March 12, 2012
Weekly Market Outlook
By Keith Schneider
So, round and round we go,
Where the world's headed, nobody knows
- The Temptations
Now that the Greek debt crisis has been finally solved, the result seems even more ambiguous than ever. Most Greek sovereign debt bondholders have agreed to settle for 26 cents on the dollar. However, Greece has been called in default anyway. Understanding debt governed by Greek laws, International Law, a Credit Event, a Collective Action Clause (CAC), plus how a Credit Default Swap (CDS) payout is triggered, are all that is required to navigate the markets these days.
Although the amount of Greek CDS triggered by a default is relatively small ( 3 billion only), there remains over 15 trillion of other countries CDS’s floating around in the world markets. The bigger question looming is- What will be the precedence for CDS’s in the future? Many believed if bondholders voluntarily agreed to a reduction in principle and interest that a default would be averted, thereby saving the world economy.
However, with Greece enforcing all bondholders to take the crew-cut by invoking CAC, it has triggered a default as determined by the ISDA (International Swaps and Derivatives Associations). Sounds simple enough, but honestly my head is spinning.
The takeaway again is that somehow the global economy is muddling thru this morass and the financial apocalypse is not here but on the horizon, yet unlikely to ever really materialize. Every once in a while the fundamentals and technicals are in alignment but that is not something you can bank on currently. The only way to make any sense of the market as this juncture is to follow the charts. Let’s go to the video.
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