Spain has over $1.0 trillion in debt outstanding… and Italy has €2.6 trillion. These bonds are backstopping tens of trillions of Euros’ worth of derivatives trades. A haircut on them would trigger systemic failure in Europe.
On the heels of Sunday's landmark referendum in Greece, all eyes are now on global financial markets and how the European Central Bank intends to prevent contagion in the event Greece exits the currency bloc.
Tumbling Futures Rebound After Varoufakis Resignation; Most China Stocks Drop Despite Massive InterventionSubmitted by Tyler Durden on 07/06/2015 06:52 -0400
More than even the unfolding "chaos theory" pandemonium in Greece, market watchers were even more focused on whether or not China and the PBOC will succeed in rescuing its market from what is now a crash that threatens social stability in the world's most populous nation. And, at the open it did. The problem is that as the trading session progressed, the initial 8% surge in stocks faded as every bout of buying was roundly sold into until every other index but the benchmark Shanghai Composite turned sharply red.
Once the reality of debt write-offs and who lent how much and what that means at home, the real fireworks could start. Can Italy, Spain or Austria afford to write-off 1/3 or 1/2 or more of what they lent to Greece? How about the EFSF or ECB? How will depositors feel if they get a quick 30% off the top? That is the biggest issue. The math as they say. And it is what we should be watching for.
Marine Le Pen, Anti Euro French Presidential Frontrunner, Applauds Greek Victory Over "EU Oligarchy"Submitted by Tyler Durden on 07/05/2015 15:55 -0400
"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."
With the Federal Reserve’s unwillingness to allow the markets to stand on their own feet, and not be so dependent on their interventionism with QE for years, and Zero interest rates for the same – the tool box may in fact be empty – at the most inopportune time. So here we are, once again, waiting or watching for what could possibly be the start of another contagion effect to ripple through the markets that has the potential of resembling 2008, or worse. And the only thing to stand in its way will be the faith and/or belief in their omnipotence. For it seems – that’s all they have left. All while we watch the same crumble in the eyes of others across the waters as their Central Banks are being perceived daily more as villains or worse – inept
Trillion-Dollar Asset Managers Warn On Greece Fallout: "No Blueprint" Means "All Kinds Of Uncertainty"Submitted by Tyler Durden on 07/05/2015 12:00 -0400
“If all of a sudden one member leaves, it creates a precedent, and maybe suddenly casts some doubt on the long-term future of the monetary union.”
“There is no blueprint for how a country exits the euro and redenominates [and] that’s going to create all kinds of uncertainty in Europe.”
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."
"Do you think Europe should forgive your debt, check box 'Yes' or 'No'." "No" means a lot of pain now and recovery later. "Yes" means less pain now but no hope of recovery ever. Choose wisely...
The referendum on Sunday will likely have a significant impact on the prospects of Greece reaching a new bailout agreement and the immediate future of the governing Syriza party. Following the expiration of the second bailout and the missed IMF repayment on 30th June, Greece has had to impose capital controls while negotiations between the country and its creditors have been put on hold until after the referendum. Eurozone officials have indicated that a “No” vote would likely mean a Greek exit from the currency union although the Greek government sees the vote as only pertaining to the terms of a bailout programme.
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.
Having bounced midweek on 'hope' of a deal and 'faith' in Draghi's containment, European stock markets are tumbling back to the post-Greferendum lows of Tuesday. Italy and Spain are now down 5.5 to 6% and as the European close nears - and the realization thanks to The IMF that the vote is a simple Yes/No to debt haircuts - stocks are being sold and volatility is picking up. Bond spreads are leaking higher but it is clear that what Draghi really 'contained' was EURUSD which remains only marginally lower on the week.
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!