Monday, February 21, 2012
 
Today's market action will reflect optimism about the European situation following the weekend deal for Greece. The deal removes the possibility of a near-term disorderly Greek default that had emerged as a key possibility in recent days. With the domestic economic calendar today lacking anything substantive, it will be interesting to see if the favorable European news will be enough to push the Dow above the 13,000 mark today.
 
Greece finally got the deal, which not only provides for a fresh €130 billion bailout, but also requires the country's private creditors to take greater losses on their Greek bond holdings. A lot of details still need to be worked out, but the bottom line is that the enhanced haircuts on private sector Greek bonds will bring down the country's debt load from the current 164% to around 120% in 2020.

The Greek government will be announcing details of the private-sector bond swap in the coming days that requires 100% participation from the bondholders. For every €100 in face value of bonds tendered, the bond holders will get newly issued long-term Greek government bonds with a face value of €31.5 and short-term bonds issued by the EFSF for a face value of €15.
 
In exchange for the fresh bailout, Greece has agreed to provide constitutional guarantees to prioritize paying back the new debt over its regular government spending programs. The country has also effectively bartered away its financial sovereignty by allowing for permanent and enhanced external oversight over its financial decision making.

The country is now required to implement a tough and deeply unpopular austerity program that will push the economy deeper into recession. This deal addresses the Greek problem for now, but to expect that the issue has been taken off the table for good may be too optimistic. Greece will remain shut out of the markets for years to come and will most likely need another bailout sooner rather later.
 
In corporate news, Wal-Mart ( WMT ) came out with better-than-expected earnings, though it came short of revenue expectations and provides a less than robust outlook. Home Depot ( HD ) handily beat expectations, while Kraft ( KFT ) came in-line.
 
Sheraz Mian
Director of Research