Monday, November 7, 2011

Ponzi Scheme Italy

Up up and away © fintag

News comments:
There is debt and there is debt.

The media love telling us how indebted countries are. But this is all relative. Liabilities are only one side of a balance sheet. Assets are the other.

The IMF (and CRAs) have tried to find ways of publishing proper balance sheets of countries but this is very difficult to do. Debt expressed as an amount is pointless. Debt expressed as a percentage is also pointless if there are assets to match (unless you are MF Global of course where nobody including PWC has a clue).

CDSs, ratings and bond spreads (to risk free rates) are better indicators of a country's "risk" and focus on Italy has overtaken the Greek tragedy. Its gross 10yr yields are looking mightily fine are as its spreads against the German bunds.

The markets should be focussing on France but given the embarrassment of the Italian PM (Gaddafi without the violence) they have turned onto his country and are expressing serious doubts over its ability to service its debt.

The Euro will soon be two. Or it will be none. Like X Factor at the weekend, there will be surprises in store.

Today's shorts:
Italy (bloomberg)

France (bloomberg)

Today's longs:
Hedging inflation with a rolex (forum)

Who needs gossip with volatility like this.


Anonymous said...

'Debt expressed as an amount is pointless'

Fintag, dont sacrifice being correct for striking home the point.. debt as an amount is highly relevant for the lender who holds them as asset and on mark downs would have to realise losses through income statement,