Dominoes, Anyone?

Submitted by Mark J. Grant, author of Out of the Box,

Before a midnight breaks in storm,
Or herded sea in wrath,
Ye know what wavering gusts inform
The greater tempest’s path;

Till the loosed wind
Drive all from mind,
Except Distress, which, so will prophets cry,
O’ercame them, houseless, from the unhinting sky.

                   -Rudyard Kipling

I stand not upon laurels but what I have printed.

For two years I said, “Play the game but when it turns—Flee.” The turning points were always two things. The first was a serious event that turned over the applecart. The second was the Fed reversing course. 

When the Fed did reverse course I put out a warning moments later, “Take money off the table.” I repeated that warning for three days. I repeat it again today if you have not done so already and if you have; take more off the table.

The consequences of the Fed’s decision tosses hand grenades into the wind with tumultuous reverberations. Shrapnel is ensuing. More blood will be spilt.


Two Ministers resign. The yield on their ten year is back above 8.00%. The  government is in turmoil and may topple. Contagion will be retched upon the streets of Madrid, Rome and Paris. Crises has returned.


The President of Cyprus is meeting with Mr. Draghi today and requesting that the terms of their loans be lowered, extended perhaps pretended but anything at all so Cyprus has to pay less money. He is not asking for this, he tells us, he is just whispering it into the wind I suppose. Ah the Europeans; so good at whispering and denying that they spoke.

In the meantime Cyprus implemented a debt restructuring that is not a debt restructuring because it is now called a, “debt management operation.” It looks like a pig and acts like a pig and smells like a pig but the Europeans insist that it is a boar.

“Here piggy, piggy, piggy,” I say.

The Cypriots have a problem though. They have $2.6 billion in outstanding bonds that are governed by English Law. Don’t you just hate it when that happens? If you read this and tell Mr. Draghi or Ms. Merkel please bring along the smelling salts.

Here is the language for Cyprus’s English Law bonds. This is the “moratorium” section of the events of default:

“A moratorium on the payment of principal of, or interest on, all or any part of the External Indebtedness of the Republic or any State Agency shall be declared or any such moratorium occurs de facto or the Republic or any State Agency is unable to pay its debts as they fall due or commences negotiations with any one or more of its creditors with a view to the general readjustment or rescheduling of all or any part of its External Indebtedness…”

Here is the definition of “external indebtedness” taken from the bond covenants:

“External Indebtedness” means any (i) indebtedness of the Republic in respect of moneys borrowed or raised by the Republic and (ii) guarantees or indemnities given by the Republic in respect of indebtedness in respect of moneys borrowed or raised by others.”

I know that you are just, “shocked, shocked” but it gets even better.
If the English Law bonds are declared in default by the British courts and the bonds must be immediately paid in full then the ESM loan to Cyprus gets called into play. The following is from the ESM loan agreement:

“The ESM, may…declare the aggregate principal amount of any or all Financial Assistance made and outstanding under the Facilities to be immediately due and payable… if…


Relevant Indebtedness of the Beneficiary Member State or (if applicable) the Fund having an aggregate principal amount in excess of EUR 250,000,000 is the subject of a declaration of default as defined in any instrument governing or evidencing such indebtedness and as a result of such a declaration of default there is an acceleration of such indebtedness or a de facto moratorium on payments…


Relevant Indebtedness means all External Indebtedness and Public Internal Indebtedness.”

Dominoes anyone?
Egypt’s coup is complete but perhaps the most interesting part was when the Egyptian army released the following statement:

We swear to God that we will sacrifice even our blood for Egypt and its people, to defend them against any terrorist, radical or fool…”

I wish someone in the United States would say that. I would vote for them as President. Of course if the “fool” part was truly operative we would have to replace all of the members of Congress too.

Ah! What avails the classic bent
And what the cultured word,
Against the undoctored incident
That actually occurred?

                -Rudyard Kipling


Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.