Well, lemme ask you a simple question... 1) If the European project unravels completely after Greece leaves, what assets do you want to own? 2) If the European project gets stronger as a result of booting the worst of the "bad apples" (Greece) out, what assets do you want to own? As to reducing or eliminating the original risk, as someone who's been on an exotics desk, you, of all people, should know that sometimes that's either not possible or so prohibitively expensive, it might as well not be possible.
a) I would like to own optionality in bunds if you limit it to European assets. I would be fairly certain that bunds outperformed German equities. b) I would still want to own German bunds. c) And I would strongly assume you know what happened the last time people warehoused assets they could not easily unwind. I was fortunate in having had a strict but wonderful mentor, someone with enough clout to decide which products he wanted to have on his book without having to bend to anyone above. Sure, you can't ignore exposure to risk you can't easily manage. But then there are good hedges and then there are hedges. I would not call being long an equity index as hedge for systemic risk the worst hedge but its definitely not in the top 10.
So, what do you guys think about the outcome of today's meeting? I can hardly think of another delay without decisions, made today. My hunch is they will essentially structure a bridge loan, an extension to cover the next few months. But they will not call it bridge loan and it will have certain conditions attached. I do not think it involves Troika but I think it may include certain collateral for the loan extension. Anything that falls short of this and we will see capital controls being put in place.
* *VAROUFAKIS SAYS GREECE HAS GONE EXTRA 10 MILES* Let's see, if all the other finance ministers enter the press room later with a big grin on their faces then we know Greece as literally "sucked up".
Suit yourself. Myself, I would much rather own optionality on a reasonably well-diversified equity index that yields 2.5% than 10y government paper that yields 35 basis points. To me, Grexit is priced to perfection in bunds, whereas it's not in DAX. Just my personal judgement, so it's perfectly reasonable for us to disagree on this. As to the liquidity issues, sometimes you don't have the luxury of choice. Sometimes things that you thought were easy to unwind turn into complete nightmares very quickly.
I do not know how you are attached to markets. But I do not sit around to wait for coupon payments. I trade prop positions so I care about changes in volatility and prices. Sure, we can disagree on this and could possibly revisit 6 months later down the road. Martinghoul, to your comment re liquidity issues I can only say that we were not talking about some Socgen Correlito products or other packaged garbage. We are talking about hedges made up of pretty liquid products. If you are exposed to Greece, for example, then you simply reduce risk/increase protection via CDSs. They are liquid enough. Correlations between Greek risk and the DAX are neither stable nor extraordinarily high. And hey, the art of a good trader is to protect before the shit hits the fan not during. Edit: I think the Correlito dispersion/correlation product was structured by BNP not SocGen
...At the height of the eurozone crisis, Mr Juncker was described as the “master of lies” for organising a meeting of finance ministers to talk about whether Greece could remain in the single currency and then trying to deny it was taking place. Germany's Suddeutsche Zeitung accused Mr Juncker of “taking the lead on the deception” and warned he had managed “to fritter away the last remaining trust the people of Europe still have”. Mr Juncker has never hidden his view that the compromises and deals being worked out in EU meetings or leaders or ministers need be protected from public scrutiny, by lies if necessary. "When it becomes serious, you have to lie," he said.... ------------------------ That was before his statement today: ***EU's Juncker says Grexit will not happen***