A quick recap of the key implications of Friday’s Greek “deal”, and what it means for the future of the Eurozone, the common currency and capital markets.
Outlook for the US dollar and other markets in the week ahead.
Jon Corzine had an illustrious career in investment banking, rising to the very top of Goldman Sachs, until he got pushed out in 1999. He subsequently decided to try his luck in politics, and was eventually elected as a Senator from New Jersey in 2001, then Governor in 2006. After losing to Chris Christie in 2010, Corzine was promptly hired as the CEO of MF Global. He was back in the game of finance - and with something to prove. While the majority of voters in New Jersey breathed a sigh of relief, the clients of MF Global could not imagine the disaster that would unfold.
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.
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.
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.
"... we almost hope those forecasts are proven wrong. They imply a widening gap between valuations and traditional fundamental relationships. They imply a dearth of yields and spreads that will almost invariably push more and more investors into positions they would ultimately rather not take. But if the old adage that markets move in the direction that causes the most pain to the largest number of people is anything to go by, then we suspect that this is what will happen. Depressingly, our instinct is that those new forecasts are more likely too conservative than too aggressive. Longer-term, sweet dreams really aren't made of this."
Euro Soars After Greek Official Says Eurogroup Reaches Accord, Denied 8 Minutes Later, Then ReconfirmedSubmitted by Tyler Durden on 02/20/2015 12:38 -0500
Update: according to Capital.gr, the agreement will cove a 4 not 6-month extension, is not considered a completion of current program, there will be no new austerity measures, and no new unilateral actions by Greece.
Just minutes after convening - following a few hours of backroom shuttle diplomacy, Bloomberg reports:
1235ET GREEK OFFICIAL SAYS IT APPEARS EUROGROUP HAS REACHED AN ACCORD; 1243ET GREEK GOVT SPOKESMAN SAYS NOT INFORMED OF ANY EUROGROUP DEAL
US equity and EURUSD markets kneejerked higher but refuse to fade the denial.
"The Eurozone chess game has entered its third and final stage. Germany wins in three moves - Euro, deflation and purchase of public debt by the ECB (QE) – and in the last few years it has found a way to maximise its profits and reduce to zero its risks as Europe’s creditor.... If we wait too long before leaving the Euro, then Germany will get checkmate and after cashing in all the benefits of our entry into the Euro, it will also cash in on the benefits of our exit."
Manufacturing PMI Signals "US Economy Has Entered A Slower Growth Phase"; Employment, New Orders TumbleSubmitted by Tyler Durden on 02/20/2015 09:51 -0500
Having hovered at its lowest level in 12 months in January, February's Markit US Manufacturing PMI printed 54.3 (modestly above expectations of 53.6). Under the covers it is a very different story with New orders dropping to their lowest level since Jan 2014 and employment falling. While the headline will likely steal the day (though initial equity reactions are negative), as Markit concludes, "the rate of economic growth remains well down on last year."
** Greek Bank Runs Accelerate as Possible ‘Grexit’ Looms
** Fatigue with Greek Crisis Breeding Massive Complacency
** Ukraine a Significant Setback for NATO
** India Demand To Rise To 35 - 40 Tonnes This Month
** Gold Oversold - Fundamental and Technical Position Good
The global financial system desperately needs a big, bloody sovereign default - a profoundly disruptive financial event capable of shattering the current rotten regime of bank bailouts and central bank financial repression. Needless to say, Greece is just the ticket: A default on its crushing debt and exit from the Euro would stick a fork in it like no other. But don’t count on the Greeks.
Greece Update: Working Group Ends Without Result, However "Statement Drafted That May Be Basis For Compromise"Submitted by Tyler Durden on 02/19/2015 16:30 -0500
In typical European fashion, today's Greek negotiations have ended in a Schrodingerian fashion: on one hands reports are now trickling in that the Greek Eurogroup working group has concluded their meeting after 7 hours without a result while on the other, Market News is reporting that Eurozone deputies have "drafted a statement that could well serve as a basis for a compromise between Greece and the Eurozone, to be examined by finance ministers Friday."
When you owe someone $340, it is YOUR problem.
When you owe someone $340 BILLION, it is THEIR problem.
If Greece gives in, Germany will have won, but its bully status will come to bite it in the face. European nations don’t accept bullying, and certainly not from Germany. It’ll be a Pyrrhic victory: the beginning of the end. If Greece however stands firm in its demands, it’s also curtains for the EU. If Greece leaves, it won’t leave alone. Only the third option, Germany caving to Greek demands, can save the EU. But Merkel and Schäuble have prepped their people to such an extent with the wasteful lazy Greeks narrative that they would have a hard time explaining why they want to give in. The EU may thus fall victim to its own propaganda