The next round of the great crisis is here. 2008 was just A Crisis… we've just begun THE Crisis.
At the open, Europe looked in the abyss, and with no help coming from China, it did not like what it saw: And then the answer came from the Swiss National Bank, which stepped in to prevent the collapse just as Europe was opening. Because seemingly out of nowhere, a tremendous bid came in to life the EURCHF, buying Euros (against the CHF and the USD) and selling Europe's last left safety currency. We now know that it was the SNB, the same central bank which is the proud owner of well over $1 billion in Apple stock.
Global equities plunged on Monday as both carbon-based traders and HFTs tried in vain to keep their composure which watching in horror as Greece, the birthplace of Western civilization, quickly became Venezuela. With Europe’s “Lehman weekend” now in the books and as the currency union stares into an uncertain future, the sell side tries to make sense of it all.
While things have normalized since the open thanks entirely to the SNB's aggressive EUR-buying, CHF-selling intervention (good to see that central banks have read the BIS' report and have learned from their prior intervention mistakes), earlier this morning we got a snapshot of what happens if and when the SNB, and then the ECB itself, finally lose control when as a result of the Greek crisis the contagion promptly spread a few hundred kilometers west to Italy where as the WSJ reported, "several Italian banks failed to start trading on Monday as fears over a Greek debt default induced many investors to shed peripheral stocks, including Italian, with banks suffering the most."
It appears Greece matters after all - US futures are tumbling, Japanese stocks are tanking (as JPY is bid on mass carry unwinds), Chinese stocks are limit down and collapsing.. and now European equity futures are open and in free-fall. Bunds are well bid, down 20bps to 72bps. Peripheral bonds are being dumped (contagiously).
*EURO STOXX 50 FUTURES FALL 7% AT MARKET OPEN
*ITALIAN BONDS DECLINE WITH 10-YEAR YIELD RISING 57 BPS TO 2.72%
Ideas Have Consequences... In Nazi Germany and Fascist Italy, in Great Britain, in Japan, and in the United States, there was a shift of opinion away from the free market in favor of government economic planning. The supreme mark of this transformation was the acceptance of John Maynard Keynes' unreadable book, The General Theory of Employment, Interest, and Money, which was published in 1936. A new generation of younger economists adopted this book and its outlook, which prevails today. The fascist economic idea of an alliance between government and business became almost universally accepted.
Over the last few months the financial media has not only turned deaf ears to the drama, (out of boredom) they have also blindly discounted any contagion effects as “isolated” at best – relative periphery contagion at worst. In other words: Any and all problems can be contained, mitigated, or solved by none other than your friendly neighborhood Central Bank. After all, if you listen to the so-called “smart crowd” these bankers have powers even Zeus would envy. So why worry about a little turmoil at the foot of Olympus? In any hero-worship endeavor one thing must remain constant or it all falls apart. Those that worship can never witness any event regardless of how minor: that the gods are not all that they portend to be. In other words: Allow just one moment of truth to be witnessed showing frailty instead of omnipotence – and the whole ruse falls regardless of the size and strength of the monuments and temples built to honor. For they will be abandoned: sometimes slowly, at others - all at once.
As that €126 billion or so of total ECB/Eurosystem claims on Greek banks were "charged off" in case of a terminal Greek "event" then the entire ECB capital buffer would also be wiped out, leaving the ECB with negative equity. Translated: dear Eurosystem members: we need more cash.
This next week is not so much about Greece the butterfly, but it is about keeping the butterfly from becoming a hindrance to the math working globally. And the Greek government knows this. They are negotiating on the basis that a bad Greek deal from Europe’s point of view is better than a default. Angela Merkel wanted a concluded Greek deal before markets open on Monday. Now she has a mess.
While the path ahead suddenly just got very confusing for both Greece and Europe, one thing is clear: going forward the Greeks will only have themselves to blame for whatever the final outcome is. That, and the Greek trargicomedy which has now lasted for over 5 years, may finally be over.
We cannot forget that crisis is in itself a distraction as well. Whatever pain we do feel tomorrow, or the next day, or the next decade, remember who it was that caused it all: the international banks and their globalist political counterparts. No matter what happens, never be willing to accept a centralized system. No matter how reasonable or rational it might sound amid the terror of fiscal uncertainty, never give the beast what it wants. Refuse to conform to the dialectic. This is the only chance we have left to get back to true prosperity. Once we cross the line into the realm of worldwide institutionalized interdependency, we will never know prosperity or freedom again.
An extensive look at what would happen if Greece were to leave the Eurozone, through a legal fudge.
In the following Reuters photo, Italy demonstrates to Germany how it plans to "tackle" Europe's debt crisis.
Following yesterday's furious market drop in Chinese stocks, just before the overnight open, Morgan Stanley came out with a much distributed report urging investors "Not to buy this dip", and so they didn't. As a result, the Shanghai Composite imploded, at one point trading down 8% while the Chinext and Shenzhen markets crashed even more. This was the single biggest Shanghai Composite one-day drop since 2007, and with a close at 4192.87 the SHCOMP is now on the verge of a bear market, down 19% from its June 12 highs. China's second largest market, Shenzhen, is now officially in a bear market.
MAD – Mutually Assured Destruction – is way over. It kept a somewhat uneasy peace during seven decades of Cold War. Cold War 2.0 is as hardcore as it gets. And with all those Breedhate Strangeloves on the loose, nuclear madness is now at five seconds to midnight.