Stick a Fork in It, Chapter 2

March 12, 2012
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These new Greek bonds, to be issued Monday, are already trading a trashed out prices. The Bloomberg price shows pricing AFTER the 53% haircut. Another 3/4 has been shaved off. In other words, based on the old bonds the new bonds have lost over 85% of their value. This suggests investors have strong doubts about Greece’s creditworthiness even after its restructuring. Fitch Ratings said on Friday that it would probably give Greece’s new bonds a low, junk-bond rating. Further, as Mark Grant points out, Greece has another 107 billion in contingent liabilities covered by the Greek government.

source: John Mauldin

chart

The bottom line going forward is that no economy can service a still large amount of debt when only 36.1% of its people contribute by being employed. By comparison, the US employment/population ratio is 58.6%, down from 64.7% in 2000. The Greek “cash deficit” at the end of 2011 hit €24.9 billion,  or 11.5% of GDP, far above the general budget deficit. Government-owned enterprises, such as the public healthcare sector, can’t pay their bills and the total owed their suppliers was €5.73 billion.

One Response to Stick a Fork in It, Chapter 2

  1. Russ Winter on March 13, 2012 at 6:05 pm

    Tizz, if you were actually a subscriber you would know that I haven’t used naked calls since the implied vols went below 25 several months ago. I have been buying cheap out of the money 10-12 cents or so puts with extreme low IVs. Yes, those haven’t worked out, but not an open ended loss.

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