C.M.O. 1.19.2010
Credit Market Overview
January 19, 2010
The olive tree is one of the oldest known cultivated trees and records show that it grew first in Asia Minor 6,000 years ago before spreading from Iran, Syria and Palestine to the rest of the Mediterranean. Until 1500 B.C., Greece—particularly Mycenae—was the area most heavily cultivated and with the expansion of the Greek colonies, olive culture reached Southern Italy and Northern Africa in the eighth century B.C. In slightly more current times, a visitor to Mission San Fernando, California, in 1842 saw the mission buildings in ruins but the orchard with a good crop of olives.
As odd as the olive connection might be, Greece and California share a more dubious distinction, their credit rating, which this past week was lowered to A- by S&P for both entities.
George Papandreou, the Greek Prime Minister, has announced budget cuts and austerity plans and said this past week that there was “no chance” Greece would exit the euro zone. Speculation that Greece’s fiscal crisis could lead to a default on its sovereign debt and eventually depart from the 16-nation currency bloc was the impetus for Mr. Papandreou’s statement.
Jean-Claude Trichet, the president of the European Central Bank offered little in the way of support for the Hellenic Republic when he said, “No Government or state can expect from us any special treatment. We will not change our collateral framework for the sake of any individual country”.
David Axelrod, a senior advisor to President Obama, expressed a similar sentiment when asked about helping the State of California with its $19.5BN budget deficit saying that the administration acknowledged the grisly problems in the Grizzly Bear State “but we can’t solve all those problems from Washington”.
The Gubernator has recently asked his Uncle Sam for $6.9BN in federal funds to stem the flow of red ink and prevent reductions in the state’s health and welfare programs. “It’s time to enact long-term reforms that will change the way the most populous state and the federal government work together”, Mr. Schwarzenegger said. Of the monies requested $2.8BN would be a reimbursement for costs related to the state’s Medicaid program, $1BN in special-education funding and $2.1BN in federal stimulus money.
A California nonpartisan legislative analyst said of the request; “While odds seem favorable for some federal relief sought by the [CA] administration, we believe that the likelihood of Washington agreeing to all of the governor’s requests is almost non-existent”.
Maybe it had something in the olives after all.
CDS for the State of California got as low as 163bps on 10/26/2009 before moving to a recent peak of 264bps on 1/4/2010 and where they closed on Friday.
Default protection for Greek sovereign paper closed at 331bps on Friday just 4bps off the 52-week high reached on Thursday. The low print in the last year came on 8/4/2009 at 100bps.
Enjoy the week.
Jim Delaney
