Soros bets against Euro

[Magda Hassan]

Probe will be all they do of course. If there is any punishment involved it will be a quick flick of the feather duster across the hand.

U.S. Probes Bearish Euro Bets

SAC, Greenlight, Soros, Paulson Told to Retain Records; a Collusion Question


BY SUSAN PULLIAM AND KATE KELLY

The Justice Department has launched an investigation into whether hedge funds might have banded together to drive down the value of the euro, people familiar with the matter say.
In a letter last week, the department has asked hedge funds including SAC Capital Advisors LP, Greenlight Capital Inc., Soros Fund Management LLC and Paulson & Co. to retain trading records and emails relating to the euro, say people who have seen the letter.
The letter was dated Feb. 26, the same day a page-one article in The Wall Street Journal outlined a large bet being made in recent weeks by heavyweight hedge funds against the euro, in moves that are reminiscent of the trading action at the height of the financial crisis like bets against Lehman Brothers and other troubled firms.
The Journal article disclosed that the big euro bets were emerging amid gatherings including an "idea dinner" involving a number of hedge funds including SAC, Greenlight and Soros, where a trader argued that the euro is likely to fall to "parity," or equal to, against the dollar on an exchange basis. The euro currently trades at $1.3609.
One of the questions investigators are likely to examine is whether such information-sharing constitutes collusion, the people say. Charges relating to collusion on Wall Street have been a rarity because of the difficulty of proving that firms intentionally sought to act together and acted nefariously.
The move by the Justice Department highlights the scrutiny the financial world faces amid recent trading in securities related to the Greek financial crisis. Some critics say hedge funds, banks and others in the U.S. and Europe have exacerbated the financial difficulties in southern Europe by helping nations there mask their debts through swaps and other derivatives—and now are benefiting by [shorting] securities related to them.

(Excerpt) Read more at online.wsj.com ...

[David Guyatt]

Well, the key to the DoJ intent is in the following words (my italics):

In a letter last week, the department has asked hedge funds including SAC Capital Advisors LP, Greenlight Capital Inc., Soros Fund Management LLC and Paulson & Co. to retain trading records and emails relating to the euro, say people who have seen the letter.

Right now those hedge funds in receipt of the letter will be engaged in file sifting and shredding of any documents that show complicity. The DoJ letter is like a warning call from a bent copper. If there was any real intent the firms and their files would have been swooped upon in a coordinated operation.

[David Guyatt]

http://www.independent.co.uk/news/world/...18861.html

Greece pleads with US to stop the speculators
By Rupert Cornwell in Washington

Papandreou calls for new rules in talks at Oval Office on his country's debt crisis


George Papandreou, the Greek Prime Minister, used a visit to the White House yesterday to press President Barack Obama for tighter regulation of the speculative trading blamed for intensifying the country's debt crisis.

Mr Papandreou set out his case at an Oval Office meeting also attended by Timothy Geithner, the Treasury Secretary. It comes amid continuing failure by the White House and Congress to produce new rules to govern the financial instruments that enable banks and hedge funds to bet on a country defaulting.

"It is common sense, enforced by insurance regulators, that a person is not allowed to buy fire insurance on his neighbour's house, and then burn it down to collect on that insurance," Mr Papandreou warned here on Monday, saying that precisely that had happened in the case of Greece.

The solution, he insists, lies in tougher joint measures to clamp down on such activities, especially the credit default swaps that played a big role in aggravating the 2008 financial crisis.

Despite its successful €5bn bond issue last week, Greece still has to refinance €20bn of debt by the end of May. But Mr Papandreou and his Finance Minister, George Papaconstantinou, in Washington on the last leg of tour that previously took them to Berlin, Brussels and Paris, insist that they are not on a begging trip. Speaking at the Brookings Institution thinktank here, Mr Papandreou stressed that any approach to the International Monetary Fund by Greece would only be a last resort, if all else failed. His preference was for Europe itself to deal with problems like those encountered by Athens, and which could yet engulf other eurozone members such as Portugal or Spain, burdened with huge deficits.

"The more there is a European solution to a theoretical but possible problem, the less we will have to talk about an IMF solution," he told The New York Times. He indicated support for a new 'European Monetary Fund', as outlined by Germany's Finance Minister, Wolfgang Schaeuble, at the weekend.

The visit is being seen in Washington as a test of how serious the US and other Western countries are about bringing order and transparency to the largely unregulated derivatives markets.

Although action is all but certain here, it is unclear what form it will take. Ben Bernanke, the Federal Reserve chairman, has again spoken out forcefully about credit default swaps, and the US central bank is investigating deals between the previous Greek government and Goldman Sachs and other Wall Street banks to help Athens to hide the size of its budget deficits.

But Congressional legislation on financial reform has been held up by arguments between the political parties, by intense lobbying by the financial sector, and by the obsessive focus on health care reform. After months of delay, the Senate Finance Committee is expected finally to make public its version of reform. The signs are, however, that this will be weaker than supporters of reform had hoped.

[Jan Klimkowski]

From Zero Hedge.

Let the games begin.... hakehands:

Greece Gives Germany And European Union One Week Ultimatum (No, You Are Not Dyslexic)

First 130 Congressmen, now Greece: the examples of people who have no idea what the definition of negotiating leverage means just don't stop. G-Pap has decided to go all in on 2-7 off suit. The problem is everyone knows what his cards are, and his bluff is about to be promptly called by everyone; too bad the Cyclades are still not in the pot. Give them a few weeks...

Bloomberg reports that: "Greek Prime Minister George Papandreou set a one-week deadline for the European Union to craft a financial aid mechanism for Greece, challenging Germany to give up its doubts about a rescue package." And here we were thinking only Bernanke was clinically insane. G-Pap, it turns out, is shocked that someone can just say no to his generous offer of allowing someone else to bail him out. Act now, or in one month when you can buy Greece (and its islands) in a 363 sale, it will be too late (to overpay).

From Bloomberg:

“It’s an opportunity to make a decision next week at the summit,” Papandreou told reporters in Brussels today. “This is an opportunity we should not miss. When you have that instrument in place, that could be enough to tell the markets hands off, no speculation, let this country do what it’s doing.”

Greece pinned its hopes on the Brussels summit as German officials voiced qualms about an EU-led rescue, potentially backtracking on a commitment hammered out by finance ministers just three days ago. Greek bonds and the euro fell.

Greece, which was brought to a standstill on March 11 by the second general strike this year, needs to raise about 10 billion euros ($14 billion) to refinance bonds that come due on April 20 and May 19. Papandreou said Greece cannot afford to keep paying current market rates.

The question of the day: are the accounts who bought into Greece's most recent 10 year bond offering already underwater:

The yield on Greece’s 10-year government bond rose 14 basis points to 6.23 percent at 2:25 p.m. in Brussels. The euro fell for a second day against the dollar, slipping as much as 0.7 percent to $1.3648. Credit-default swaps on Greek sovereign debt rose 7 basis points to 295, the highest in a week, according to CMA DataVision prices.

And just to show that there is absolutely no confusion which way Germany is leaning when it comes to G-Pap's ultimatum, Germany kindly suggested that Greece should leave the European Monetary Union. Asap. From Market News.

The head of Germany's Ifo economic research institute on Thursday said the best way to solve the Greek financial crisis is for the country to leave the eurozone.

"I would recommend that Greece leaves the European Monetary Union," Sinn said at a press conference in Berlin. The country should then devalue its currency and a debt moratorium should be put in place, he proposed.

"This would be cheaper [for the other Eurozone countries] then to permanently finance Greece," Sinn said, arguing that Greece's biggest problem was its elevated foreign trade deficit and not mainly its high public debt.

In the meantime, the market once again ignores all bad news, and just focuses on whatever good news there is, even if it means the reading of a Philly Fed, whose upward buoyancy is about to come to an end as the artificial economic stimulus begins to finally wane.

http://www.zerohedge.com/article/greece-...t-dyslexic

[Jan Klimkowski]

Zero Hedge: Paging The IMF: Greek Ten Years Just Hit 353.08%


A 34,914 bps spread to Bunds sounds about in line when you remove all bail out bells and whistles.

We always knew the FT would pull an April Fool's joke. Doing it a day late is just the one little touch of class that yanks sadly lack. Ironically this is a very sad harbinger into the reality of the bond world a few years from now, when countries will need to repay a bond over 3 times per year just to be able to get any funding whatsoever.We expect G-Pap to issue an immediate statement, claiming the speculators behind the Financial Times (we are confident the Telegraph's Ambrose Evans-Pritchard already has a tail by the Greek Secret Service) are hell bent on fomenting a revolution and sinking the Acropolis into the Aegean.

http://www.zerohedge.com/article/paging-...-hit-35308

April Fool or not, Greece is on the verge of sovereign default, and the dominoes are teetering.

The Germans won't provide cheap money. If they allow any EU bailout money, it will be at the cost of turning up the economic Shock Therapy ECT dial to maximum, and watching ordinary Greeks scream, whilst Greek islands become German holiday and dirty money havens.

If (when) the EU refuses "financial support", the IMF may hook up its own death squad electrodes for some Argentina-style Shock Therapy, which would be a first (and a new low) for "civilized" Europe.

Hopefully, the Greek people will then revolt against the bankers and unregulated global market capitalism. It may not be as peaceful and rational as the Icelandic revolt. Indeed, we may see some resurgent Spartan spirit, and a proper, old fashioned, revolution of the streets.

I would also expect to see some Gladio false flag atrocities to justify martial law - a scenario played out several times in Greece since WW2.

In passing, I'm amused to see that Zero Hedge agrees with my long-standing assessment of DailyTelegraph financial editor Ambrose Evans-Pritchard's true spooky masters....

[Jan Klimkowski]

Major bond speculators, PIMCO, have just poured on the barbecue sauce and stuck a fork in Greece.

From Zero Hedge:

PIMCO Compares Greece To Titanic, Says Bonds Not Attractive Even Over 7%

Submitted by Tyler Durden on 04/08/2010 10:25 -0500

In an interview with Bloomberg's Tom Keene, Richard Clarida of PIMCO has pretty much sealed the fate of Greece: "I don’t think that [7%] would be an attractive enough yield. Greece is sort of like the Titanic. Eighteen things went wrong, and when they go wrong at once it’s problematic." Of course, with this kind of rhetoric the 10 Year will be trading at 8% tomorrow, followed up by Clarida saying not even 9% would be attractive, and so forth. When you have the world's largest bond fund say it is not touching Greece with a ten foot pole essentially no matter what the yield, you get an idea of why Greek 1 Year CDS is trading 600/700. In the meantime, stocks continue to be blissfully unaware of what the surge in the dollar will mean to Obama's export-led US manufacturing utopia. Oh well, at least we can continue to export "advanced" Wall Street services to Greece (and most other European peripheral countries) post default, courtesy of every domestic restructuring firm which is currently brushing up the "sovereign reorganization" tombstone pages in its pitchbooks.

From Bloomberg:

The nation needs to borrow a total of 32 billion euros this year, Petros Christodoulou, director general of the Public Debt Management Agency, said in a Bloomberg Television interview on March 31. He declined to say how big the dollar issue might be.

“We’re talking now about what the market sees as a solvency issue,” Clarida said.

Greece is struggling to cut its budget deficit, the largest in Europe, from 12.7 percent of gross domestic product, prompting investors to dump Greek assets.

Finance Minister George Papaconstantinou told ANT1 television that Greece doesn’t need additional austerity measures after the European Union and the International Monetary Fund agreed to terms for an emergency support package.

‘Not a Lot’

“The size of the packages being discussed now, though big by IMF standards, may not be enough for Greek refinancing needs,” Clarida said. “Compared to the amount of debt Greece has to roll over, it’s not a lot of money.”

It may not be a lot, but it is coming, and it is coming at insane rates: as a reminder Greece has to roll a few billion in 6 and 12 month Bills next week. With both 6 and 12 month spreads at ridiculous levels, last trading at 6.9% and 7.2%, respectively, we have a feeling the Greek situation could be resolved as soon as next week. It is simply impossible for a country to exist if it has to fund near-term maturities in the 7% range. Furthermore, if most US accounts do what PIMCO does and say "no mas" it is indeed over.

http://www.zerohedge.com/article/pimco-c...ven-over-7

[Jan Klimkowski]

Speculator Soros offering his, ahem, entirely philanthropic, words of wisdom. :alberteinstein:

The Euro-zone area and wider European Union is now “on the brink” of disintegration unless Germany steps up and provides loans at below-market rates to Greece, George Soros, the hedge fund manager, has warned.

However, Mr Soros added that he still hoped that Germany and others would be willing to forge a last-minute solution, since the consequence of a break-up would be so dangerous. “It is 50-50 whether the eurozone breaks up.

The damage that break up would cause is so great, that I think that as people realise it, they will pull back from the brink,” Soros told the Financial Times in an interview. “But we are at the brink now...a solution has to be found in a matter of days.”

Mr Soros’s comments on the fringes of a conference in Cambridge came as Dominique Strauss Kahn, the managing director of the International Monetary Fund spoke of the fiscal challenges facing all advanced economies and the need for a European Budgetary Authority to underpin the euro.

“The launching of the euro was only a first step. You can’t have a single currency without having a more coordinated economic policy,” Mr Strauss Kahn said.

Before any longer-term solution can be found, Mr Soros insisted Germany must step up to the plate. “Greece is willing to take the steps and has taken steps which are necessary to get through this crisis. Now Europe has to do its part to help Greece through,” he said.

“Unfortunately there are problems with Germany because it does not want to be the deep pockets helping out the profligate southerners which got into trouble. [But] if that is the case, the euro is in danger and the European union is in danger. I just hope that Germany will be helpful.”

Soros, who famously made around a $1bn profits almost two decades ago by betting on sterling’s exit from the Exchange Rate Mechanism, argued that “having a common currency was very sensible for a common market.” However, he stressed that Europe now faced a test. “Is there the political will to keep Europe together? If there is not I think that there will be a process of disintegration.”

He also argued that the IMF was now the only institution which could organise a solution. “The IMF is in the business of making emergency loans with conditions and that is what Greece needs. What Greece is doing is largely meeting the requirements of an IMF programme,” he said. “If Greece has to borrow at 6 or 7 per cent it cannot make the target.”

The IMF has already approved Greece’s fiscal consolidation plans as sufficient. Mr Strauss Kahn did not discuss the Fund’s attitude to Greece at the weekend conference, but he did say that the fiscal consolidation needed in most advanced economies was “formidable”.

“Reversing this increase [in public debt] will be a tremendous challenge—let alone reducing debt below pre-crisis levels, which may be needed to leave enough fiscal space to tackle future crises,” Mr Strauss Kahn said.

His speech was interrupted by a handful of protestors, complaining that the IMF was exacerbating global economic problems. “That was the old IMF – haven’t you read the press,” Mr Strauss Kahn replied to the protestors before they were ushered out of the Great Hall at King’s College, referring to the Fund’s role in championing fiscal stimulus and expansionary policies during this crisis.

Mr Soros said that he was no longer engaged in making active currency bets himself, since he retired from direct involvement in the Soros fund earlier this year and is now focusing on initiatives such as the launch of the Institute for New Economic Thinking, a think-tank which was launched in Cambridge this weekend.

However, he said that even if he was still trading in the markets, he would be extremely wary of placing big bets now, since the potential for a political backlash against “speculators” is ever higher now than it was in the aftermath of “Black Monday”, when sterling crumbled.

“Currency traders find it very difficult right now to speculate because public opinion is very much aroused. If I were running a hedge fund now I would be wary of making money because the political consequences would be too severe,” he said. “I don’t think that hedge funds are playing much of a role [in the current crisis] – it is not fertile ground. There is a kind of witch-hunt looking for someone who is profiting.”

[Jan Klimkowski]

Meanwhile, within hours of being promised billions of Euros at below market interest rates, Greece has just upped the ante:

And The Proverbial Moral Hazard Foot-Shooting Ensues: With Ink Not Dry On First Bail Out, Greece Already Demands Another €50 Billion

Submitted by Tyler Durden on 04/11/2010 12:09 -0500

Here is what happens when you green light Moral Hazard - in less than two hours after the videoconference in which the EMU announced €30 billion in aid for Greece, a Greek senior official has already come up and said that they were only kidding about needing just €40 or so billion (with the IMF's 10). The full amount will actually be double that, or €80 billion, for the three year period. Look for Portugal, Spain, Ireland, Bulgaria, Hungary, Latvia, and Lithuania to come knocking in the next 45 minutes.

From Reuters:

It would be logical that the EU/IMF aid for Greece amounts to some 80 billion euros ($107 billion) over the next three years if the mechanism is triggered, a senior finance ministry official said on Sunday.

The senior offical said aid this year would amount to at least 30 billion euros from the euro zone and at least 10 billion from the IMF.

"40 billions for 2010 is part of a bigger amount for the three-year period. A logical amount for the three-year period would be double than 40 billion," the official told reporters.

The official added: "We will monitor the markets in the coming days and, depending on how the spreads move, we will decide whether to request the aid mechanism."

He reiterated that Greece still aimed at being able to raise money from markets.

http://www.zerohedge.com/article/and-pro...-already-d

The British Liberal Democrat leader, Nick Clegg, certainly seems to think Greece has already blown up, as he warned today that:

Britain will be hit by waves of "Greek-style unrest" if a Tory or Labour government narrowly wins the election and then tries to push through draconian spending cuts, Nick Clegg warns today.

In an interview with the Observer, the Liberal Democrat leader says he fears "serious social strife" would break out on the streets if a government with limited support at the election on 6 May then raised taxes, laid off public-sector workers and froze wages.

http://www.guardian.co.uk/politics/2010/...nick-clegg

[Jan Klimkowski]

The Germans don't seem too happy:

Merkel ‘Buckled’ on Greek Aid Terms, Government Lawmakers Say

April 11, 2010, 2:36 PM EDT

By Brian Parkin


April 11 (Bloomberg) -- German government lawmakers slammed Chancellor Angela Merkel for signing up to a European Union plan that offers Greece loans at below-market rates, saying she backtracked on a demand that “subsidies” be ruled out.

Euro region finance ministers said in Brussels today they are prepared to give Greece 30 billion euros ($40 billion) in three-year loans at around 5 percent. That’s less than the current three-year Greek bond yield of 6.98 percent.

“Germany buckled under the pressure -- we shouldn’t kid ourselves that such loans are anything but subsidies,” said Frank Schaeffler, deputy finance spokesman for Merkel’s Free Democrat coalition partners, in an interview. “The loans would hurt the euro, help Greece only temporarily. We would be standing on very thin ice, legally, economically.”

Merkel dropped her demand that Greece should pay market interest rates after its bonds plunged last week, pushing the yield on its 10-year debt to a 11-year high of 7.5 percent. Merkel’s government has argued that German taxpayers’ money shouldn’t be put at risk to help a country that had lived beyond its means.

“It seems Merkel has lost the competition,” said Carsten Brzeski, an economist at ING Group in Brussels and former European Commission economist. “All that fuss and talk about not putting taxpayer money at risk has been made obsolete.”

Finance Ministry spokesman Michael Offer said the government wouldn’t comment today. He said it was agreed that only Luxembourg Prime Minister Jean-Claude Juncker, who chaired the meeting of European finance ministers and announced the agreement at a press briefing in Brussels, would talk today.

Poll Slump

Merkel’s coalition has slumped in opinion polls since her September re-election. That threatens to cost her Christian Democrats and the FDP their hold on Germany’s most populous state, North Rhine-Westphalia, in regional elections on May 9.

“The euro-group’s decision today opens the door to contagion,” said Hans Michelbach, the deputy finance spokesman for the ruling Christian Democratic Union, Merkel’s party, and its Bavarian CSU affiliate, in an interview. “It’s an invitation to speculators to make a killing on other euro-region bonds and a bailout spiral.”

The euro has slumped 6 percent this year as EU leaders struggled to agree on how to tackle Greece’s fiscal crisis.

Germany’s decision to agree to below-market rates may increase the likelihood of a legal challenge, according to the FDP’s Schaeffler.

The EU’s governing treaties have rules prohibiting the EU or its nations from voluntarily assuming liabilities of a fellow state, commonly known as the “no-bailout clause.” Four academics, who unsuccessfully sued to block the adoption of the euro, said last month that they would file a new case at the court should Merkel approve a bailout.

“European treaties don’t envisage member states plugging the deficits of their partners,” Schaeffler said.

http://www.businessweek.com/news/2010-04...s-say.html

[Jan Klimkowski]

The European Central Bank is accepting Greek trash at face value.

And so the bubble is pumped up a little more, ensuring that when it inevitably bursts, the blowback pain will be still greater.

The piece below is from Zero Hedge, who is now calling Greece "Greekman Brothers". This is a homage to Lehman and the move in the Shock Therapy cycle from investment-bank-bailout-then-bankruptcy to sovereign-nation-bailout-then-collapse-cum-default:

ECB Will Accept Junk-Rated Greekman Brothers Debt As Collateral

Did the ECB just learn the last bastion of rating agency insanity, aka Moody's, is about to downgrade Greece? Today Trichet decided to abandon all caution, and has proceeded to officially recognize all Greek toxic garbage as collateral for ECB-backed loans. Looks like the ECB president has been paying careful attention during Bernanke 101 in which his transatlantic colleague has been advocating the collateralization of a sovereign currency with all sorts of gamma decaying substances, for well over a year now. Now Ben is starting to get woefully behind the curve in the devaluation race. In the meantime, using simple math, we wonder: if Greece, which as so many have pointed out is only 2.7% of European GDP, ended up costing 110 billion euros, does that mean that a full blown bailout of Europe will be over $5 trillion? Surely this is a bargain compared to the $20+ trillion that the rescue of the US ended up costing. Looks like a slam dunk relative default pair trade to us.

More from Bloomberg:

The European Central Bank said it will accept all Greek government debt as collateral when lending to banks, indefinitely suspending minimum credit-rating thresholds to support a 110 billion-euro ($145 billion) bailout of the debt-strapped nation.

The decision came after Greece reached agreement yesterday on the conditions for the three-year package of loans from the International Monetary Fund and its euro-region allies. Under the plan backed by the ECB, Greece pledged another 30 billion euros in budget cuts to bring a deficit of 13.6 percent of gross domestic product back within the EU limit of 3 percent in 2014.

“The ECB is a key player in the rescue package designed to help Greece and it is clearly buying insurance against the likelihood of further multiple downgrades of the Greek debt, something that might lead to a halt of ECB financing to the Greek banks,” said Silvio Peruzzo, an economist at Royal Bank of Scotland Group Plc in London.

Now finally Moody's corrupt analysts can go ahead and downgrade Greece without any concerns that doing what is right will end up popping the ponzi, something they have sworn not to do when they signed their ethics waiver.

Greekman Brothers, a euphemism for Greece that has taken trading desks by storm due to the country's amazing comparability to another ill-fated organization, now also has full implicit support of its entire banking sector.

The ECB decision “removes the risk of a liquidity crisis in the euro zone due to rating downgrades, said Luca Mezzomo, head of macroeconomic fixed-income research at Intesa Sanpaolo SpA in Milan. “Greek banks refinance about 12 percent of their assets at the ECB, a situation that in the future will have to be corrected, but certainly not during the implementation of an emergency plan of support.”

In the meantime, Goldman's Francesco Garzarelli, director of macro and markets research, has released the company's latest trading axe: Goldman is now buying bunds, and telling its sophistiated clients to sell them. Goldman salespeople riot as they realize they will alienate whatever few names they have remaining in their rolodex when this most recent Goldman-sponsored trade blows up in everyone's faces.

http://www.zerohedge.com/article/ecb-wil...shold-prog