For a glimpse of what happens next, look no further than Sweden.
“There are three things that matter in the bond market these days: liquidity, liquidity and liquidity. When the unwind comes, like we’ve seen in the past few months, it comes abruptly and sharply as the exit door is tiny"...
Greece, Europe and the world are being crucified on a cross of Keynesian central banking. The latter’s two-decade long deluge of money printing and ZIRP has generated a fantastic worldwide financial bubble, and one which has accrued to just a tiny slice of mankind. That much is blindingly evident, but there’s more and it’s worse. The present replay of high noon on Greece’s impossible mountain of debt clarifies an even greater evil. Namely, that the central bank printing presses have also utterly destroyed the fundamental requisite of fiscal democracy. To wit, in the modern world of massive, interventionist welfare states, fiscal governance desperately needs an honest bond market.
“Systemic risk is in the system [and] we are in uncharted territory. Think about holding other assets. That could mean precious metals, it could mean physical currencies.”
There are large signs of stress now present in the credit markets. You might not know it from today's multi-generationally low interest rates, but other key measures such as liquidity and volatility are flashing worrying signs. While some may hope that rising yields are signaling a return to more rapid economic growth, or at least that the fear of outright deflation has lessened, the more likely explanation is that something is wrong and it’s about to get... wronger.
European shares remain higher, close to intraday highs, with the autos and travel & leisure sectors outperforming and basic resources, utilities underperforming. Meeting of finance officials to reach a deal over Greek aid ended in frustration, forcing leaders to call for an emergency summit for Monday. ECB plans to hold an emergency session of its Governing Council on Friday to discuss a deterioration in liquidity at Greek banks, three people familiar said. German airwave auction raises $5.7b to top 2010 sale. Bank of Japan leaves monetary policy unchanged as forecast. Shanghai Composite Index capped its worst weekly decline in seven years.
"The time it takes for the global regulatory community and central banking world to find a solution this time may be longer than the time where one episode of big illiquidity happens. Then the question is what to do. In my view the only thing that can be done at that time is that central banks should become again market makers of last resort."
"Greece not only does not have the ability to pay this debt, but also should not pay this debt first and foremost because the debt emerging from the Troika’s arrangements is a direct infringement on the fundamental human rights of the residents of Greece. Hence, we came to the conclusion that Greece should not pay this debt because it is illegal, illegitimate, and odious."
Greek 10Y yields are breaking back above 13%, bonds ar trading at 50 cents on the dollar, Greek stocks are near multi-decade lows, and Greek bank bonds have collapsed amid the ever-more-likely Grexit (or at least redenomination amid capital controls). But, there are some very smart chaps who must know something Tsipras, Merkel, and the rest of the world does not... because they are spending "Other People's Money" to buy the dip in Greek stocks and bonds. From Allianz and PIMCO (the world's lagest Greek bondholder ex-ECB) to Putnam and Wilbur Ross, it seems more than a few American investors will be impacted should Greece really implode.
As with all historical events, you must always understand the context of the era in which an event takes place. True, King John (1166–1216) was forced to sign the Magna Carta on June 15, 1215 at the demands of the elite barons. The reason for that was rather important – the common man was not taxed, only the rich. At the core of this entire issue was a tax revolt over the abuse of government.
Perhaps just to confirm that Coeure's infamous leak had nothing to with seasonality and everything to do with micromanaging Bund yields, in the latest ECB weekly report, we learned that after purchasing €13 billion in sovereign debt under its PSPP program, in the week ended June 12 this number dropped to just €10.6 billion, a 18% drop from the past week, and a 22% drop from a month ago. This was also the lowest weekly purchase amount since the first week of May.
IMF Says It Will Continue Lending To Ukraine Even After A Default, And Why This Is Bad News For Greek GoldSubmitted by Tyler Durden on 06/13/2015 23:01 -0400
As we enter Sunday and what may well be the last possibility to get deal done before the "accidental" Grexit scenario is put in play, we thought our Greek readers would be interested to learn that while Lagarde's "apolitical" IMF is digging in tooth and nail against giving Greece even the smallest amount of breathing room, the equivalent of half an our of a typical daily Fed POMO notional amount, yesterday the same Lagarde said that the IMF "could lend to Ukraine even if Ukraine determines it cannot service its debt."
At the post-ECB presser, Mario Draghi will likely discuss volatility in euro bond markets, inflation expectations, Greece, ECB flexibility on PSPP implementation, and the economic outlook for the eurozone. Expect security to be tighter at today's event.
There are many things going on in the Greece vs Institutions+Germany negotiations, and many more on the fringe of the talks, with opinions being vented left and right, not least of all in the media, often driven more by a particular agenda than by facts or know-how. What most fail to acknowledge is to what extent the position of the creditor institutions is powered by economic religion...
"...this time it is substantially different. Government is now on the hook, which is part of the reason why they are moving to eliminate cash to prevent bank runs and to force society to comply with their demands....They have lied to themselves and to the people. We have to crash and burn – that part is inevitable. Only when the economy turns down will we then argue over solutions."