Archive - Feb 2015 - Story

The signals are clear: the world has already entered a downturn in economic activity. Therefore we can expect accelerated money-printing and the imposition of more negative interest rates in a forlorn attempt to avert economic reality.

We know, we know... volume doesn't matter... but if "There Is No Alternative" and there is mountains of "money on the sidelines" then why is average trade size plunging (cough algos cough) and volume collapsing in lockstep with each and every new record high in stocks?

Having, as we previously explained, been given 'just enough rope' by the Germans, we thought it worth looking at just what Greece capitulated on (or perhaps a shorter version - what they did not capitulate on) and how Tsipras and Varoufakis will sell this to their fellow politicians... and most of all people.

A bank which has €54.7 trillion, or a little over $62 trillion at today's exchange rate, in derivatives - a number that is 20 times greater than the GDP of Germany -  just failed a central bank stress test due to lacking governance and risk management controls and, just maybe, has insufficient capital? What can possibly go wrong.

The following chart should clarify just why to the "1%", including their protectors in the "developed market" central banking system, their tenured economist lackeys, their purchased politicians and their captured media outlets, the topic of a return to a gold standard is the biggest threat conceivable.

This past week has been a virtual tennis match watching the evolution of the Greek bailout negotiations. No Deal, Deal, No Deal, Deal. However, despite the fallout that would likely come from a Greek "exit," the markets have largely managed to ignore the risk and hit an all-time high this week. Market valuations, bullish sentiment and complacency are all pushing higher as the focus remains on the ignition of the ECB's QE program as a stimulus for the markets. In fact, this is so much the case that the net percentage of managers overweight Eurozone equities is at the highest level on record.

Having put Russia on review in mid-January, Moody's has decided (somewhat unsurprisingly) to downgrade Russia's sovereign debt rating to Ba1 (from Baa3) with continuing negative outlook. The reasons:

*MOODY'S SAYS RUSSIA EXPECTED TO HAVE DEEP RECESSION IN '15, CONTINUED CONTRACTION IN '16
*MOODY'S SEE RUSSIA DEBT METRICS LIKELY DETERIORATING COMING YRS

We assume the low external debt, considerable reserves, lack of exposure to US Treasuries, and major gold backing were not considered useful? Moody's concludes the full statement (below) by noting that they are unlikely to raise Russian sovereign debt rating in the near-term.

Did anyone honestly not think the German finance minister would not have the final word?

GERMAN FINMIN SCHAEUBLE SAYS AS LONG AS THE PROGRAMME FOR GREECE ISN'T SUCCESSFULLY CONCLUDED THERE WILL BE NO PAYOUT
GERMAN FINMIN SCHAEUBLE SAYS 'THE GREEKS CERTAINLY WILL HAVE A DIFFICULT TIME TO EXPLAIN THE DEAL TO THEIR VOTERS'

He's right.

Greek Finance Minister Yanis Varoufakis is holding a press conference to explain the decisions that led up to what by appearance seems to be a Greek fold...

VAROUFAKIS SAYS GREECE STOOD TALL DURING EUROGROUP TALKS

Why 4 and not 6 months? Simple: so that the humiliation of the Syriza government can continue with yet another bailout, aka "current programme", aka Memorandum extension request just ahead of the biggest debt maturity for the remainder of 2015.

Just out from the Eurogroup, the final statement. Bottom line: Greece caves on pretty much everything, however it has two semantics successes: the dreaded "Troika" words has been replaced with "institutions" and "Current programme" has been changed to "Current arrangement" - surely nobody will notice. Sarcasm aside, Greece has just kicked the can for four months. Why four months? Because that's just ahead of the big Greek debt maturity.

In October 2014, we noted the massive surge (amid a slowing economy) in VLCCs bound for China as they began rebuilding their Strategic Petroleum Reserve, buying the newly low priced crude providing 'artificial' demand not reflective of actual current activity. Crude prices continued to drop and China-bound tankers remained high. But, as Bloomberg notes, this week saw the number of supertankers heading to China drop to 62 - the lowest since September 19th (before China began its restocking efforts) - strongly suggesting that 'artificial demand' has been removed from the global oil market.