Now that the dust is beginning to settle on the emergency eurozone summit, we can call it for what it is: Greece is the first in what will probably be a series of sovereign default events. They said it wouldn’t, it couldn’t happen. We said it was nearly inevitable.
Though it has been spun in any number of different ways, the bottom line is this: bond holders took a haircut. Considering that policy makers around the globe have been moving heaven and earth to avoid such sacrilege, this is no small thing. The good folk at Fitch, smart people all, have also called it, though they had the grace to attach the prefix “restricted” to default. OK. The present value of certain bonds fell by some 20%. We can call it whatever we want. The bondholders know what it is. I guess 80% of something is better than 100% of nothing.
After what looked like a strongly bullish initial reaction from the markets Thursday – woohoo, Greece is in default, now we can get on with it – Friday was a bit more sober. Maybe it was the US deficit deal that was…and then wasn’t. In doing my research for this weekend’s article, and reviewing dozens of charts, it occurs to me that the entire market is in a sort of limbo state. Once I get my analysis together it will appear in the article as usual, and we’ll see if it ends up providing any value. At the moment it just looks kind of weird.