Posts
Showing posts with label ECB. Show all posts
Showing posts with label ECB. Show all posts
Wednesday, May 23, 2012
When Will The Federal Reserve Begin Printing Money?
Not being an insider, I don’t know. However, here are some of the estimates:
1.When the S&P500 gets down to 1150 (currently at 1290) where it was last December.
2.When the 10 year Treasury yield gets down to 1.5% (where it was the last time they intervened.)
3.When we get a series of really bad numbers on the economy (like the Philadelphia Fed report last week.)
4.When Chairman Bernanke “sees” prices decline (i.e., Consumer Price Index) as he fears deflation.
5.When Chairman Bernanks needs to keep the dollar from rising too high (which hurts exports and the recovery) and because he needs to support the Euro to prevent a disaster.
6.When Chairman Bernanke needs to help the European Central Bank flood the financial system with liquidity if/when Greece votes to exit the Euro and austerity.
Friday, March 9, 2012
Sovereign Bond Risks to Increase Significantly
February 21, 2012
If you remember, we were frightened when the U.S. Government threw out two hundred years of settled law when they arbitrarily threw out the superior claims of General Motors' bondholders in favor of the subordinated claims of the shareholders and unions. But, we have since dismissed this incident as being just against one company; and besides it was politically expedient.
However, we did the exact opposite in the financial crisis when we saved the bondholders with public funds. Again, it was politically expedient.
Saturday, the European Central Bank (ECB) did something they may regret later. They exchanged their existing Greek bonds for "New Greek" bonds that are not subject to the "collective action clause" (which allows a supermajority of bondholders to agree to a debt restructuring.) Now, under the new terms, the ECB has first claim to Greek assets over all other bondholders. They did this without the other bondholders consent and without objection from other European nations.
In other words, the ECB can now retroactively change the terms of any bond contract. For example, who has the superior claims against assets, the interest rates, the maturities, etc. at any time it's to their advantage and without bondholder acceptance. No rule of law. No judicial appeal.
Bond buyers will now have to reassess the current value of European bonds for this new risk and then evaluated them against U.S. Treasuries where we have had the rule of law. This increased risk should have an impact on Europe and on our markets.
If you remember, we were frightened when the U.S. Government threw out two hundred years of settled law when they arbitrarily threw out the superior claims of General Motors' bondholders in favor of the subordinated claims of the shareholders and unions. But, we have since dismissed this incident as being just against one company; and besides it was politically expedient.
However, we did the exact opposite in the financial crisis when we saved the bondholders with public funds. Again, it was politically expedient.
Saturday, the European Central Bank (ECB) did something they may regret later. They exchanged their existing Greek bonds for "New Greek" bonds that are not subject to the "collective action clause" (which allows a supermajority of bondholders to agree to a debt restructuring.) Now, under the new terms, the ECB has first claim to Greek assets over all other bondholders. They did this without the other bondholders consent and without objection from other European nations.
In other words, the ECB can now retroactively change the terms of any bond contract. For example, who has the superior claims against assets, the interest rates, the maturities, etc. at any time it's to their advantage and without bondholder acceptance. No rule of law. No judicial appeal.
Bond buyers will now have to reassess the current value of European bonds for this new risk and then evaluated them against U.S. Treasuries where we have had the rule of law. This increased risk should have an impact on Europe and on our markets.
Subscribe to:
Posts (Atom)