TIPSTER: ISDA On Greek Default: “Move Along Now, Nothing To See …”

Quote of the Day:

Alright! Move on. Nothing to see here. Please disperse.

Detective Lieutenant Frank Drebin (of the Naked Gun films)

 

Macro Overview

Innovative Ways To Reward The Imprudent

• For me the phrase “nothing to see here” is often associated with moments of immense comedic value. Remember “comical Ali” (aka Muhammad Saeed al-Sahhaf – Saddam Hussein’s official “Information Minister”)? Yet his only apparent purpose was to disseminate misinformation in the most hilarious fashion conceivable.
• During the Iraq War the nature of his propaganda progressed swiftly from mildly amusing to side-splitting hysterical. There were times you felt you could almost hear the rumble of allied tanks behind him and he would still grin and, with the fleeting twinkle in his eye of a demented and yet paranoid lunatic, say, to the televised Iraqi public: “everything is under control… nothing to see here!” Comical Ali was inevitably captured by allied forces almost immediately after the first tank entered the gates of Baghdad.
• It seems we’ve all come to realize, the minute you hear an official say “nothing to see here” it can mean only one thing: there is indeed something of immense interest going on, something to see… a great deal to see, in fact – and you’d do well to find out what on Earth it is.
• In The Western World today, the Feds seem hell-bent on penalizing the prudent to reward the reckless. If you worked hard to stay pay off your debts, you are not being rewarded. If you saved money for the future, you are getting systematically slaughtered by financial repression and deceptive inflation creep. But it seems these cuts on innocent flesh do not go deep enough for the bureaucratic maestros-of-meddle, they would like to impede prudent investors directly through excessive politicization of the “free” market place in which all savers transactions are made.
• Today ISDA announced that they deemed Greece a “Credit Event-Free Zone”. Click the link and read for yourself, there was no explanation given for this view or the announcement. You see ISDA has a “Determinations Committee” – they get to decide whether a credit event has occurred or not. Then it issues a statement which gives the verdict and says as near to nothing as you could possibly expect. In this respect ISDA confuses its pathetic opaqueness for bold assertiveness.
• For the record I have no positions in Greece or any Eurozone sovereign debt instruments, but, even to a neutral, something about this whole affair smells more pungent than Chemical Ali’s underpants.

 

ISDA Comedy

• So, despite the fact that bond holders have been, errrmm, “coerced” (is that the right word?) into taking a haircut that would normally be associated with a severe and gratuitous default. Despite the fact that private bondholders are now being forcefully… sorry, I mean coercively beaten into subordination to another party (the ECB). Despite the fact that bondholders are now effectively CDO holders, discriminated not by their instrument status but by their “character”, “culture” or “political status”… the ISDA DC said “no way Jose! No default here… nothing to see… move along now”.
• Of course, this is not over. Many try to comfort themselves or rationalize ISDA’s conclusion by saying that nobody has really lost money on the bonds yet so we cannot call this a credit event under ISDA ruling – which is debatable at best, in my opinion. Many are playing down the announcement and point to the fact the real testing point is if and when Greece uses its recently approved legislation to enforce a collective restructuring on all private creditors. At this point, presumably, it would be glaringly undeniable that a credit event would have occurred.
• Hmmm… where have we heard that before? Feels more like the management of expectations to me. I mean, if Greece is about to trigger a default in a matter of days, why consider issuing such an announcement today anyway?
• Perhaps I’m exaggerating and this is just another administrative step on the road towards an ISDA default event – that part may be true for all I know – but I can’t help pointing out the slap-stick insanity of it all. I mean this is practically comedy gold. Seriously, watch this Naked Gun Video Clip. It’s like Greece is the bloke riding the missile which gets slammed into a fireworks factory and ISDA is Detective Lieutenant Frank Dreblin who arrives late on the scene.
• Greece’s credit went up in smoke a long time ago. Greece was insolvent a long, long time ago and many Greeks would even consider that a Greek default (as opposed to chains of austerity) would be the clearest solution to their predicament.
• The fact that the ISDA DC members were unanimous in their vote for a “no event” just adds more hilarity to the skit. As many people know, official releases from ISDA DCs are almost always unanimous – no matter how subjective or complicated the topic. It’s another veil to preserve the so-called integrity of their process … of course, all “for the greater good of the market place in Credit Derivatives”… allegedly. But the staunch unanimity of the DC vote just feels like the ISDA equivalent of saying: “Alright! Move on. Nothing to see here. Please disperse.”

“Is-Da” Credit Event Determination Really That Important?

• I don’t know why I’m so concerned about what are effectively just semantics. Wait… no, that’s not true… actually I do. Because the CDS market does actually have a purpose and a value – if it can be credibly managed.
• The Feds are already stiffing the prudent public and savers out of returns and squeezing working families with inflationary policies. But consider this: if you were an investor who had exposure in Greece and prudently hedged out that risk with Greek Sovereign CDS a year or so ago, you’d like to think that this insurance should have paid out by now and you could tear up the strategy and move on. But the bureaucratic elite are openly entertaining the possibility (even though the consensus still seem to consider it less than likely) that the credit derivative market is basically as good as rigged against the prudent private investor.
• This restructuring of both the rules of engagement and the sovereign itself opens up the possibilities to a rather subjective debate over how the market place should function in this respect.
• As Peter Tchir says in this Bloomberg report:

Restructuring almost always causes confusion,

The fact that it is a restructuring does leave it lot more subjective than it would be otherwise.

• Subjective debate is the crucible of choice for peddling politicians and meddling miscreants… not for honest, logical investors and the prudent public. As I’ve pointed out before, a discredited CDS market is likely to mean a more cautious take up of sovereign debt by real price-setters (Private Investors) and yet more participation by highly inflationary, less price-sensitive central bankers.
• So you might think: “Private investor? Who really gets hurt by this?” Once again, that’s you and me, dear reader. It’s a subtle con to even a cynic like myself, you see. But you’ll notice it when you get your tax bill, you’ll notice it when you get your utility bills, you’ll notice it when you see your grocery costs and your fuel costs… and yes you’ll notice it when you try to offset those increases in budget against the rate of rise of your wages and the rate of interest on your savings.

Market Overview

Count Your Beans!

• It appears China is stockpiling more than just Guns, Gold and Oil. Looks like they’re out to scoop up softer commodities like Soy Beans (see article) where possible. It appears they are concerned about weather conditions in South America. I hadn’t heard… of course, the weather feels mild and pleasant from my house in the countryside on the first day of Spring!
• Today my Chart of the Day is Soy Beans (ACE). Interesting huh?

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Chart of the Day

Events

Macro Events:

Update:

• US ISM Manufacturing below expectations 52.4.

Alerts:

• Canada GDP

Corporate Events:

Results:

• Sands China [1928 HK]

Dividends:

• Nothing Significant

Reading, Links:

Great FT Alphaville Article on ISDA conflicts of interest and lack of transparency.

 

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