“The end crowns all, and that old common arbitrator, Time, will one day end it.”
-William Shakespeare, Troilus and Cressida
We are approaching an endgame, March 20 will mark the spot on your calendar, and while it is certainly not “the” endgame; it is one of the continuum. During the next twenty-three days we are going to get some answers to a number of questions that have been unanswered and a number of verdicts that will set the stage for the performance. In the end I suspect there is going to be a decision made by Germany whether to fund the Greek bond payment independently of everything else or just to let them go and destroy the grand myth. Germany will probably end up playing chicken with itself in an exceedingly bizarre pact with the Devil. In the first instance there is more and more evidence that the PSI will not go as hoped as many institutional investors do not take the bait and are not willing to roll-over for the good of Greece and Europe. Each time I hear some European politician speak about the obligations of money managers I am reminded that these people live far off the beaten path of reality. Somehow the “responsibility to shareholders,” so prevalent in other conversations, finds itself left out in the woodshed when speaking about the Greek bailout. The boys speak from both sides of their mouths which is a common trick amongst these rascals and one that I have never attempted though they seem to have it down pat. Forbearance and fealty depend upon the subject at hand and Greece demands one covenant while corporate jurisprudence demands another. The often intoned phrase for bondholders, that this is the one and only time we will get spanked, rings with all of the truth of the Trojans proclaiming that they “Come in peace.” A horse tale history has taught us.
Aside from everything else the trick pony may well turn on a PSI deal that does not get accomplished and no time left to fix it. Consider the implications of a failed deal where Greece is over one hundred billion short and no time available to head back to all of the Parliaments to try to increase the bailout one more time. Realization may well turn to European panic and wails of desperation heard long into the night. I have discussed the “Collective Action Clause” and the CDS trigger or not but what if the transaction just does not get done as 26% or more of the bond holders choose not to participate for whatever reasons. This scenario is looking increasingly likely and should be seriously contemplated now.
April 22 and “Vive La Difference”
Here we have the first French election with May 6 behind it for the run-off if needed. The man who would be Napoleon will end up swinging from the gates at the Bastille it appears. Sarkozy is not Bonaparte and the present ruler is about to be forced from the palace. To put it in perspective, what is about to occur is exactly like the American elections if the majority and the Presidency went to the Republicans; a total reversal in social policy and direction. There may be some wrong or right to it but I do not speak to those issues this morning but rather a recognition that reversal is coming. Besides the fallout for the French banks, evil-doers in Hollande’s assessment, the clawing and scratching between Germany and France is about to get ferocious. This will then have a marked impact on the direction of the European Union with Germany wanting to go right as the French turn to the left. I continue to think that one of the best shorts is France currently; bonds, equities, brie futures, the Chanel #5 June contracts, Victor Hugo memorabilia, Marie Antoinette tarts, room nights at the George V and Hermes scarves July contracts.
The German Dilemma
With an economy of just $3.2Tn versus the United States $14.3Tn Germany is trying to prop up a Eurozone that is more than one trillion dollars bigger than America. They just do not have the resources for the task they are undertaking and I predict serious consequences, eventually, from their efforts. Germany is “best of class” and will be the last to go but they cannot evade the European recession in the end and I think it is only a matter of time and unfortunate decisions before the austerity demands made on so many will wind their way back home to those who made the demands. They used a timeline that was much too short for the job at hand and payment will eventually be forced upon them. They obviously get the joke where Eurobonds and other ploys of this nature average the economies of Europe and the standards of living over some period of time so that Germany, in the end, will suffer most as they have the furthest to fall. They have approached the G-20, China, the emerging market countries and all polite responses to the side; the results have been about zip. The Germans are running out of both time and money and Franz is squirming in the beer hall.
One more Lowenbrau please!
