece. ECB head Jean Claude Trichet read Greece the riot act reversing course on the strengthening Euro and making the world think twice about a happy outcome after this Greek tragedy. Trichet scolded that Euro zone states need to be more responsible. 'Everything going in the direction of euro zone members shying away from responsibilities is bad in our eyes. How bad? Well If the IMF or some other body exercises the responsibility in lieu of the Euro-group or instead of governments, it is evidently very, very bad, he said. (Gee I wonder who he's talking about.) Trichet also said that the mistake of giving false figures must not be repeated. (Mistake? We have people in jail that made that type of mistake.) Trichet warned that Euro Zone countries must not an abandon an inch of their current responsibility (which probably confused many members that are on the metric system. He should have said that they should not abandon 2.54 centimeters of their current responsibility). Of course that responsibility is to the Maastricht Treaty. You know that the one that led to the creation of the euro currency and also created what is called the pillar structure of the European Community. It was also the treaty that says countries belonging to the common currency zone year-on-year borrowing could not exceed 3 percent of GDP and that a country's total debt could not exceed 60 percent of its economic output.
Greece got its rescue package all right but the Euro seemed less than impressed. The euro fell after said that Greece had issued false figures, which is unacceptable. He should have demanded an apology from Greek Prime Minister George Papandreou. Well if he doesn't want an apology then I sure want one. I want one on behalf of noble speculators everywhere. While the Greek Prime Minster was found to be without any cloths he did what all good politicians do when they find themselves challenged by financial missteps and conditions. They blame speculators. The AP reported that, Greek Prime Minister George Papandreou blamed speculators who bought contracts on Greek bonds they didn't own, so-called naked swaps, for worsening the nation's debt crisis by forcing up borrowing costs. Buyers profited as the cost of five-year default swaps on $10 million of government debt soared from $118,000 a year in September to more than $420,000 in February. Of course Greek Prime Minister Papandreou has to realize that everyone who buys Greek debt is in a way a speculator that is speculating that they might actually get paid back, with interest. They are speculating that the figures that come from your government are reliable. That right now looks like a very bad bet.
What is worse, other EU member are buying into this nonsense. The leaders of Germany, Luxembourg, France and Greece have demanded an inquiry into the matter. In fact European Commission president José Manuel Barroso has said he is considering banning trading in credit default swaps.
Yet the Irish Times already show what we already know that there is no evidence of speculator manipulation. The Irish Times report an investigation by BaFin, the German financial regulator, that last week found there was no massive speculation in Greek CDS, with the net volume of outstanding contracts unchanged since early January. Data shows there are just $9 billion (â‚¬6.6 billion) in Greek CDS outstanding, compared to more than $400 billion in Greek government bonds. A year ago, the figure was $7.4 billion, implying no surge of speculative activity. What is more that there is almost three times as much money ($26 billion) tied up in the Italian CDS market. The Bank for International Settlements says Portugal carries the greatest proportion of CDS positions relative to government debt, although given that the percentage remains tiny (5 per cent), it's difficult to imagine how CDS traders could exert undue influence on bond movements. The Irish Times say that looking at 10 European states, including the infamous PIGS (Portugal, Ireland, Greece and Spain), the US Depositary Trust and Clearing Corp found that there was $109 billion in outstanding swaps - less than 1 percent of their combined debt. A fundamentally unjustified speculative attack would imply that Greek bond spreads are way above fair value. The truth is, as the Times points out, that riskier borrowers have always paid higher interest rates. Greece's external public debt-to-GDP ratio is the highest in the world. Of course how this charade affects the Euro's strength and credibility in the long run remains to be seen but speculators everywhere should demand an apology.
I hope I don't owe the Energy Information Agency an apology. If I do, I apologize. I was quoted about some data errors in the EIA which we felt at the time were wrong. While I know at times the EIA does make mistakes, I know they do an awesome job. Today in the Wall Street Journal, Richard Newel of the EIA responded. He wrote, While no statistics assembled under the demanding time constraints of a weekly reporting cycle can ever be perfect, the weekly oil data produced by the U.S. Energy Information Administration are widely and correctly recognized as the best available information of its type in the world (Faults Exposed in Oil Data Collection Money & Investing, March 19). The data are both high quality and secure. Nonetheless, recognizing the importance of these data, the EIA continually strives for improvement. The resources devoted to oil-data quality were increased beginning with the budget enacted in early 2009, and those resources are being put to good use. The EIA has undertaken a number of upgrades over the past year, including having companies report data for individual terminals rather than a state-level aggregate, which is very helpful for quality-control purposes. The EIA is also fully integrating ethanol into the weekly and monthly balances, in light of its rapidly growing use in the gasoline pool, and has implemented security improvements. Further efforts are under way, informed in part by the independent review of the program that the EIA commissioned from SAIC Inc.; the administration's fiscal year 2011 budget request proposes additional funding for new data quality initiatives. I salute the Energy Information Agency as one government agency that I really do respect and one the market does as well. We know no one is perfect and it is fun trying to outguess the EIA when they make mistakes. Once in awhile I come out on top. The truth is that the EIA is a model that if we had it in China and OPEC, we would have a much better global economy! Of course I have long suspected that at times the data that we receive each week is incomplete and many times we see the data quietly corrected in the coming weeks. Still despite that, I believe the EIA should be proud of the fine outstanding job that they do. I for one appreciate it and value it. And America and the world should as well!
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