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Thursday, April 29, 2010

This Morning's Italian Bond Auction

Went very well.

However the panic has boosted talk about the Greek crisis into high gear, with much higher numbers over a period of years under discussion, and a promise of action within days.

Yesterday's crude inventories report showed higher stocks and much greater refinery utilization. YoY to date products supplied are up 0.8%. Comparing the last four weeks to the same period in 2009, gasoline supplied is up 3.2%. This is pretty good, economically speaking.

The economy in Europe is generally improving too. However there are some concerns as the game of "Bonds, bonds, who's got the bonds?" launches:
S&P cut Greece by three steps on April 27 to BB+, the highest non- investment grade, and said investors may recover as little as 30 percent of their initial outlays should the country reorganize its debt. It lowered Portugal two steps to A- the same day. It cut Spain one level to AA yesterday.

French banks have the biggest exposure to Greece among European lenders, accounting for $78.8 billion of the $193.1 billion of total claims European banks have on Greece, according to the Bank for International Settlements. They also have the second-largest claims on Portugal and Spain, after German banks, and are the biggest holders of Italian debt, BIS figures show.
The ECB is supposed to have collateral in investment grades, so the last downgrade kind of puts them in a tough spot. Spain's unemployment level has been unofficially reported over 20% in the first quarter of this year.

I still do not see how the Greek problem can be resolved without a 25% haircut for creditors. I suppose that could come from governments, but it has to come from somewhere in order to get Greece in solvent territory. 30% would be much safer, but Greece would still be subprime for a year or two at best.

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