The Greek Enigma: What We Caught, We Threw Away

What we caught we threw away; what we didn’t catch, we kept.

Legend says that the Greek poet Homer died of frustration at not being able to solve this riddle, posed by two fishermen on the island of Ios.  Before sharing the solution, we might consider the greater enigma that is Greece itself.

To begin, we might consider the rather ironic truth that, today, Greece may well be Europe’s Achilles Heel.  The reason, of course, is that among all the childish, imprudent, political culture that is modern Europe, Greece may be the most childish, the most imprudent. 

Naturally, they weren’t the only state willing to join the sovereign suicide pact we know as the European Union.  Perhaps, they rightly believed that they had the most to gain in the exchange.  The real truth, however, is that such arrangements – those that facilitate our worst instincts – always end badly.

“The Enemy is Us”: Principles of Circular Valuation, Part 3

Just a short note here today (hopefully), but I had to report what is an epiphany of sorts – for me at least – in regards to the market yield valuation “problem” that I’ve discussed in prior posts.  (See here and here.)  Also, I highly recommend today’s Barron’s article by Randall Forsyth, which covers some of the same ground and inspired the title for this post.

The market values income-producing assets as a function of risk-weighted yield expectations.  Asset values, I have argued, have been substantially distorted over the years of accrued loose monetary policy, which have tended to suppress the “safe rate” end of the spectrum, as typically measured by US treasury yields.  The lower the required yield, the higher the resulting value of the asset.

Perhaps I am merely arriving late to the party, but in watching the latest Greek Tragedy unfold, it has become increasingly clear that, despite the obvious risks that derivatives have injected into the market generally, credit default swaps have only become more influential over the past year or so.