As Greece has taken on an increasingly disproportionate role in today's macroeconomic outlook, the likelihood of the can NOT being kicked down the road ad infinitum seems to have shrunk to zero.
But just as it seemed safe to give up on this whole thing ever being resolved, the private sector is starting to take charge: http://online.wsj.com/article/SB10001424052702304…
The idea of a 'Brady' plan for Greek bonds almost seems too simple considering the ever more convoluted plans the ECB and European politicians have been cooking up, in spite of the assurance that "there is no plan B" if the Greek austerity vote doesn't go through. Nonetheless, this proposal by French banks is probably the best approach to the Greek crisis to have been debated so far. Delaying the inevitable Greek default further so banks have to take larger haircuts makes little sense and now is probably the best time to restructure. If half of Greek debt were to be extended to 15-30 year maturities, the Greek debt load would be far more manageable and some covenants could ensure that the Greeks don't get another credit hangover. Add to that the fact that this would likely be considered a credit event, making European banks' CDS bets actually pay off, and you may have as orderly a resolution to the crisis as possible (except for the US banks that sold the CDS that is...)
The flipside of all this is that the euro will likely strengthen if the banks get their way. This will put pressure on the European periphery and may make the extension of this plan to other countries inevitable. Luckily, the haircuts in the rest of the PIIGS wouldn't be nearly as steep.
The main impediment to any of this happening are the ECB and politicians of course. The rhetoric Trichet, Sarkozy, Merkel and the Greeks have used has grown so dogmatic that I wouldn't be surprised if they shot down a restructuring to avoid a credit event, thereby crushing the banks they're trying to protect by voiding their CDS and imposing larger haircuts a couple years from now.
But if all this goes the way the banks want it, the next issue in line is the US debt ceiling. And unfortunately, that issue lies firmly in the hands of our elected officials.
People do realize that Greece has a GDP of 200 billion dollars right? You do also realize debt restructuring is taking place and Germany/France don't want to see the Euro plummit? Take your eyes off the media hype and focus on something material.
Do you mind expanding on what you mean by something material?
No I will not expand because I don't know your portfolio. I just think you need to look for news with relevance. I only say this under the assumption that you are worried about your holdings and I think this hype has affected the market to its full extent. The only reason I may be proven wrong is if "investors" remain as speculative from this news as you are.
I remember when it was first announced I couldn't even believe it would affect the market. I need to befriend more speculators so I can better understand these sentiments. The real effects are negligible but I won't comment on what may happen to equity prices in the short term if the media keeps playing speculators strings. Some people just love volatility.
I was looking at the situation from more of a currency perspective but as far as equities go, I think the rebound we've seen the last two days has had a lot to do with worries over Greece easing. As this particular macro pressure lessens, people rotate out of Treasuries and into US/Euro equities. It's not like there have been many positive surprises to explain what's happened the last two days. Technicals are probably a major reason as well.
I never said I was a long-term investor. This is just my take on what's going on and is really only useful for swing/short-term trading although if the restructuring goes well, we could see some trends in currencies. The major driver as far as US equities go has been Fed policy but the debt ceiling debate could well take center stage this Summer.
I won't pretend to have any understanding of currency markets but in any case would you actually attempt directional trades from choosing the most likely scenario of this news? Still seems too much like reading the stars with politics involved. Even a straddle is a great risk at this late stage of the story, damn shame.
I would if what I said happened and the technicals were right, with the appropriate stops of course. The euro was actually looking like it was going to crack back on Friday. The bounce off support plus changing fundamentals could actually make the trade go the other way.
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