en Hillary Ropes Off "Everyday" Reporters, Creates Media Spectacle <p>In case anyone forgot, Hillary Clinton — <strong>whose <a href="">demands</a> for a keynote speech appearance include a quarter of a million dollars, a private jet ("a Gulfstream 450 or larger), and $1,000 for a stenographer </strong>— is running for "everyday Americans."&nbsp;</p> <p>Presumably, these are the "folks" who make up the 83% of American workers classified by the BLS as "non supervisory" and probably include those whose job it is to report the news, which is why we were surprised (not really) to see that when it comes to "everyday" reporters, covering a Clinton rally means being herded along like cattle inside a moving rope pen which looks to have been designed to separate the former First Lady from 'the rest of us':</p> <p><img src="" width="400" height="433" /></p> <p><img src="" width="400" height="402" /></p> <p><img src="" width="400" height="290" /></p> <p><img src="" width="400" height="250" /></p> <p>* &nbsp;* &nbsp;*</p> <p>The media has predictably had a field day with the images. It's not yet clear what impact the debacle will have on Clinton's ability to "rope in" voters so to speak.</p> BLS Private Jet Mon, 06 Jul 2015 01:00:10 +0000 Tyler Durden 509304 at IOUs It Is: Why Greece May Have A Problem Printing "Rogue" Euro Banknotes <p>Previously <a href="">we reported </a>that in a heretofore unknown exchange, Varoufakis told Telegraph's Evans-Pritchard that "if necessary we will issue parallel liquidity and California-style IOU's, in an electronic form. We should have done it a week ago." Shortly thereafter, SocGen released a note in which it confirmed largely what the Greek finmin may have said, namely that "Greece is likely to issue a form of parallel currency."</p> <p>Here is SocGen's argument:</p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p><strong>Greece is likely to issue a form of parallel currency:</strong> <ul> <li>Indeed, the Greek government is already running a primary budget deficit and no other form of funding will be available in the coming weeks. It is worth noting that if the ECB was to decide to reduce or stop allowing Greek banks to roll-over Greek TBills, the issuance of IOUs would become even more crucial for the government. </li> <li>On top of that, we believe that the IOUs may also be used to help alleviate the financial stresses on Greek banks, such as the issuance of promissory notes in IOU terms in return for the redenomination in IOUs of part of banks’ liabilities (including time deposits above a specified amount). <strong>In this case, the IOUs would most likely end up as the new Greek currency</strong>. Indeed, living with closed banks and frozen deposits cannot last long. <strong>The government would eventually offer (with a discount) the chance to convert blocked time-deposits in euros into cash deposits in IOUs</strong>. The government would just have to print new banknotes and coins to allow free deposit withdrawals.</li> </ul> </p><p><strong>The idea of a parallel currency is not uncommon</strong>. In particular, IOUs have been used during periods of financial and economic stress, with extreme examples as some US states and Argentina (the latter eventually ending up with a massive devaluation of the peso).</p> <p>&nbsp;</p> <p>The academic literature presents several forms of parallel currency, with some creating a new form of securities, backed by the government’s ability to pay back its debt (e.g. California in 2009) and others backed by future taxes (similar to a tax credit).</p> <p>&nbsp;</p> <p>Unlike the former, the second category would have the advantage of not increasing the amount of debt owed by the Greek government. <strong>For example, the Greek government could pay part (let’s say 30%) of civil servant wages, benefits and pensioners in IOUs and part in euros</strong>. The IOUs could become a sought after asset if they offered a discount on tax payments (let’s say 5%). The IOU would be used in the Greek territory only. It could be used to trade basic needs (food, health, education, public services). However, the implementation and legal risks implied by the introduction of IOUs are elevated:</p> <ul> <li><strong>The logistical organisation needs to be put in place swiftly and smoothly while social order needs to be maintained;</strong></li> <li>As seen in Argentina, <strong>introducing IOUs could risk backfiring into full force devaluation</strong>. In the case of Greece, creating a parallel currency could be seen as a first step to Grexit (even with a Yes vote) and not as a temporary solution as in California. Conversely, if the IOUs introduced fail to be seen as a credible means of exchange or do not offer attractive characteristics, <strong>they would rapidly disappear in the private sector </strong>(as was the case in the Canadian province of Alberta in 1936-37).</li> <li><strong>The IOUs would be at risk of breaching the EU Treaty</strong>. Indeed, Article 128 states that “the banknotes issues by the ECB and the NCBs shall be the only such notes to have the status of legal tender within the Union”. As long as Greece remains within the EU, the IOUs could be used as a medium of exchange but would not have the privilege of a legal currency (<a href="">Regulation 974/98</a>).</li> </ul> </blockquote> <p>In this light, Greek IOUs now seem almost inevitable, especially since the other, "more nuclear" option, going rogue and printing Euro banknotes without the ECB's approval, appears quite limited even if purely logisically. </p> <p>This is what the <a href="">ECB says on the topic</a>:</p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p>Since 2002, euro banknotes have been produced jointly by the national central banks (NCBs) of the euro area. <strong>Each NCB is responsible for, and bears the costs of, a proportion of the total annual production in one or more denominations.</strong></p> <p>The annual production of euro banknotes needs to be sufficient to meet expected increases in demand, such as seasonal peaks, and to replace unfit banknotes. <strong>It also has to be able to cope with unexpected surges in demand. </strong>Production volumes for the years ahead are calculated on the basis of forecasts provided by the NCBs and a central forecast made by the ECB, thus combining national expertise with a euro area-wide perspective. The figures calculated need to be approved by the Governing Council of the ECB. </p> </blockquote> <p>And here is the biggest reason why if Greece relied on this plan it may have serious problems: <strong>per the ECB, the only dispensation the Greek currency printer has is for €10 bills.</strong></p> <p><a href=""><img src="" width="600" height="151" /></a></p> <p>Sadly, filling up holes worth tens of billions with "rogue" €10 bills would be problematic logistically, and we believe, Greece would run out of printing supplies long before it got to printing anywhere close to the required and desired amount, leaving aside all other questions of propriety and legality. </p> <p>So IOUs it is. The only question is how these shall be named. Last time we checked (<a href="">in June 2012</a>), the New Drachma (aka XGD) was briefly taken...</p> <p><a href=""><img src="" width="598" height="363" /></a></p> <p>... but after the summer of 2012 when the ECB was doing "whatever it takes" to show that the EUR is "irreversible" (only to prove three years later just how reversible it truly is) the XGD is once again available. Go for it Greece.</p> Budget Deficit Central Banks Evans-Pritchard Fail Greece SocGen Mon, 06 Jul 2015 00:23:21 +0000 Tyler Durden 509303 at China "Crosses Rubicon" With Stock Bailout; BofA Says PBoC Risks "Hurting Its Credibility" <p>Earlier today in “<a href="">Panic: China Central Bank Steps In To Bailout Stocks As Underwater Traders Pray For A Rebound</a>,” we noted (without much surprise) that the PBoC has officially taken the plunge. Late on Sunday, the China Securities Regulatory Commission announced that China’s central bank is set to inject capital into China Securities Finance Corp which will in turn use the funds to help brokerages expand their businesses and reinvigorate stocks. Translation: China’s central bank is now underwriting brokers’ margin lending businesses.&nbsp;</p> <p>Although Beijing will surely contend that this does not amount to Chinese QE because the central bank isn’t actually adding equities to its balance sheet (or at least as far as we know), it certainly sounds as though the PBoC is now set to directly fund leveraged stock purchases by retail clients and if that doesn’t count as using the central bank’s balance sheet to monetize risk assets then we don’t know what does.&nbsp;</p> <p>The move came after a consortium of brokers agreed on Saturday to commit 15% of their collective net assets to propping up China’s flagging stock market. The amount of support sums to just $19 billion and will be allocated to blue chip stocks, meaning, in no uncertain terms, that the initiative will be woefully inadequate to combat the rapid unwind of hundreds of billions of off-the-books margin trading.&nbsp;</p> <p>And so, the fate of the market now lies squarely in the hands of the PBoC who, as BofAML notes, may have just “crossed the Rubicon.”&nbsp;</p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p><em><strong>As we argued before, the A-share market may not bottom until the government, possibly via the PBoC, becomes the buyer of the last resort. </strong><span style="text-decoration: underline;"><strong>It seems that the government might have just taken the first step in that direction on Sunday night with PBoC’s promise to provide liquidity support to stabilize the market. </strong></span>We expect the A-share market to rebound somewhat in coming days, especially large cap names. If that happens, we suggest investors sell into the rally, especially brokers. Fundamentally, with SHCOMP ex. banks trading at 31x trailing 12-month earnings, the market appears very expensive to us. We assess that there is still a fairly high chance that market may fall sharply again at certain point over the next few months, unless the PBoC makes an open-ended commitment to support the market.&nbsp;</em></p> <p>&nbsp;</p> <p><em><strong>What the government did over the weekend&nbsp;</strong></em></p> <p><em>Among the many things announced over the weekend to support the market, three are meaningful, in our view: 1) a de facto suspension of IPOs in the A-share market; 2) the set-up of an Rmb120bn market stabilization fund (MSF) by 21 major domestic securities houses, coordinated by the CSRC; and 3) <strong>the </strong></em></p> <p><em style="font-size: 1em; line-height: 1.3em;"><strong>PBoC’s promise to provide liquidity support to China Securities Finance Corporation (CSFC).</strong> CSFC is the clearing house for margin financing and stock lending businesses in China and it’s also the sole provider of margin financing loan services to securities houses. Among the three measures, the third is by far the most important in terms of potential impact on market psychology by our assessment - we doubt that the first two alone would be able to stop a potential market rout on Monday.&nbsp;</em></p> <p>&nbsp;</p> <p><em><strong>Has PBoC crossed the Rubicon?&nbsp;</strong></em></p> <p><em>CSRC’s announcement on the liquidity support does not spell out how the liquidity will be used by CSFC, nor does it say anything about the size of the potential support. <strong>We suspect that the initial PBoC loans to CSFC will be used on Monday morning to fund the MSF until brokers’ funds arrive (by 11am on Monday as ordered by the CSRC). Local media reported that CSRC is confident of Rmb1tr inflows into the A-share market in short order. So it’s also possible that PBoC might have committed to provide a few hundreds of billions of Rmb for the time being by our assessment, with the balance of the inflows potentially coming from pension funds, insurers etc.&nbsp;</strong></em><em style="font-size: 1em; line-height: 1.3em;">At this stage, it doesn’t appear to us that PBoC is prepared to buy stocks itself or make its commitment to provide support open-ended.&nbsp;</em></p> </blockquote> <p>While we would certainly agree that the PBoC has indeed "taken the first step in the direction" of becoming the buyer of last resort, we're not so sure the distinction between the central bank "buying stocks itself" and providing the funds for brokers to facilitate margin trading is very meaningful. </p> <p>The central bank is effectively monetizing risk assets — the fact that the buyers are one degree removed from the PBoC is largely just a matter of optics.&nbsp;<span style="font-size: 1em; line-height: 1.3em;">Also, we're not at all sure that the central bank will not move very quickly to make its support "open-ended" — as discussed here on any number of occasions, Beijing simply cannot afford a stock market crash and thus will not go down without a fight.</span></p> <p><span style="font-size: 1em; line-height: 1.3em;">All of that said, the market's reaction to what the PBoC probably thought would be a potent one-two punch (the simultaneous cut to both the benchmark lending rate and the RRR rate) was met with still more selling, which is of course just another example of central banks losing control (see Sweden for <a href="">further evidence</a>). On that note, we'll close with the following warning from BofAML:</span></p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p><span style="font-size: 1em; line-height: 1.3em;">&nbsp;</span><em><span style="font-size: 1em; line-height: 1.3em;">If PBoC becomes the main source of market-supporting liquidity, we expect the central bank's credibility to be hurt.</span></em></p> </blockquote> <div class="field field-type-filefield field-field-image-teaser"> <div class="field-items"> <div class="field-item odd"> <img class="imagefield imagefield-field_image_teaser" width="518" height="321" alt="" src="" /> </div> </div> </div> Central Banks China ETC Market Crash Sun, 05 Jul 2015 23:31:36 +0000 Tyler Durden 509302 at More Sellside Reactions To The Greek Referendum <p>Today, Greeks sent a resounding message to Brussels, Frankfurt, and Berlin that they are not willing to acquiesce to further humiliation at the hands of creditors and that, even if it means braving the economic abyss in the short-term, the country is determined to salvage a better tomorrow from what, after today's referendum, are the smoldering ashes of Greece's second bailout program.</p> <p>Now, a stunned sellside — which had, over the past three months, very carefully tweaked their base cases to reflect the growing risk of Grexit — is scrambling to explain to nervous clients what happens next. </p> <p>Having <a href="">heard from JPM</a> earlier, we bring you the latest from Barclays, Deutsche Bank, and RBC. </p> <p>* * * </p> <p> <em>From Barclays:</em> </p> <p> <span style="text-decoration: underline;"><strong>A “no” vote means EMU exit, most likely</strong></span></p> <p>We argue that an EMU exit would become the more likely scenario, even if Greece remaining in the euro area cannot be ruled out. <strong>Agreeing on a programme with the current Greek government would be extremely difficult for EA leaders, given the Greek rejection of the last deal offered. EA leaders accepting all Greek proposals would be a difficult sell at home, especially at the Bundestag or in Spain ahead of the general elections.</strong> </p> <p> How will the crisis play out? <strong>The bank liquidity crisis is likely to turn into a solvency crisis once the ECB shuts down ELA, probably no later than 20 July (when a EUR4.2bn payment to the ECB becomes due). Fiscal problems would become more acute; the government may be forced to issue IOUs, which effectively become a parallel currency to the euro. </strong>A new currency by the central bank of Greece is likely to eventually become necessary to inject both liquidity and recapitalise banks. At this stage, we would expect IOUs to be converted into the new Greek drachma (NGD).</p> <p>The NGD would likely depreciate significantly and hence many local companies (clearly those in the non-tradable sector) and households would need to default on their foreign currency debt, now including euro-denominated liabilities. Many of the domestic contracts that are now denominated in euros would also become unviable and need to be restructured. Non-performing loans would surge because of: 1) the negative balance sheet effects for firms and households; and 2) the local currency needed to pay euro debts would increase with the devaluation, exceeding the increase in local currency revenue. Likewise, the government would also be forced to default on its euro-denominated liabilities.</p> <p>Redenomination away from the euro would also cause massive transfers between agents, adding to the above-mentioned transfers between debtors and creditors. A majority of households with local accounts and savings will suffer substantial losses while cash rich agents with accounts abroad will be the big winners and could take advantage of the chaos to seize capital and production capacities. Given the weak state of the government, these redistributions would likely benefit the already oversized unofficial sector.</p> <p><strong>In short, the existing contracting framework and financial infrastructure would be broken and need to be rebuilt. </strong>Inflationary finance would likely be used, to some extent at least, to replace the official finance that now supports Greece. Politically difficult fiscal and structural reforms would still be required to make the country more competitive, and promote economic growth. </p> <p> * * * </p> <p> <em>From RBC:</em></p> <p><span style="text-decoration: underline;"><strong>In a normal referendum the next steps would be binary––something happens or it doesn’t. But this is no ordinary referendum.</strong></span></p> <p>We argued last week that the next steps for a ‘no’ or a ‘yes’ vote look superficially similar. The government and creditors will have to start negotiations on a third programme (since the second one expired on Tuesday). Both sides indicated they were willing to do so even in the event of a ‘no’. </p> <p> <strong>What happens on Monday?</strong> </p> <p> Various European-level meetings are expected to take place. These include a EuroWorking Group meeting (i.e. top-level officials from euro area finance ministries). This may then be followed by a eurogroup teleconference (i.e. finance ministers-level) to take stock of the situation. At the Leaders’ level, German Chancellor Merkel will meet French President Hollande for a bilateral in Paris, with both calling for a European Council summit to follow on Tuesday. Separate from the political proceedings, the ECB’s Governing Council is also expected to meet to discuss Emergency Liquidity Assistance (ELA) for the Greek banking sector, though this meeting has not yet been confirmed.</p> <p><strong>The first thing to watch is how Syriza responds</strong></p> <p>On Thursday, Greek Prime Minister Tsipras claimed in the event of a ‘no’ outcome, he would be in Brussels within 48 hours signing a deal. In practice that is almost impossible––any new deal will need a lot of technical work so at best is a few weeks away. But in the first 48 hours there should be some sign of what willingness there is to compromise on both sides. If Tsipras takes a defiant tone (citing the democratic choice of the Greek people) we expect Europeans leaders to respond that they are also democratically elected (as they did after the January election). In that case we would expect the market reaction to worsen. </p> <p> <strong>The second thing to watch is how the ECB responds</strong></p> <p>The Governing Council is expected to meet on Monday to take stock of the situation. A Greek government spokesperson revealed that the Central Bank of Greece would submit a request to the ECB for a further increase to the ELA facility limit, which currently stands at €89.4bn. This follows from various press reports, including Bloomberg, indicating that Greek banks were struggling to cope with deposit withdrawals even with the capital controls already in place. <strong>Note that prior to the weekend, the head of Greece’s banking association, Louka Katseli, said that ‘liquidity is assured until Monday, thereafter it will depend on the ECB decision.” She added that the liquidity cushion banks currently had stood at about EUR 1bn.</strong></p> <p><span style="text-decoration: underline;"><strong>We nevertheless consider there to be limited prospect of further extension to ELA at this stage, with the risks instead skewed towards the Governing Council restricting access to the facility, including by increasing collateral requirements further. </strong></span>An increase to the ELA limit was not a ‘given’ even if the referendum had yielded a ‘yes’ outcome, and as such a ‘no’ vote makes that decision even more difficult, in our view. Recall that ELA lending requires banks to post “adequate collateral”, and may only be provided to “illiquid but solvent” institutions. In the current environment, whether such conditions are satisfied is predicated in part on a judgment about the likelihood of a new financial assistance programme being agreed for the Greek sovereign.</p> <p> <strong>Does this mean euro exit?</strong> </p> <p> <strong>A ‘no’ outcome certainly increases the risk. </strong>This is particularly the case if the Greek government believes that it will have substantially more bargaining power with the institutions and brings more ‘red lines’ to the negotiating table. Much will depend on the tenor of discussions when they begin next week.</p> <p>* &nbsp;* &nbsp;*</p> <p><em>From Deutsche Bank</em></p> <p><span style="text-decoration: underline;"><strong>There are three near-term implications of the results.</strong></span></p> <p>First, the vote marks a big political victory for PM Tsipras. Today's vote will allow the PM to maintain the political initiative within Greece, re-enforcing his leadership within the party as well as the government. It will be perceived by the government as a strong backing around its tough negotiating strategy. </p> <p>Second, the poll masks a deeply divided electoral body. The win to the "no" vote was decisive. But opinion polls over the last few days have continued to show an overwhelming support for euro membership. How this can be reconciled with the "no" vote and rising economic costs remains to be seen in coming days. <strong>Either way, the referendum process itself and the outcome has increased polarization in Greece. Political tension both within parliament and in potential political demonstrations will be ongoing and unpredictable.</strong> </p> <p>Third, the referendum result now requires Europe to more formally adopt a position on Greece, particularly given the size of the "no". The European message on whether rejection is equivalent to Eurozone exit has not been consistent, with both Merkel and Schauble in particular not adopting this interpretation. A more clear reaction from Eurozone members should now be expected. </p> <p><strong>Next steps</strong> </p> <p> In coming hours, the focus will shift back to the European response. </p> <p> Most imminently, <strong>Greek bank ELA liquidity is likely to be fully exhausted over the next few days, leading to an exhaustion of ATM cash reserves as well as an inability to finance imported goods via outgoing payments. The hit to the economy will be big. </strong>The Bank of Greece is holding a conference call with the Greek banks this evening to discuss the liquidity situation. </p> <p>The ECB is scheduled to meet tomorrow morning to decide on ELA policy. <strong>An outright suspension would effectively put the banking system into immediate resolution and would be a step closer to Eurozone exit.</strong> All outstanding Greek bank ELA liquidity (and hence deposits) would become immediately due and payable to the Bank of Greece. The maintenance of ELA at the existing level is the most likely outcome, at least until the European political reaction has materialized. This will in any case materially increase the pressure on the economy in coming days. </p> <p><strong>On the political front, focus will now shift to whether the damaged relationship between Greece and Europe's creditors can be repaired and the immediate prospect of a resumption in negotiations. </strong>PM Tsipras last week officially applied for a 3rd ESM program, but the application was rejected pending the outcome of the referendum..</p> <p>The risk is that relationships between Europe and Greece have been damaged to such an extent, that additional conditions are set before negotiations around an ESM program can be initiated. The overall ESM process will in any case take time. An ESM program requires prior ECB/IMF assessment of financing needs/debt sustainability as well as Bundestag parliamentary approval before talks around a staff-level agreement can begin.</p> <p><span style="font-size: 1em; line-height: 1.3em;">In the meantime, political developments within Greece will be just as important. The PM's commitment to re-start negotiations will be tested tonight and tomorrow morning..</span></p> <p> The opposition, in the meantime, has been weakened. Influential New Democracy party member Bakoyiannis is reported this evening to have asked for former PM Samaras' resignation to allow the party to re-group. <strong>The prospect of ongoing and unpredictable shifts in politics cannot be ruled out over the course of the next few weeks given rising pressure on the economy.</strong></p> <div class="field field-type-filefield field-field-image-teaser"> <div class="field-items"> <div class="field-item odd"> <img class="imagefield imagefield-field_image_teaser" width="536" height="298" alt="" src="" /> </div> </div> </div> Barclays Creditors default Deutsche Bank Eurozone Greece non-performing loans Sun, 05 Jul 2015 22:44:09 +0000 Tyler Durden 509301 at Greferendum Results In Landslide "No" Victory <p><em><strong>Update 2:</strong></em> with virtually all polling completed, the final result is 61.3% No, 38.7% Yes - a whopping rejection of Troika hegemony which may also be the final nail in any negotiations between Greece and the Eurogroup.</p> <p><a href=""><img src="" width="502" height="443" /></a></p> <p><em><strong>Update: </strong></em>The Greek interior ministry vendor Singular Logic projects that “No” vote will prevail with over 61% of vote in Greek referendum. </p> <blockquote class="twitter-tweet"><p dir="ltr" lang="en">BREAKING: Greek interior ministry projection says 'no' camp will get more than 61 percent of vote.</p> <p>— The Associated Press (@AP) <a href="">July 5, 2015</a></p></blockquote> <script src="//"></script><p>It would seem that the Troika's fearmongering campaign backfired:</p> <p><a href=""><img src="" width="503" height="291" /></a></p> <p>&nbsp;</p> <p>And:</p> <blockquote class="twitter-tweet"><p dir="ltr" lang="en">Even the dogs in the streets are saying it in Athens: ht <a href="">@henryjfoy</a> <a href=""></a></p> <p>— Gideon Rachman (@gideonrachman) <a href="">July 5, 2015</a></p></blockquote> <script src="//"></script><p><em><strong>Earlier:</strong></em></p> <p> It seems the early forecasts showing the No vote in the lead were right: <a href="{%22cls%22:%22main%22,%22params%22:{}}">according to the Ministry of the Interior</a>, <strong>with over 90% </strong>of the vote counted, the "No's" have it with well over 61% of the vote. </p> <p>Keep track of the votes as they come in live at the following page:</p> <p><a href="{%22cls%22:%22main%22,%22params%22:{}}"><img src="" width="508" height="567" /></a></p> <p><em>Source: <a href="{%22cls%22:%22main%22,%22params%22:{}}">ekloges</a></em><a href="{%22cls%22:%22main%22,%22params%22:{}}"></a></p> <div class="field field-type-filefield field-field-image-teaser"> <div class="field-items"> <div class="field-item odd"> <img class="imagefield imagefield-field_image_teaser" width="660" height="383" alt="" src="" /> </div> </div> </div> Greece Twitter Twitter Sun, 05 Jul 2015 22:15:53 +0000 Tyler Durden 509292 at S&P Futures Tumble 1.5% At Open: ES Down 33, Brent Under $60 <p>The number everyone's been waiting for all afternoon is finally here: moments ago ES opened for trading after the holiday weekend and it's not pretty, down 1.5% to 2035 in early illiquid trading. Expect many wild gyrations especially if China, which is set to open in three hours, is unable to halt its market crash having now thrown everything and the kitchen sink at the relentless selling.</p> <p><a href=""><img src="" width="600" height="315" /></a></p> <p>&nbsp;</p> <p>The SNB is already in place, ready to sell CHF and buy every EUR it can get its hands on to avoid another embarrassing incident:</p> <p><a href=""><img src="" width="600" height="315" /></a></p> <p>&nbsp;</p> <p>And here is Brent, sliding under $60 for the first time since April:</p> <p><a href=""><img src="" width="600" height="315" /></a></p> <p>We hope the NY Fed and its less than arms length Citadel ES spoofing relationship, or at least the SNB, will be up to the task of pushing futures higher as the overnight session progresses to preserve the artificial sense that "all is well" in a world that may never be the same again.</p> <div class="field field-type-filefield field-field-image-teaser"> <div class="field-items"> <div class="field-item odd"> <img class="imagefield imagefield-field_image_teaser" width="965" height="506" alt="" src="" /> </div> </div> </div> China Citadel Market Crash Sun, 05 Jul 2015 22:06:50 +0000 Tyler Durden 509300 at Eurogroup In Shock: Finance Ministers "Would Not Know What To Discuss" After Greferendum Stunner <p>Just out from Reuters:</p> <ul> <li><strong>FINANCE MINISTERS "WOULD NOT KNOW WHAT TO DISCUSS" AFTER EMERGING GREEK 'NO' VOTE-EURO ZONE OFFICIAL</strong></li> </ul> <p>More:</p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p>There are no plans for an emergency meeting of euro zone finance ministers on Greece on Monday after Greeks voted overwhelmingly to reject the terms of a bailout deal with international creditors, a euro zone official said on Sunday.</p> <p>&nbsp;</p> <p>Asked whether a meeting of the Eurogroup was planned for Monday, the official, speaking on condition of anonymity, told Reuters: <strong>"No way. (The ministers) would not know what to discuss." </strong></p> </blockquote> <p>May we suggest containing the fallout, whether in capital markets or in the resurgent mood in the other PIIGS, as a primary topic?</p> <p><a href=""><img src="" width="500" height="474" /></a></p> <p>And meanwhile, while we symptahize with the Greeks officially telling the Troika to "fuck off", they may have other liquidity problems of their own.</p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p>Greeks cannot withdraw cash left in safe deposit boxes at Greek banks as long as capital restrictions remain in place, a deputy finance minister told Greek television on Sunday.</p> <p>&nbsp;</p> <p>Greece's government shut banks and imposed capital controls a week ago to prevent the country's banks from collapsing under the weight of mass withdrawals.</p> <p>&nbsp;</p> <p>Deputy Finance Minister Nadia Valavani told Alpha TV that, as part of those measures, the government and banks had agreed at the time that people would also not be allowed to withdraw cash from safe deposit boxes.</p> </blockquote> <p>Surely the Greeks bought enough gold and/or bittcoin ahead of this outcome. <strong>Surely</strong></p> <div class="field field-type-filefield field-field-image-teaser"> <div class="field-items"> <div class="field-item odd"> <img class="imagefield imagefield-field_image_teaser" width="399" height="378" alt="" src="" /> </div> </div> </div> Capital Markets Creditors Greece Reuters Sun, 05 Jul 2015 21:59:18 +0000 Tyler Durden 509293 at Greece Contemplates Nuclear Options: May Print Euros, Launch Parallel Currency, Nationalize Banks <p>As we said <a href="">earlier today</a>, following today's dramatic referendum result the Greeks may have burned all symbolic bridges with the Eurozone. However, there still is one key link: the insolvent Greek banks' reliance on the ECB's goodwill via the ELA. While we have explained countless times that even a modest <a href="">ELA collateral haircut would lead to prompt depositor bail-ins</a>, here is DB's George Saravelos with a simplified version of the potential worst case for Greece in the coming days:</p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p>The ECB is scheduled to meet tomorrow morning to decide on ELA policy. An outright suspension would effectively put the banking system into immediate resolution and would be a step closer to Eurozone exit. All outstanding Greek bank ELA liquidity (and hence deposits) would become immediately due and payable to the Bank of Greece. The maintenance of ELA at the existing level is the most likely outcome, at least until the European political reaction has materialized. This will in any case materially increase the pressure on the economy in coming days.</p> </blockquote> <p>All of which of course, is meant to suggest that there is no formal way to expel Greece from the Euro and only a slow (or not so slow) economic and financial collapse of Greece is what the Troika and ECB have left as a negotiating card. </p> <p>However, this cuts both ways, because while Greece and the ECB may be on the verge of a terminal fall out, Greece still has something of great value: <strong>a Euro printing press. </strong></p> <p>It may not get to there: <a href="">according to Telegraph's Ambrose Evans Pritchard </a>who quotes what appears to be a direct quote to him from Yanis Varoufakis, Greece will, "<strong>If necessary... issue parallel liquidity and California-style IOU's, in an electronic form. We should have done it a week ago.</strong>"</p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p>California issued temporary coupons to pay bills to contractors when liquidity seized up after the Lehman crisis in 2008. Mr Varoufakis insists that this is not be a prelude to Grexit but a legal action within the inviolable sanctity of monetary union. </p> </blockquote> <p>In other words: part of the Eurozone... but not really using the Euro. </p> <p>That's not all, because depending just how aggressively the ECB escalates events with Athens, Greece may take it two even more "nuclear" steps further, first in the form of nationalizing the banks and second, by engaging in the terminal taboo of "irreversibility" printing the currency of which it is no longer a member!</p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p><strong>Syriza sources say the Greek ministry of finance is examining options to take direct control of the banking system if need be rather than accept a draconian seizure of depositor savings </strong>- reportedly a 'bail-in' above a threshhold of €8,000 - and to prevent any banks being shut down on the orders of the ECB.</p> <p>&nbsp;</p> <p>Government officials recognize that this would lead to an unprecedented rift with the EU authorities. But Syriza's attitude at this stage is that their only defence against a hegemonic power is to fight guerrilla warfare.</p> <p>&nbsp;</p> <p><strong>Hardliners within the party - though not Mr Varoufakis - are demanding the head of governor Stournaras, a holdover appointee from the past conservative government.</strong> </p> <p>&nbsp;</p> <p>They want a new team installed, one that is willing to draw on the central bank's secret reserves, <span style="text-decoration: underline;"><strong>and to take the provocative step in extremis of creating euros.</strong></span></p> <p>&nbsp;</p> <p>"The first thing we must do is take away the keys to his office<strong>. We have to restore stability to the system, with or without the help of the ECB. <span style="text-decoration: underline;">We have the capacity to print €20 notes</span></strong>," said one.</p> <p>&nbsp;</p> <p><strong>Such action would require invoking national emergency powers - by decree - and "requisitioning" the Bank of Greece for several months. </strong>Officials say these steps would have to be accompanied by an appeal to the European Court: both to assert legality under crisis provisions of the Lisbon Treaty, and to sue the ECB for alleged "dereliction" of its treaty duty to maintain financial stability. </p> </blockquote> <p>And who "unwittingly" unleashed all of this? </p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p>&nbsp;Mr Tsakalotos told the Telegraph that the creditors will find themselves be in a morally indefensible position if they refuse to listen to the voice of the Greek people, <strong>especially since the International Monetary Fund last week validated Syriza's core claim that Greece's debt cannot be repaid. </strong></p> </blockquote> <p>Recall last week we asked "<a href="">Did The IMF Just Open Pandora's Box</a>?" We just got the answer. Our advice to Mme Lagarde: avoid stays at the Sofitel NYC for the next few weeks. </p> <p>As for Europe: welcome to your own personal Lehman weekend. We hope you too enjoy making it all up as you go along, because you have officially entered the heart of monetary darkness.</p> <p><img src="" width="400" height="397" /></p> <div class="field field-type-filefield field-field-image-teaser"> <div class="field-items"> <div class="field-item odd"> <img class="imagefield imagefield-field_image_teaser" width="400" height="397" alt="" src="" /> </div> </div> </div> Creditors Eurozone Greece International Monetary Fund Lehman Sun, 05 Jul 2015 21:41:58 +0000 Tyler Durden 509299 at The "Nightmare Of The Euro-Architects" Is Coming True: JPM Now Sees Grexit, Eurogroup "Split In Coming Days" <p>Perhaps the best summary - or epitaph, some would say - of the <a href="">shocking events that took place in Greece this afternoon</a>, 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:</p> <blockquote class="twitter-tweet" lang="en"><p dir="ltr" lang="en">The nightmare of the 'euro-architects' that a country could leave the club seems like a realistic scenario after <a href="">#Greece</a> voted No today</p> <p>— Peter Kažimír (@KazimirPeter) <a href="">July 5, 2015</a></p></blockquote> <script src="//"></script><p>He followed it up with a Dylan Thomas quote:</p> <blockquote class="twitter-tweet" lang="en"><p dir="ltr" lang="en">We will not go gently into this good night. We stand united and we need to respond to this situation as soon as possible</p> <p>— Peter Kažimír (@KazimirPeter) <a href="">July 5, 2015</a></p></blockquote> <script src="//"></script><p>We assume the next lines goes as follows: </p> <p><em><strong>"Rage, rage against the dying of the "irreversible" currency"</strong></em></p> <p>And while we laid out what Deutsche Bank's 4 possible scenarios are in the case of the now confirmed "No" vote, 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<br /> goes downhill from there.</p> <p><span style="text-decoration: underline;"><em><strong>After the "big no", euro exit is our base case</strong></em></span></p> <ul> <li>After the “big no” it is now a race between two forces: political pressure for a deal, versus the impact of banking dysfunction within Greece</li> <li>Although the situation is fluid, at this point Greek exit from the euro appears more likely than not</li> </ul> <p>Early indications of the official result suggest the result is a “No” by a comfortable margin. What happens next?</p> <p>First, it will be important to see the tone of the immediate political responses both within Greece and outside. We would expect the tone to be somewhat more conciliatory on both sides. <strong>Hollande and Merkel are to meet tomorrow night to discuss the issue, and as we understand it, the Eurogroup is scheduled to meet on Tuesday</strong>. <strong><span style="text-decoration: underline;">We expect that a split is likely to emerge in the coming days</span>.&nbsp; </strong>The Commission and France (and possibly others) will argue that negotiations should resume immediately with an aim of finding agreement<strong>. Others will find it more difficult to return to negotiations with a newly emboldened Tsipras in short order.</strong></p> <p>In the German case, for example, the Bundestag has to be consulted before Mr Schauble can enter into discussions about a new program for Greece (as requested on 30th June). <strong>However, the Bundestag has just broken for summer recess, so any such vote will require a recall. </strong>We have seen reports that talks at a technical level between Greece and the creditors may restart tomorrow (Monday), but we can imagine that the Bundestag will express its displeasure if it feels those discussions are in-progress without their express consent.</p> <p><strong>Second, there are reports of an emergency meeting between the ECB, Bank of Greece and Finance Ministry tonight, and at the latest the ECB will likely have to take a decision about ELA support tomorrow (if not tonight). </strong>Our base case is that the ELA total will simply be rolled on a day-to-day basis for now. <strong>It is extremely difficult for the ECB to justify increasing the region's exposure to Greece at this point. </strong>That effectively means that the Greek banks are likely to run increasingly short of cash, and the acceptability of electronic forms of payments will diminish rapidly.</p> <p>The Bank of Greece and Finance Ministry has a joint committee working to prioritize payments out of Greece for essential imports. There are reports, however, that suggest the logistical problems arising from these procedures are biting. Importers are facing delays in seeing their requests to make purchases processed. And Greek exporters are finding it hard to get payment in euros from those they sell to, as their customers do not want to hold any euro balances within the Greek banking system. It is difficult to get a sense of the scale of these issues at this point. But our best guess is that these issues will multiply in the days ahead.</p> <p><strong>This suggests that what we see next will be a race between two forces: political pressure to move toward an agreement despite resistance from a number of northern European parliaments, versus the increasingly unpleasant implications of a dysfunctional banking system on the other</strong>. This latter force is unpredictable: it may manifest itself in pressure on the government to stand down, or it may generate a more unified “siege mentality” within Greece. <strong>The July 20th payment of €3.5bn to the ECB as Greek bonds mature creates one possibly fixed point as we look forward, </strong>but our sense is that could be dealt with via a number of mechanisms if political talks are progressing (transfer of SMP profits, short-term ESM loan, for example).</p> <p><strong>Our base case is that the pressures coming from a dysfunctional banking system in Greece will shorten the time horizon to negotiate a deal to a handful of weeks. </strong>As that pressure builds, there is likely to be a temptation to call a referendum in Greece on euro membership, and for the state to begin issuing I-O-Us or similar and giving these some status as legal tender. To the extent that pensioners and public sector employees find themselves being paid with such instruments, it takes the banks further away from solvency (they have liabilities in euros, but will have loans to individuals being paid or receiving “i-o-u” s which will be worth a lot less). <strong>Meanwhile, we expect at least some countries in the rest of the region (not least Germany) will not hurry over the design of a new program, and will find it difficult to get parliamentary assent for any such program.&nbsp;&nbsp; </strong></p> <p><strong>This is a path that suggests to us that there is now a high likelihood of Greek exit from the euro, and possibly under chaotic circumstances. </strong>Perhaps the rest of the region will agree to a reasonably quick deal, or the ECB will raise ELA enough to retain minimal viability in the payments system. <strong>Perhaps the pressures of dysfunctional banks will force Mr Tsipras to stand down, and a deal is subsequently made. But for now, we would view a Greek exit from the euro as more likely than not.</strong></p> <div class="field field-type-filefield field-field-image-teaser"> <div class="field-items"> <div class="field-item odd"> <img class="imagefield imagefield-field_image_teaser" width="399" height="378" alt="" src="" /> </div> </div> </div> Creditors fixed France Germany Greece Sun, 05 Jul 2015 20:46:30 +0000 Tyler Durden 509298 at Wall Street's Next Bonanza: Subprime Marriage-Backed Securities <p><a href=""><em>Submitted by Daniel Drew via,</em></a></p> <p><em><img src="" width="306" height="234" /><br /></em></p> <p>The last crash was caused by reckless investments in subprime mortgage-backed securities, an ingenious way to repackage and redistribute staggering amounts of credit risk to unsuspecting investors. After losing their house and their money, some investors may take comfort in their enduring marital relationships. <strong>Unfortunately, marriage is one of the riskiest bets of all, which makes it a prime, or should I say "subprime" target for Wall Street's masters of innovation.</strong></p> <p>After watching oil titan Harold Hamm pay his ex-wife <a href="">$1 billion</a>, I couldn't help but wonder where he went wrong in the relationship department. Then again, he's not exactly a shining example of risk management; he lost <a href="">$10 billion</a> in the oil price collapse, or the equivalent of 10 ex-wives. Most Americans can't afford to pay their spouse $1 billion or even <a href="">$15,000</a>, which is the average cost of a contested divorce. <strong>Where there's risk, Wall Street is not far away</strong>.</p> <p>One of the remarkable features of modern society is the seemingly endless amount of ways to repackage risk and distribute it to those who have a demand for it. The wacky world of the insurance industry seems to know no bounds. From vanilla products like car insurance to the ultra-weird like Troy Polamalu's <a href="">$1 million hair insurance,</a> you never really know what you're going to see next. <strong>While there are certainly notable individual examples of insurance oddities, nothing has the potential to create widespread effects like marriage insurance.</strong></p> <p>Provided by <a href="">Safeguard Guaranty</a>, marriage insurance is sold in units for <a href="">$15.99</a> per month, which covers $1,250 in potential divorce costs. That's $192 per year for one "unit," <strong>which gives the insurance company a break-even point of 6.5 years, not including overhead.</strong> They even have a <a href="">divorce probability calculator</a> that is based on over 20,000 interviews. Supposedly, it has an accuracy rate of 87%. They don't elaborate on their formula, but you can get an idea of their inputs by answering some of the questions.</p> <p><strong>If marriage insurance sales take off, it's only a matter of time before Wall Street repackages it and sells it to investors via subprime marriage-backed securities.</strong> A boom in marriage speculation would ensue. Did you see your neighbor with his mistress last night? Buy some MBS credit default swaps on him and tell his wife what you saw. Is your other neighbor away from home a lot? Buy some MBS insurance on his wife, seduce her, and when they get divorced, you can cash in. Consider it "inside her" trading. Does it sound preposterous? It's not any crazier than buying credit default swaps on poor people's mortgages and making <a href="">$15 billion</a> when they become homeless. Remember, everything is fair in the "free market."</p> <div class="field field-type-filefield field-field-image-teaser"> <div class="field-items"> <div class="field-item odd"> <img class="imagefield imagefield-field_image_teaser" width="307" height="234" alt="" src="" /> </div> </div> </div> Credit Default Swaps default Risk Management Sun, 05 Jul 2015 20:30:00 +0000 Tyler Durden 509288 at