G3 Recap 6-6-11

Main Items:

  • The WSJ discusses how Greece will be asking its creditors to swap 30bn worth of debt for new paper with longer maturities. There will be “strong incentives” to participate in the swap according to the WSJ. The process could commence as soon as July. The swap is being designed in such a way as to avoid it becoming a “credit event.” The WSJ says there remains opposition to this move from the ECB.
  • Japan’s PM Kan will step down from office by August according to a report by Kyodo.
  • Portugal’s opposition Social Democrats (PSD) won a conclusive victory in a general election on Sunday. The PSD won 39% of the vote vs. 28% for the ruling Socialists.


  • EU Sentix Investor Confidence declined 3.5 vs 8.6 expected and 10.9 prev.
  • EU PPI unchanged at 6.7% YoY in April vs 6.6% exp and 6.7% prev


  • Financials had another ugly day. It has now underperformed the S&P by 10.5% this year:

    This underperformance looks set to continue. I noted on 4/29 that Financials valuation was very rich, and this has probably only gotten worse given that weakness in housing prices. Current Earnings to Book yield remains ~50% below historical averages:

    On the other hand, after the recent sell off, the energy sector has become quite cheap. A long energy vs short financials relative value trade, which was very popular in 2008, looks like an interesting proposition again.