A guest post from Dr. John Keppler, author of Profit with the Market Profile: Identifying Market Value in Real Time, now available from Marketplace Books.
Greece and its private creditors are expected to complete a debt-swap agreement this week. Luxembourg Prime Minister Jean Claude Juncker from the Institute of International Finance announced in an e-mailed statement from Athens that both sides were "close" to completing a voluntary exchange. Unidentified sources claimed that creditors were prepared to accept an average coupon of as low as 3.6 percent on new 30-year bonds.
Juncker himself had previously mentioned that the new bonds issued in the swap would have a coupon rate below 3.5 percent for the period up to 2020 and below 4 percent over the 30-year term. The bottom line is that these rates equate to a loss of about 69 percent on the net present value of Greek debt.
The agreement with bondholders is linked to 130 billion-Euro bailout, which is a second bailout from Greece's European partners and the International Monetary Fund for the country. Greece is in dire need of this bailout as it faces a 14.5 billion-Euro bond payment on March 20, 2012.
More importantly, the question remains whether the Greek population is prepared to tolerate the necessary economic hardships that are to come. Greek Finance Minster Evangelos Venizelos confirmed yesterday that a final debt swap accord was to be in place by next week. However, he also said that the next several days would shape Greece for the next decade. Venizelos, emphasized that in addition to the debt swap, Greece had "...labor, structural reforms and pension issues to resolve". He told reporters in Athens late yesterday after a meeting with troika officials that: "there must be a national pact forged with unions and employers."
Greece now requires 145 billion-Euros for the second bailout, 15 billion more than was originally agreed in October of last year. As a possible condition of the bailout, European policy makers are discussing plans to directly intervene in Greek budget decisions as the country struggles to cut its deficit.
It should not come as a surprise to anyone that such intervention would not be taken lightly by the Greek nation. It is obviously contrary to their national sovereignty. As we watched the markets reach new highs last week, this upcoming week will be tumultuous. The Greek debt crisis is far from over and the highly anticipated creditor swap agreement is not going to be the magic bullet that will push markets higher yet.
The U.S. Indexes are all facing some critical resistance levels; the Nasdaq 100 (NDX) is looking at 2480 and 2500. The S&P 500 (SPX) is facing 1333 and 1346. The Russell 2000 (RUT) is also confronting 800, 807 and 814. In addition, the ES mini futures monthly profile is also indicating that there is not much of an appetite for buying at the current high levels.
Learn more about Dr.Keppler, his trading, and how to contact him by visiting his website www.strategictrading.net.