France

Brussels has been dead wrong. The stupid idea that the euro will bring stability and peace, as it was sold from the outset, has migrated to European domination as if this were “Game of Thrones”. Those in power have misread history, almost at every possible level.

France has managed to use the Greek bailout to offload €8 billion in junk debt onto its neighbors and burden them with tens of billions more in debt they could have avoided had Greece simply been allowed to default in 2010. The upshot is that Italy and Spain are much closer to financial crisis today than they should be.

Greece is not the real issue for Europe. The entire Greek debt market is about €345 billion in size. So we’re not talking about a massive amount of collateral… though the turmoil this country has caused in the last three years gives a sense of the importance of the issue.

While the folks clogging the US tattoo parlors may not have noticed, things are beginning to look a little World War one-ish out there. Except the current blossoming world conflict is being fought not with massed troops and tanks but with interest rates and repayment schedules. Germany now dawdles in reply to the gauntlet slammed down Sunday in the Greek referendum (hell) “no” vote. Germany’s immediate strategy, it appears, is to apply some good old fashioned Teutonic todesfurcht — let the Greeks simmer in their own juices for a few days while depositors suck the dwindling cash reserves from the banks and the grocery store shelves empty out. Then what? Nobody knows. And anything can happen.

"When I hear the Germans say that they maintain a very moral stance about debt and strongly believe that debts must be repaid, then I think: what a huge joke! Germany is the country that has never repaid its debts. It has no standing to lecture other nations. ... Germany is really the single best example of a country that, throughout its history, has never repaid its external debt. Neither after the First nor the Second World War. However, it has frequently made other nations pay up... "

Perhaps the best summary - or epitaph, some would say - of the shocking events that took place in Greece this afternoon, and the resultant falling dominoes that are about to be unleashed, was given by Slovakia's finance minister Peter Kazimir, who summarized events as follows: "The nightmare of the 'euro-architects' that a country could leave the club seems like a realistic scenario after Greece voted No today."  So here is JPM's Malcom Barr with the bank's latest take on Greece which is that at this point, a Grexit is JPM's "base case"... and it only goes downhill from there.

"This 'No' from the Greek people must pave the way for a healthy new approach," said Marine Le Pen.  "European countries should take advantage of this event to gather around the negotiating table, take stock of the failure of the euro and austerity, and organize the dissolution of the single currency system, which is needed to get back to real growth, employment and debt reduction."

What investors will focus on in the week ahead

"Could deposits below €100k be protected as it happened in Cyprus? The answer depends on the total amount of deposits above €100k. If there are enough of these large deposits above €100k, then most likely any required deposit haircut will be inflicted on these depositors only. There are no recent data on how big this universe of large deposits is. The most recent data from the European Commission suggest that at the end of 2012, covered (i.e. those below €100k) represented 75% of eligible Greek deposits. We suspect this number is now significantly higher leaving little room for depositors with less than €100k to be spared."

"...If the S&P500 were to come down by 50% look at the bright side. The Millennial generation can finally buy into America’s future at a good price. Look at what they are facing right now: very little return on their savings and very lofty prices that they have to pay to invest in their future.  So we often forget that these wrenching dislocating financial events, particularly for older generations, can create opportunities for the young, and often create space for something more durable for the times to be built. So I’ll just summarize it with Schumpeter’s phrase: creative destruction. That’s how I prefer to see what happens in a Fourth Turning."

Earlier this week the embattled Greeks delivered still more body blows to the rotten regime of Keynesian central banking and the crony capitalist bailout state to which it is conjoined. By defaulting on its IMF loan, walking away from the troika bailout program and taking control of its insolvent domestic banking system, Alexis Tsipras and his band of political outlaws have shattered a giant illusion.

The Greece impasse set to culminate on Sunday continues to have a massive impact on at least one stock market, unfortunately it is the wrong one, located on a continent which is mostly irrelevant to the future of the Greek people (unless that whole AIIB bailout does take place of course). We are, of course, talking about China which as noted earlier, started off horribly, plunging over 7% with over 1000 stocks hitting 10% limit down, then in the afternoon session mysteriously recovering all losses and even trading slightly higher on the day, before the late selling returned once more, and the Shanghai Composite plunged to close down 5.8%: an unimaginable 20% total roundtrip move!