Archive - Feb 17, 2015

When it comes to trading the possibility of a Grexit, Bloomberg strategist Vassilis Karamanis writes,that there are three possible outcomes.

Scenario 1: Greece exits the euro
Scenario 2: Capital controls are imposed on Greek banks
Scenario 3: Agreement is reached within the next days

While the world's attention is glued to events in Greece, the real action continues to evolve quietly thousands of kilometers east, in China, where the near record surge in new loans remains unable to offset the dramatic slowdown in shadow banking issuance. And while China's bubble-chasing, animal spirits have recently reoriented themselves from real estate to the stock market, it is the real estate that holds the bulk of China's wealth. The problem here is that as China reported overnight, new-home prices in the world's most populous country just recorded their biggest annual decline ever!

US equities have miraculously recovered their EU-Greek talks-breakdown losses from yesterday in a mad buyng panic reminiscent of the very best work from FBRNY. As if that did not confirm everything was awesome in the status quo, silver (and to a lesser extent gold) have been take to the woodshed this morning. Treasury yields are still down 2bps from Friday's close but have jumped 3-4bps on this morning's exuberance. The dollar has given back all of yesterday's gains and then some and is now -0.2% from Friday.

The global economy is thoroughly integrated and processes and knowhow are increasingly delivered on distributed architecture made up of lattices of public and private networks. This approach has wonderful benefits and can deliver scale and flexibility and speed in equal measure. But therein lies the risk, the physical spying infrastructure with engineered back doors must remain hidden in order to be effective and useful to the spies who placed them there. What the intelligence community has done has created the mother of all “single point of failures” and the potential for calamity and social disintegration is almost too great to countenance. They assume that with adequate controls these systems can be kept safe and used effectively. They said the same about nuclear procurement and weaponised viruses.

• Markets From Stocks to Debt to Euro Show Little No Panic (BBG)
• Greek Euro Exit Risk Increases as EU Delivers Ultimatum (BBG)
• Oil rises to $62, near 2015 high as Mideast risks support (Reuters)
• Texas judge blocks Obama plan to protect undocumented immigrants (Reuters)
• Oil Train Derails and Ignites Forcing West Virginia Evacuations (BBG)
• Battle rages for town where Ukraine rebels reject ceasefire (BBG)
• Chinese Firms Tiptoe Back Into Europe’s Battered Financial Sector (WSJ)
• Putin’s Paradise Becomes Economic No-Go Zone Where Cash Is King (BBG)
• Emerging fund managers stuck in buy-and-hold as trading shrivels (Reuters)

The attacks demonstrate a shocking vulnerability in the highly interconnected global banking system. The Kaspersky Lab report gives a fascinating insight into the hackers operation.

There was a brief period this morning when market prices were almost determined by non-central banks. Almost. Because shortly before the European market open, a technical failure on the Eurex exchange prevented trading in euro-area bond futures the day after Greek debt talks collapsed. And sure enough, after initially seeing significant downward pressure, which nobody could capitalize on of course courtesy of the broken Eurex, risk both in Europe and the US has since rebounded courtesy of the ECB, SNB and BIS, led by the EURUSD (because a Grexit threat which according to Commerzbank has been raised from 25% to 50% is bullish for the artificial currency), which is now at the level last seen just before yesterday's negotiations broke down, and US futures are about to go green.