Greece is offered 30bn euros loan

Yes, this is the first ‘real’ offer, with a rate and a quantity.
I heard it requires approval of all 16 member nations.

This could initially stabilize the bond markets if/when approval is discounted, with short covering in the euro as well.

The terms and conditions include IMF ‘austerity’ measures which will act to slow the economy of Greece and the entire EU, which is already dangerously weak to the point of promoting higher budget deficits through low tax revenues and high transfer payments, all of which serves to further weaken the credit worthiness of all the member nations. It also increases the euro debts of the other contributing nations. While this is a very modest amount, the implication of the same type of ‘rescue’ for the larger euro nations that might go the way of Greece is for much higher levels of stress for the remaining euro member nations presumed to be ‘strong.’

The euro should therefore fundamentally remain on the weak side as the high levels of euro national govt deficits are adding the non govt sectors holding of euro denominated financial assets, with the austerity measures likely to add to euro govt deficits and euro weakness.

Greece is offered 30bn euros loan

April 11 (BBC) — Leaders of the 16 eurozone nations have agreed to fund up to 30bn euros in emergency loans for debt-hit Greece, if the country wants the cash.

The price of the loans will be fixed using IMF formulas, and be about 5%.

Luxembourg Prime Minister Jean-Claude Juncker, speaking for eurozone finance ministers, said there were no elements of subsidy in the loan proposal.

“The total amount put up by the eurozone member states for the first year will reach 30bn euros,” he said.

Mr Juncker added that the financing would be “completed and co-financed” by the International Monetary Fund.

Interest Rates Have Nowhere to Go but Up – NYTimes.com

>   
>   (email exchange)
>   
>   On Sun, Apr 11, 2010 at 10:58 AM, wrote:
>   
>   What is your call?
>   

It’s certainly possible, but my suspicion is that we may be going the way of Japan, with interest rates low for very long. With core CPI going negative and the output gap/unemployment remaining very high, especially people who can’t find full time work hitting a new high of 16.9%, the Fed is far from meeting its dual mandate of full employment and price stability (along with low long term rates). And the recent dollar strength, stubbornly high jobless claims numbers, weak loan demand numbers, and not much sign of life in housing has to be a concern about the recovery being more L shaped than V shaped as well.

Seems the Fed would have to have some pretty strong forecasts for CPI and much higher levels of employment to move any time soon apart from perhaps going to what they consider a more ‘normal’ real rate of 1% or so.

And when I look at the euro dollar rates out past 5 years they’re higher than libor got in the last cycle, and this one doesn’t feel like it’s stronger than the last, at least so far. So to discount rates that high (well over 5%) as midpoints of expectations for fed funds looks high to me.

Consumers in U.S. Face the End of an Era of Cheap Credit

By Nelson D. Schwartz

April 10 (NYT) — Even as prospects for the American economy brighten, consumers are about to face a new financial burden: a sustained period of rising interest rates.

That, economists say, is the inevitable outcome of the nation’s ballooning debt and the renewed prospect of inflation as the economy recovers from the depths of the recent recession.

The shift is sure to come as a shock to consumers whose spending habits were shaped by a historic 30-year decline in the cost of borrowing.

“Americans have assumed the roller coaster goes one way,” said Bill Gross, whose investment firm, Pimco, has taken part in a broad sell-off of government debt, which has pushed up interest rates. “It’s been a great thrill as rates descended, but now we face an extended climb.”

The impact of higher rates is likely to be felt first in the housing market, which has only recently begun to rebound from a deep slump. The rate for a 30-year fixed rate mortgage has risen half a point since December, hitting 5.31 last week, the highest level since last summer.

From John Lobley

To my great friends at AVM/III,

After 4 years in research and 20 years in sales, I am moving to trading (at Barclays). The ticker to buy puts on Barclays is “BARC LN Equity OMON”. I will be working for Ronti Pal who runs our swap and treasury desk. I will be managing a book that will (hopefully) take advantage of some of our longer term (6-12mos) strategic views. I am looking forward to this new challenge. Thankfully this is not “good-bye” as I asked to still act as a Relationship Manager for AVM. While I will not cover you guys day to day, I will still represent your interests here. So feel free to contact me for any issues. My first job in that role is to assign new capable coverage so that you are in good hands. I am happy to tell you that Colin McCleod will be filling that role with Sean Mahon as his back-up. Sean graduated from Harvard about four years ago and has developed into a motivated and capable saleperson. Sean went to Princeton and has been my right hand man for the last two years. So you have an “Ivy League” line-up :) Both are personable and have high integrity.

I started talking to AVM sometime in 1992 while at JP Morgan. It has been rewarding to get to know all the talented and creative people at your shop. I will miss covering you day to day but I look forward to maintaining a dialogue with some of you.

Cheers,

John Lobley

Dallas speech

I guess he thinks the coming fiscal spending will close the output gap…

Cash Crunch Will Force Governments to Do Less

By Gerald F. Seib

April 9 (WSJ)

In a speech in Dallas, Mr. Bernanke bluntly noted that two giant fiscal waves were headed for the federal government, one atop the other. First comes the big deficit caused by the economic downturn. That will be followed immediately by ballooning costs for baby-boom retirees drawing Social Security and Medicare funds. “To avoid large and unsustainable budget deficits, the nation will ultimately have to choose among higher taxes, modifications to entitlement programs such as Social Security and Medicare, less spending on everything else from education to defense, or some combination of the above,” Mr. Bernanke