A Default is Never Perfect

I think it is time to remind ourselves that a default is not perfect and in these moments of lull complacency, we are setting ourselves up for the usual imperfect endings that we sometimes kick ourselves hard for, long after.

It is like Lehman, for example. Take a look at the S&P chart then (which is perhaps not applicable to Greece).

If I plug in the USD and the 10Y UST yields, it will be even more jaw dropping.

Now for the perspective since then.

Given that we have not had the official default yet, today’s euphoria is justified especially since we have China tanking again, some 5% into the closing bell. And thus, a rally is appropriate because China will rise tomorrow and it is useful to pre-empt the Chinese by buying ahead these days.

And it is only Wednesday and we have a full moon today which means markets will not panic till Friday because we have the US Non farm payrolls data release (Thursday) and the Greek referendum this Sunday.

My thoughts ?

Stay circumspect and prepare to repeat Monday’s market motions again. Because if the latest poll is right, next Monday would be the real default.

“GREEK BAILOUT REFERENDUM OPINION POLL CONDUCTED BY PRORATA  POLLING INSTITURE FOR EFIMERIDA TON SYNATKTON NEWSPAPER (RESPONSES AFTER BANK  CLOSURE) – YES 37 PCT, NO 46 PCT, DON’T KNOW 17 PCT”

Meanwhile, the smart money is selling, credit spreads in Europe have risen to their highest since Lehman which is a good time to test if those bail-in rules work. Note recent SGD issue, BPCE Sub debt 4.45% callable in 12/2020 is still trading around 100.

Greek EUR bonds have fallen some 20%.

 

Good luck !