Greek Bond Yield Hit 750%, Debt Exchange Equals Default (Fitch)

On 2/22/2012, Fitch Ratings downgraded Greece to 'C' from 'CCC' and said the planned "distressed debt exchange" between the Greek government and private sector bond holders (PSI or 'private sector involvement'), who will take a 53.5% nominal loss on the bonds, would "constitute a rating default". See the full text after the jump. Greece's 1-year government bond yield closed at 750% on 2/22 and its 5Y credit default swap spread closed at 12,700 basis points. Look at the 3-year charts below, courtesy of Bloomberg.com. Remember when Greece's 10-year bond yield was at 6.85% on January 31, 2010? It is now at 34.36%. And on that day Greece's 5Y CDS was trading at 399 basis points (linked to a Zero Hedge chart)! Now the question is whether Greek CDS holders get paid out or not. Is Portugal next?

S&P 500 Trends From 1982-2012, Potential Scenarios Going Forward ($SPX)

Here is a look at trend lines on the S&P 500 chart during the secular bull market from 1982 to 2000 (or 2007?), and the secular bear market that we're in today. Here are potential scenarios for the S&P going forward.

1) If the current uptrend line breaks from the October 2011 low, that could be a confirmation that the S&P 500 is in for another 2008 type event, and could retest the 2009 low (666). The long-term trend line from the low in 1974 hits between 600-666 from July 2012 to April 2014. So that could provide some support if there's a retest. However, if you look further out from the low in 1842, it could hit the long-term uptrend at 500! This is way out of the money downside speculation I'm talking about here if reflationary policies by the Federal Reserve (QE), ECB (LTRO) and/or China fail, and there's a flight to safe haven assets like U.S. Treasuries, cash and gold, for whatever doomsday scenario you can think of.

The Enduring Popularity of Gold - Guest Post

Guest post by Frank Holmes, CEO and Chief Investment Officer of U.S. Global Investors.

The Enduring Popularity of Gold

The World Gold Council (WGC) reaffirmed the power of the Love Trade in its 2011 Gold Demand Trends report released this week. Gold demand grew 0.4 percent in 2011 despite a 28 percent year-over-year increase in bullion’s average price.

After flirting with the top spot for some time, China emerged as the world’s largest gold market for jewelry and investment during the fourth quarter of 2011 as demand in India weakened. This is the first time China’s demand outpaced India’s in 11 quarters. However, India did retain the gold demand crown for the entire year, purchasing 933 tons compared to China’s demand of 770 tons.


I always say the trend is your friend, and I believe China’s increasing demand for gold is one trend that is just getting started. Although gold imports from Hong Kong were cut in half in December, HSBC Global Research reports that overall gold imports from Hong Kong were 10 times the historical average from January through November 2011. HSBC expects a continued rise in Chinese incomes will keep demand at a robust pace. The WGC sees domestic demand for gold jewelry and investment driving 20 percent growth in Chinese gold demand during 2012.

China should consider its leadership as the No. 1 gold market a short-term position, though. While China’s presence in the bullion market is strong and growing for jewelry and investment, India’s ancient relationship with the yellow metal is such that “domestic drivers of demand are largely independent of outside forces,” says the WGC. The WGC does not see India’s role in the gold market diminishing over the long term.

Ajay Mitra, the WGC’s managing director for the Middle East and India, recently expressed India’s strong ties with gold in a 60 Minutes feature. Gold has always been a part of India’s history, culture and tradition. I have witnessed firsthand the strength of this bond many times over the years. As the famous saying goes, “no gold, no wedding.”

Don’t Forget About the Fear Trade

Eurogroup Statement on €130B Greek Bailout, PSI Exchange (EUR/USD Charts)

The euro (EUR/USD) initially spiked, but reversed sharply at 1.33 (now key resistance), after an agreement was reached by the "Eurogroup" (Eurozone Finance Ministers) and Greek government to provide Greece with a €130 billion bailout package in exchange for fiscal consolidation, which would lower Greece's Debt/GDP ratio to 120.5% by 2020. The ECB will also "forgo profits" on its Greek bonds to help lower the debt ratio. But, to receive the bailout cash, private Greek bond holders (PSI) must agree to a debt exchange that would take a 53.5% nominal loss. This would prevent a disorderly default for Greece in March. Analysis by the IMF, ECB and European Commission believes the 120.5% Debt/GDP target could be hard to achieve.

Reuters"Greece will need additional relief if it is to cut its debts to 120 percent of GDP by 2020 and if it doesn't follow through on structural reforms and other measures, its debt could hit 160 percent by 2020, a confidential analysis conducted by the IMF, European Central Bank and European Commission shows."




Same Uptrend Line, Different Year (SPX)

This is interesting. Since the March 2009 low, the S&P 500 has built three of the exact same uptrend lines (slope). It's another y=mx+b algo conspiracy in the markets. Thoughts?

chart at stockcharts.com

Links For 2/18/2012

"The Decline and Fall of the Roman Empire", Presentation by DoubleLine Capital's Jeff Gundlach - Business Insider (Slides)

Credit Suisse The Sequel: "Probability Of The Largest Disorderly Default Loss In History On March 20 Has Increased" (Greece) - Zero Hedge

JPMorgan Gets Bullish as BofA Says Yields Entice: Credit Markets:  - Bloomberg at SF Gate

JP Morgan's Thomas Lee Has 1,430 Year-End Target For S&P 500 - Bloomberg Video

Morgan Stanley: January Exhibited This Tell-Tale Sign Of A Market Top - Business Insider

China’s Housing Market in ‘Mother of All Bubbles,’ Grantham, Mayo Says - Bloomberg