While the VIX has dropped from 30 to 19 in a heart beat, it seems that many issues are bubbling up. The Euro zone’s debt issues have emerged as the potential catalyst for an interesting spring once again. Ireland’s 2020 government issue has spiked to all time high yields of nearly 10%.
- Double digit interest rates are untenable for Ireland
So that we are all on the same page – Greece, Portugal and Ireland will most likely restructure their debt. By definition it will be a default of European government obligations. There is no feasible solution for any of them, but the Euro zone will most likely continue to offer below market “bail-out” interest rates to the PIGS while trying to figure out what to do with the whole situation. Ireland cannot repay its debts. Greece cannot repay its debts. Portugal cannot repay its debts.
The other interesting market event was the re-opening of the Egyptian markets after a two month hiatus. This was the first trading session since January 27th and the market tripped the circuit breakers and ended down about 10%.
- Egypt cannot find the ground…
What is interesting to me about Egypt is that even with Mubarek gone, it does not seem like anything has really changed. The military took control of the country so it feels much less like a democritization and much more like a changing of presidential figures.
“…whilst the referendum in Egypt seemed a momentous occasion, with millions going to the polls to vote freely for the first time since 1952, the reality was something quite different. The referendum was marred by vote rigging; as was clear in some constituencies. This was supported by the testimonies of witnesses, and by video recordings from Rabiah al-Adawiyah Mosque, uploaded on YouTube.
This suggests, first of all, that the old state security apparatus, which was responsible for widespread fraud in Egypt, still exists and performs its task in the same old manner. Therefore, nothing has changed in the country. The 18 days of the Egyptian Revolution may have shaken the world, but they did not shake the state security apparatus or those behind the scenes in the National Democratic Party.”
So what do I take from all of it? To me it means that the Euro is way overpriced and that Egypt as a country might look very cheap. It also means that with a Japanese nuclear crisis, middle eastern turmoil, and spiking government credit risk in the Euro zone, I am absolutely not a big seller of implied volatility at 19%. Keep the powder dry and wait for the flare up. In the mean time I can short the Euro and see if Egypt can find a bottom.
