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Commentary

Greece Is Back, And The VIX Is Low

Greece’s debt is seeing demand destruction of recently unknown sorts. Their two-year bond yields jumped to 13.5%, which is higher than most countries can imagine – in fact, the highest short term yield in the world right now. Remember, just a few weeks ago, their TEN years were trading at 6% – which was surprising because, er, that was higher than India’s 10-years were trading and India has much lower default risk.

The Greeks use the Euro, so the Euro tanked. In addition, Portugal’s two year bonds inched up 0.75% in a day – the kind of yield increase that scares the bejeezus out of central bankers. At 4%, the Portugal yield is worth watching, and they are quite deep in it.

Also read Sprott Asset Management, Stratfor and John Mauldin’s excellent take on the subject. Oh and the credit rating agencies STILL give Greece a better rating than India.

Government defaults are a big concern. We are all quite happy that someone, eventually some random person or institution, will bail them out. It started with companies, and now it’s governments. This obviously can’t continue forever, but you can never say when it will stop – and it can take years, so I wouldn’t short everything in sight right away.

Any complication WILL impact India. We are not delinked or “decoupled” in any way – the world has intricate networks that make money flow more important than pure value. In simple terms, it’s more important today to note how money sloshes around the world than to see if company X has great cash flow; eventually, a liquidity “event” has the potential to change all company fundamentals.

What scares me the most is that we are at a low in volatility. The VIX is at or near its lows, and we have had very controlled moves. Low volatility begets high volatility, but when? Again, timing is an issue.

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