11-Jan-12 World View — Scotland May Declare Independence from Britain in 2014

This morning’s key headlines from GenerationalDynamics.com.

  • Assad gives fiery speech promising to continue violence in Syria
  • Israel prepares to absorb refugees from Syria
  • Details of Greece debt ‘haircut’ are being worked out
  • Fitch Ratings Service: Greece bailout ‘doesn’t seem to be working’
  • Scotland may declare independence from Britain in 2014

Assad gives fiery speech promising to continue violence in Syria

Assad giving speech on Tuesday (AP)
Assad giving speech on Tuesday (AP)

An uncompromising Bashar al-Assad gave a highly inflammatory televised speech on Tuesday promising to continue his bloody violence, blaming the uprising on “foreign violen,” and promising to strike “terrorists with an iron fist.” Opposition figures said his speech indicated that he was “alienated from reality,” and said the speech was an “incitement to violence, incitement to civil strife.” Assad ridiculed the Arab League, which had humiliated him in November by suspending Syria’s membership. Assad claimed that the Arab League monitors in Syria were his idea — even though he did everything he could to resist them and only caved in when the Arab League threatened to turn the whole issue over to the U.N. Security Council, indicating a major break with the Arab League countries. Some opposition figures were shown banging a picture of Assad with their shoes, a major insult in the Arab world. Al-Arabiya and Guardian

Israel prepares to absorb refugees from Syria

Israel Defense Forces (IDF) Chief of Staff Benny Gantz said Tuesday that Israel is preparing to absorb Alawite refugees from Syria once Syrian President Bashar al-Assad’s regime collapses, which he expects to happen in the coming months. The Alawites are a small ethnic group within Syria, but they’re protected by al-Assad himself is an Alawite. The downfall of al-Assad would be a major blow to Syria’s Alawite community. “Assad cannot continue holding on to power and his downfall is expected to cause a crack in the radical axis,” said Gantz. I’ve heard of the “axis of evil,” but I’ve never heard of the “radical axis” before. I’m going to guess that Gantz is talking about the Iran-Syria-Hizbollah axis. According to Gantz, “Assad is not the same type as [Former Libyan leader Muammar] Gaddafi, who fights until the last bullet down in the sewer. The day that the Syrian regime will fall, it will issue a blow to the Alawites, and we are preparing to absorb those refugees.” Haaretz

Details of Greece debt ‘haircut’ are being worked out

Suppose you’re the owner of some Greek bonds. If Greece defaults, then your bonds may end up being worthless, unless you were smart enough to insure them with credit default swaps (CDSs). Otherwise, it depends on the kind of bailout agreement that European officials make with Greece, and the biggest stumbling block is the size of the “haircut,” the percentage of your investment that you would automatically lose. It was originally supposed to be 21%, then it became 50%. Here’s the current status of the negotiations:

  • Each investor will get 15% of the original investment in cash.
  • He will also receive new bonds worth 35% of the original investment, payable in 30 years. These new bonds will be guaranteed by the European Financial Stability Fund.
  • The interest rate that the new bonds will pay has not been decided, and is the most contentious part of the negotiations.

So if you’re a bondholder, then you’ll get 15% of your investment back in cash, and you’ll be able to sell your new 35% bond to someone else at some fraction of 35%, and it may be a small fraction, since the bond isn’t redeemable until you’re all dead.

Will you then be able to collect on your CDSs (if you have them)? That depends on whether European officials can provide enough pressure (extortion) on the committee from the International Swaps and Derivatives Association (ISDA) that makes the decision whether a “credit event” has occurred.

One thing that I learned today is that “sovereign bonds” (bonds issued by a government), unlike corporate bonds, can have their terms changed retroactively by the issuing government under something called a “Collective Action Clause.” Apparently it’s unknown whether applying the Collective Action Clause triggers a credit event in all cases, but European officials will apply as much political pressure (extortion) as possible to make sure that it doesn’t. Some hedge funds are going to demand that a credit event be triggered, so that they can collect on their CDSs.

Greece has a bond payment of €14.5 billion due in March, and they have no money to pay it. So if history is any guide (and it is), then European officials will stall on making a decision until the very last minute, allowing as much time as possible to apply multiple extortion measures to investors and the ISDA.

According to the “Kick the Can Principle” that I proposed last year, European officials will do the minimum possible to get through March and use fraud and extortion to postpone the problem for a few days or weeks more. CNBC

Fitch Ratings Service: Greece bailout ‘doesn’t seem to be working’

ROFLMAO! Bloomberg

Scotland may declare independence from Britain in 2014

Alex Salmond -- Scotland's Thomas Jefferson? (Getty)
Alex Salmond — Scotland’s Thomas Jefferson? (Getty)

The Battle of Bannockburn, on June 24, 1314, was a great victory for Scottish forces against superior English forces. It was the climax of the First War of Scottish Independence, and established Scotland as an independent nation. It wasn’t until the bloody War of the Spanish Succession in the 1700s decade that Scotland officially became part of Britain, and subject to the British crown, forever and for all time. Well, maybe not. If Alex Salmond of the Scottish Nationalist Party (SNP) has his way, then in 2014, just after the 700th anniversary of the Battle of Bannockburn, Scotland will hold a referendum on Scottish independence. “I think [Britain’s prime minister] David Cameron is a liability. It should be the Scottish Parliament that decides when to hold the referendum. The more he intervenes, the more he will attract Scots to independence,” he said. Independent