Archive - Jul 7, 2015

Who's next?

For every loser there is a winner, and in the case of Greece and its tragedy, just as millions are about to lose everything, a few not only made billions but quietly, under the guise of "sovereign bailouts" transferred their entire risk onto the taxpaying public.

At this point it is unclear who wants Grexit more: the ECB or Greece.

It appears the China-related margin calls are spreading... just as we warned.

Greece (or China) matters again...

While the new Greek Finmin Euclid Tsakalotos is sweating to convince his peers at today's Brussels Eurogroup meeting, which was supposed to discuss the "latest" Greek proposal that the old, and rejected, Greek proposal is really Greece's best foot forward, a surprising development which will likely result in yet another very brief summit, his significantly more exciting, and polarizing, predecessor was just spotted in Athens having a far more enjoyable time.

While not predicting that Tehran and six world powers will strike a deal by the new July 10 deadline, a senior Iranian oil official says his country hopes to nearly double its crude exports immediately if and when sanctions are lifted and hopes that OPEC will accommodate this growth by capping production by the cartel’s other members. “We are like a pilot on the runway ready to take off,” Mansour Moazami, Iran’s deputy oil minister for planning and supervision, told The Wall Street Journal inTehran on July 5. “This is how the whole country is right now.”

1. A new program requiring very major structural reforms of the Greek side, and much larger than the last Juncker proposal.
2. Introduction of parallel currency, primarily through promissory IOU.
3. Controlled bankruptcy and leaving the euro

FX markets are roiling today, US and German bonds are surging (yields are tumbling), and European stock and bond markets are ugly again. Between all of this we are seeing 'jerky' moves in many disparate instruments as it appears margin calls are mounting and forced unwinds accelerate across markets, the latest of which is gold (and silver) which just saw someone decide to dump almost $1 billion notional instantly into the open market.

ECB’S RIMSEVICS SAYS INTRODUCTION OF ANOTHER CURRENCY IN GREECE IS MOST REALISTIC SCENARIO, MAY BE ONE LESS EURO ZONE MEMBER IN FUTURE

The US trade deficit increased from $40.7 bn to $41.8bn, slightly lower than expected. Impoorts fell a mere 0.1% (despite a record amount of imported auto parts) but exports fell 0.8% (driven by a decline in Aircraft sales), nudging GDP expectations lower. The trade deficit with China rose notably and exports to Europe dropped.

Overnight hope has faded and WTI crude prices have retumbled as Iran deal expectations rebuild and China economic collapse fears grow. The last few days have seen crude break crucial support levels and tumble to 3 month lows, down over 12% - the biggest losing streak since November. Credit risk for HY energy names is resurgent, crushing the mal-investment dream in a double-whammy for the industry as cost of capital rises and incomes shrink.

How do you say grilled squid in Greek?

On the heels of Sunday’s referendum wherein Greeks essentially gave the greenlight for an unceremonious EMU exit should Europe decide to spurn the IMF and stick to a “no debt relief” policy for Athens, PM Alexis Tsipras and his newly-appointed finance minister Euclid Tsakalotos are making a final push to break the stalemate with creditors before the ATMs go dark and a supplier credit crunch creates widespread shortages of imported goods.

Today's "final" Eurogroup meeting is yet another "last" chance for Greece to stay in the Euro according to Greek headlines. The meeeting begins in minutes, at 12:30pm CET/7:30am Eastern so expect the usual torrent of "Greek deal" headlines which send the S&P surging followed by prompt denials which the S&P algo soundly ignore. By now the game is quite familiar to everyone.