why things are as they are...
The Greek parliament will vote on a second batch of prior actions on Wednesday including EU rules on bank resolutions and civil justice reform amid protests from public sector union ADEDY which has pledged to "continue the battle so that the new barbaric bailout does not pass and is overturned," and so that Greece does fall under the "neocolonial control" of Brussels. Today's vote is a litmus test for Syriza. That is, the key issue is whether the party splinters further or if some of those who broke with Tsipras last week return to the fold on Wednesday.
While this week has been, and continues to be, devoid of macro updates, yesterday's flurry of mostly disappointing earnings releases both before and after the open, including some of the biggest DJIA companies as well as the current and previously biggest and most important companies in the world, AAPL and MSFT, both of which came crashing down following earnings and forecasts that were well short of market expectations, came as a jolt to a market that was artificially priced by central bank liquidity and HFT momo algos beyond perfection. Add to that yesterday's downward revision to historical industrial production which confirmed the US economy is a step away from recession, as well as last night's Crude API inventory build which is once again pressuring WTI lower and on the verge of a 49 handle, and perhaps the biggest question is why are futures not much lower.
In what may be the biggest story of the year, if confirmed, Greek newspaper To Vima reports that Greek Prime Minister Alexis Tsipras has asked Russian President Vladimir Putin for 10 billion dollars in order to print drachmas. But the real shocker: on the night of the referendum, word came from Russia that Putin did not want to support Greece’s return to the drachma. After that, Tsipras had no choice left but to “surrender” to German Chancellor.
Is China (or the US) the next Greece?
The action in gold in 2013 was a warning about the “dollar”, a warning that went completely unheeded yet has been largely fulfilled. Again, 2013 provides a guide as to why gold prices may be declining in sharp moves, especially right at the open or in weaker trading hours, and it has very little to do with interest rates apart from fixed income suggesting the same factors about the “dollar.” Whether it is growing unease about the global economic picture or the “sudden” recurrence of financial irregularity almost wherever you wish to gaze, the “dollar” is once more wreaking havoc. This isn’t controversial at all, but somehow economists can miss that gold is global and universal collateral and when the eurodollar system is stressed it becomes activated in that manner.
What if Syriza were not just a particularly fluffy breed of miniature Europoodle but actual honest-to-goodness revolutionaries, ready to do whatever it takes? How would they act differently? And what would be the result? Given that the price is so high, perhaps it would be better after all if we just sat quietly, allowed the rich get richer as the poor get poorer, watched listlessly as the environment got completely destroyed by capitalist industrialists in blind pursuit of profit, and eventually curled up, kissed our sweet asses good-bye and died? Good luck selling that idea to young radicalized hotheads who have nothing to lose - except maybe you, if you happen to stand in their way as they change the world!
The one line item everyone looks for in every Greek forecast is what its debt will be now that reality is finally allowed to creep in. We have dutifully highlighted it on the chart below: it is now expected to hit 238% by 2018. But it was another number that caught our attention: Citi's estimate for Greek HICP (inflation) in 2017. 22.5% In other words, Citi predicts that by 2017 Greece will have hyperinflation even if it remains in the Eurozone.
In the latest example of what happens when circular funding schemes begin to trip over each other, National Bank of Greece has refused to participate in an auction for paper issued by the bailout fund which is set to recapitalize the Greek banking sector.
President of Greek Banks Association Louka Katseli appealed at the citizens to return their money to the banks. “Banks are absolutely trustworthy,” Katseli told Mega TV, “Let’s all help our economy... If you take your money out of your chests and houses – which are not safe in any case – and deposit at banks, this will enhance liquidity.” Katseli’s appeal triggered laughter among Greeks with one exclaiming “Ah sure! Banks will never see my money again, I prefer to buy tonnes of peanuts with it.”
"The size of the required ‘upfront’ (i.e. to be introduced in 2016) principal haircut to be €110bn (60% of annual Greek nominal GDP in 2014). Note that we do not see much difference in an alternative scenario based on a ‘tranched’ principal haircut framework (of around €15bn per year), also starting in 2016. However, a ‘backloaded’ (i.e. to be introduced in 2022) approach relying on a single haircut would be more expensive, amounting to €130bn (72% of annual Greek nominal GDP in 2014)."
Since yesterday there has been another of wave of negative, misleading and almost triumphalist commentary on gold most of which studiously ignores the clear evidence of manipulation of the price on Sunday night.