daytrade diaries... february 5, page-193

"all that is happening at the moment is that europe is taking the focus away from the us.wait until its their turn..."


Yeh, talk about a wake up call.

Global finance 1.1: When you run out of money the following will happen:

- capital flight/exodus
- share market exodus
- credit spreads blow up: cost to refinance debt rises to astronomical levels.


Point 3 for those not familiar with credit spreads and what Greece is up against, see the following etc...


* Greece are in debt of $100bn USD. They need to roll over up to $100bn in debt.

Investors/speculators (whoever) can in this day and age buy or sell ANY FINANCIAL DERIVATIVE THEY WANT. Investment Banking has been the most prosperous and creative industry over the last 2 decades, and for the right price they will create any derivative product you seek.


So now to Credit protection (CDS's). Investors can BUY PROTECTION against a party DEFAULTS ON DEBT AND GOING BUST.

They will BUY PROTECTION via BUYING credit default swaps. Investment Banks, mutual funds, other large global finance players will WRITE you the contract(SELL you protection) for the right price.

The buyer can they hold that protection or trade it in the secondary market.


Now, over the past fortnight, Greece's CDS spreads have gone through the roof.

I believe as of last night, they were quoted as 420 basis points. 420 bp = it COSTS YOU $410,000 to insure/seek protection against $10mn USD in debt.


So for $100bn, 410 bp = $4,100,000


It would cost $4.1bn PER YEAR PER YEAR PER YEAR to buy protection on $100bn in liability.



ie, no more trips to the Greek Islands!




Regards,
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