Death Star Economics



A pile of money: why doing ‘good’ isn’t enough for hedge funds

The German office for national statistics released 2011 growth figures today, stating that the German economy grew by 3% in 2011, which is down from 3.7% in 2010, and up from -5.1% in 2009. Household spending grew by 1.5%, representing the main driver for the country’s growth. However, the German central bank estimates growth to slow down to 0.6% in 2012 – the estimate is based on an unresolved eurozone crisis. Germany also managed to cut its budget deficit from 4.3% in 2010 to 1% of GDP in 2011, which means that it is now complying with EU rules. read article

Meanwhile, hedge funds investing in Greek government bonds are giving the IMF massive headache. Basically, it is like this: the IMF, the EU and the ECB are proposing another haircut (lowering of nominal value), which would reduce the debt burden enough to keep the country from defaulting. The private sector (banks, hedge funds, etc.) own about €206bn of Greek debt now. Greece itself wants the net present value of its debt to be cut by 75%. But the ECB or IMF can’t just march in and say “the debt is only worth this much now”, people actually have to sign up for the deal. But hedge funds invested on the grounds that either, Greece will repay the debt, or the country defaults, in which case their credit default insurance comes into play. For them, there is no incentive to admit to a deal [except for saving a country maybe]. It’s a complicated problem and nobody seems to have any solution to it. We’re staying tuned… According to Reuters, the paperwork of a deal between all parties could take up to six weeks. The next Greek government bond, a pile of €14.5bn, matures on 20 March. If it doesn’t get paid in any shape or form, Greece defaultsread article

Bottom line: cutting a deal would be nice, but according to the German Handelsblatt anonymous sources said some hedge funds won’t be part of itread article (in German)

If you knew all of this already, you might enjoy this rather sarcastic Dealbreaker assessment of the whole article

Glen Senk resigned as CEO and director of Urban Outfitters today and says goodbye to a total annual compensation of $29.94m (2010 numbers, according to forbes).

Finally, a little something we all would have needed in 2011: a flowchart telling you what to ‘occupy’ (I should occupy my private island). view chart

So long.


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