8/14/2019 Greece and the Evil Speculators

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Greece and the evil speculators: the scapegoats again

In February, George Papandreou, the Greek Prime Minister, started the chorus by pointing the finger at hedge funds and other so-called speculators for thetroubles of Greece. Nicolas Sarkozy, the French President, Jean-Claude Junker,Luxembourg Prime Minister and Head of the Eurogroup, Angela Merkel, the GermanChancellor, and Barak Obama, the US President (Obama by demanding that certain hedgefunds keep record of their transactions on the Euro and Greek bonds and CDS) followedsuit.

For a couple of days, during Papandreou visit to France, Luxembourg andGermany, the rhetoric rolled again. These are misguided andcounterproductive. 

Tue culprits are the successive Greek governments that had disastrous fisacaland economic policy, not the speculators. Deficits are not the results of speculation,investment decision is the result of an analysis on a given situation. Investment has noemotion, it is factual. What are the facts?

First, Not all market participants buy CDS bet on a default of Greek bonds;

many buy CDS to protect their Greek Government Bond portfolios – which dueto the Greek fiscal policy has risen considerably. No speculation here, just a fiduciary duty to protect investors’ savings.

Second, if investors could not protect their portfolio against a country defaultrisk, (i) either this country could not access capital, markets or (ii) at

 very/prohibitive cost .

Finally, and I quote Commerzbank (courtesy of Saxo Bank):

“Due to the well known facts (deficit and debt levels, manipulation of official statistics in

Greece) these market participants however demand a considerable risk premium.Following the collapse of the US housing market the financial markets were accused – by the same politicians as those quoted above – to have been too casual in their approach torisk taking. Now that a more careful approach demonstrates that political errors have beenmade, this approach attracts equal criticism. A little more consistency would not go amisshere!”

8/14/2019 Greece and the Evil Speculators

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 http://marketsandbeyond.blogspot.com/ 

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 Again, all this, like the prohibition of short selling bank stocks during the 2008 financialcrisis, is just smoke screen to hide the reality of 20-30 years of policy mistakes that have been unfolding since August 2007 (one could go back to 1972 with the end of theUSD/gold peg).

I do not believe that by the end of 2010 the Greek budget deficit will be downto 3% against 12.7% today. The Greeks have a Herculean task facing them, but shifting theattention from the roots of the problem will end being even more painful. Nor do I believethat France, Spain an other Eurozone countries will be able to be below 3% by 2012.

 All this gesture and noise from politician really outline the lack of understanding of 

markets dynamics and investing psychology. Interesting enough, after some EUR/USDrelief following Greece successfully placing EUR billion bonds last Thursday, the EUR isagain under pressure since these renewed declarations against the so-called speculatorsare out. Speculators should thank Junker, Merkel, Papandreou and Sarkozy for theirrecent declarations. Whatever the Politicians say, markets will be right in thelong term since it is not possible to double cross economic fundamentals in the long run(and thanks God for that): it seems they forgot that the forex market is over a trilliontrading volume a day and difficult to manipulate…

I maintain my negative stance on the EUR.

 Source:

 

Bloomberg: Greece to Press U.S. to Crack Down on ‘Speculators’http://www.bloomberg.com/apps/news?pid=20601087&sid=a_iFwvoYMrUA&pos=3

Bloomberg: Merkel Urges Regulation as Greece Takes Plea to U.S.http://www.bloomberg.com/apps/news?pid=20601087&sid=aHW5673_XI2I&pos=2