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Greek Pledges: Brothers in Arms?


European Union puts its name to the test.


Are we holding our breath yet?

Last Thursday, I scribed "The Countdown Begins and the Markets are Ready to Exhale." In it, we discussed sweeping regulatory reform in Europe and explored what that meant for global equities. As redundancy is one of my pet peeves (along with loud chewers, close talkers, arrogance and being late), I'm not gonna link and re-link the articles in that column. If you're looking for a pertinent context -- the financial literacy movie rather than a snapshot of what matters now -- please delve deeper as you find the time.

We awoke this morning to news that Greece received a pledge of support from the European Union as ministers struggle to avert a crisis in the Euro. I learned during my four years at Syracuse that Greek pledges start out weak and confused and grow stronger under duress -- sometimes. Brotherhood is an excellent concept but it's not for everyone; humility is paramount, as is unity in a common cause and belief-system.

As it stands, European finance ministers laid the groundwork for a financial lifeline; working out the technical strategy for emergency loans should Greek austerity initiatives fall short in front of the €20 billion in debt coming due in April and May. A proactive game plan is a positive step, although a cynic might offer this is more of the same -- drugs that mask the symptoms rather than medicine that cures the disease. He might also suggest that the threat of aid is intended so supplant aid itself but let's leave that for the tin-foil types.

The meetings resume this morning and the planned agenda, through my lens, is where the rubber will meet the road as it relates to the next leg for the market. The 27 finance ministers will weigh proposals to clamp down on hedge funds and credit-default swaps. Given the short covering we've seen in credit -- and the attendant scramble in equities after the tape poked through S&P 1120 -- a massive layer of demand has been removed from the marketplace. At the risk of hypocrisy, I will be redundant as it relates to the following thought:

"Should this legislation fast-track, there should be more gains to come, although it will do little to "cure" the underlying disease (and some of it is surely discounted). If it's delayed -- or worse, turns out to be an empty initiative -- trap door risk exists as there are far fewer shorts to absorb the supply that will materialize."

Overnight sovereign spreads are a mixed bag, with Malaysia, Poland and China showing improvement and Norway, Australia and the USA widening. It should be noted the movements are muted relative to the recent volatility, and Argentina, Venezuela, Pakistan, Ukraine and Dubai remain the highest default probabilities. Greece, for those with a pledge pin on their uniform, is currently ranked ninth on that not-so-snazzy list.

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