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Morgan Stanley Says Grexit Would Send EURUSD Crashing To 0.90
Just as Mario Draghi was gaining traction with his latest plan to crush - but not too much so as to rekindle redenomination risk 0 the Euro "whatever it takes" courtesy of the recent launch of QE which sent the EURUSD to the lowest level in over a decade, something happened: Greece. And the problem for Draghi is that suddenly a loud, if confused, permabullish chorus has emerged screaming that a Grexit would actually be very bullish for the Euro. Of course, that's a problem as it goes directly in the opposite direction with what Draghi is trying to achieve, in order to not only send the DAX to all time highs (a DAX which curiously was downgraded earlier today by JPM) but to promote German, and to a lesser extent, French exports. However, if the EUR were to revert fully to a regime where a Grexit is seen as an existential threat to the EUR, that too is unadvisable, as it would lead to an avalanche of selling across not only FX but all asset classes.
Enter the proposal for a "controlled descent", first suggest today by Morgan Stanley FX strategy team.
Here is Morgan Stanley playing "good cop, bad cop" in setting the stage for Europe.
Greece exit risks rise: The credit impulse in European economies looks positive and leading indicators are looking better, but there are two risks: Greece and the Russia-Ukraine conflict. Both event risks have the potential to weaken the economic outlook.
Actually it depends on your definition of "risk" - after all the ECB would not have been able to launch QE had it not been for the Russian sanctions, and the tumble in European economic growth that resulted. We wonder: did Mario Draghi, and the entire Goldman central bank alumni team, remember to send Putin a nice thank you note for enabling Q€?
So back to next steps, and why - at least for Morgan Stanley - a Grexit is precisely the thing that German, French and other exporters ordered.
The Greek Prime Minister has reaffirmed his government’s rejection of the country’s international bailout programme two days before an emergency meeting with the euro area’s finance ministers on Wednesday. His declaration suggested increasing minimum wages, restoring the income tax-free threshold and halting infrastructure privatisations. Should Greece stay firm on its current anti-bailout course and with the ECB not accepting Greek T-bills as collateral, the position of ex-Fed Chairman Greenspan will gain increasing credibility. He forecast the eurozone to break as private investors will withdraw from providing short-term funding to Greece. Greece leaving the currency union would convert the union into a club of fixed exchange rates, a type of ERM III, leading to further fragmentation. Greek Fin Min Varoufakis said the euro will collapse if Greece exits, calling Italian debt unsustainable. Markets may gain the impression that Greece may not opt for a compromise, instead opting for an all or nothing approach when negotiating on Wednesday. It seems the risk premium of Greece leaving EMU is rising. Our scenario analysis suggests a Greek exit taking EURUSD down to 0.90.
So who will prevail: those who say a Grexit is bullish for the Euro as it removes tail risk and makes the Eurozone even stronger, or those who say a Grexit will lead to a plunge (controlled of course) in the Euro as the contagion risk never really went away, and now everyone will look to Italy and France, where anti-Europe movements have continued to rise from strength to strength, but nowhere more so than in Spain, where the Syriza peer, Podemos, is now tracking at top spot in polls:
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Or to 0.00
We can only hope.
That would be fun, wouldn't it?
Exporting deflation worldwide...
So that will make Draghi very happy. He doesn't even need QE..
Hold on a second. Germany likes having weaker nations in the EUR to keep it weak so they can run their export machine. So if a weaker country LEAVES would that not have an UPWARD effect on the value of the EUR?
Longer term, of course. The day it happens, if it happens (and I still have my doubts), there will be a slaughter.
Exactly.
nonsense, the Euro would REJOICE !!
And then there is the rub, which is the 26 trillion in Euro derivatives exposure left dangling in the breeze...
http://theeconomiccollapseblog.com/archives/day-reckoning-euro-arrived-2...
BFD!
EURUSD has already crashed from 1.393 over the past year!
http://www.marketwatch.com/investing/currency/eurusd/charts?symb=EURUSD&...
MOAR LIKE WHAT'S IT GONNA DO TO DAXUSD!?
ECB doesn't know if euro should be strong or weak. I am not sure myself.
ND, you know better than to suggest that logic and fundamentals actually count for anything? THe CB's and TBTF's call all the shots and manipulate every single "market" out there...
You're right, of course. I should know better by now.
I agree, but even so, a Grexit sets precedence for others to exit. It will be interesting of course. I fully expect the Euro to go into free-fall one of these days based on a complete lack of confidence in its structure.
The creditor nations can either embody the full measures required to run their federalized Europe, or they can lead the entire of Europe along a path to the cliff edge at gunpoint. This current currency system is flawed and cannot survive in its present form either way.
It is quite terrifying that everyone except the European leadership can see the iceberg up ahead. Otherwise there is some preordained end-game politically which requires the current status quo. Either way, it is quite a worry.
the breaakdown to watch in this regard is: just where exactly does germany export to? traditionally intra-euroope exports were about 40% but that has obviously dwindled since 2008. russia was a playah untill those handy sanctions and china's numbers aren't encouraging. a strong dolloar could be just what we need over here.
Nodebt: "Germany likes having weaker nations in the EUR to keep it weak so they can run their export machine."
Sorry, buddy... popular as this meme seems to be, I have to disagree: Made in Germany did just fine in the pre-EUR era of the DEM.
In the final analysis, "Quality goods & services are a sustainable export biz model." The paperware is just a means of keeping score. Same as it ever was.
When you think of "Quality, Precision, Dependability/Reliability, Organizational skills" in the EU zone, do you think of Germany or the PIIGS?
p.s. In the 70s-90s era before the EUR, Germany used the Branch-plant economic model for its exports: they'd get sub-assemblies made in places like Portugal, Canada and Singapore, and have the Final Assembly done at home, so they could benefit from the 'Made in Germany' prices and lower BOM cost and lower labor cost. Plus, importing the sub-assemblies exploited Import Duties that are still in place.
Germans are anything but dumb, lazy or disorganized, and they hate BS games, waste or inefficiency.
I agree. There are other forms of capital flow besides just giving money away. Rather than Germans giving money away German Individuals could buy vacation homes outside of eurozone, German Companies could buy companies outside of Eurozone, and the German government could buy US treasury bonds like China. All of these would be ways that Germany could keep the Deutsch Mark lower in value.
I cringe everytime people say that Germany needs to give money away in order to keep their currency low in value.
"So that will make Draghi very happy. He doesn't even need QE.."
QE plays a different role. The Germans greenlighted QE when they found out what my neighbour's dog had known before: That the sanctions against Russia are suicidal for Germany.
For the financial parasites on Wall Street a weak Euro has many advantages. Think off all those cheap assets waiting to be levered up with buy out debt. A dollar rich bankster/private equity wet dream.
And with Draghis cheap QE debt the swarm of financial locusts is ready to descend on the poor unwitting souls who will lose all semblance of the comfortable European lives they once knew.
Remember who said it here.
you forgot to add, "muahahahaha"
Yes, the whole of Euro Zone will receive the same privatization. Euro debt will domino after Greece. It should have a few years ago and now the spring is would tightly.
Will eventually come home to the reserve currency and remove it from power. More privatization and the solution of IMF SDR. Whomever owns IMF will be quite happy...
And all those imaginary dollars the Fed invented will rush into Europe and buy out the place in the firesale.
And the USD will grow even stronger during the crisis. Buy Europe, cheap... I'm sure the Fed wasn't even remotely smart enough to intend this, but there might be a happy ending after all... for the US.
Could the U.S. Become the Unrivaled Superpower Again? (January 29, 2015)
http://www.oftwominds.com/blogjan15/superpower-US1-15.html
"We can only hope." Yes and no. This is the correct sentence:
We can only hope that when - not if - this happens a class of political leaders is at the helm that reverses the wealth distribution from the people to the banks that came along with the greatest credit bubble of mankind.
(The Euro and the Dollar are just two of many facets of the same ponzi scheme enacted to make the 1% take possession of what accidentally left to the 99% after the abolition of slavery)
Not a biggie, if you keep your Euros in a solvent German bank.
Worst case: EUR --> DEM. It'll be backed by more real stuff than the CHF, for example.
IOW... "So what?"
...Ordering one souvlaki on a bun with special house grexit sauce.
which is fine, because the Euro should never have been worth more than the US dollar to begin with
"Morgan Stanley Says Grexit Would Send EURUSD Crashing To 0.90" -ZH
"Or to 0.00" -Anasteus
How about... EUR --> NEUR (New/Northern Euro)? NEUR = EUR minus PIIGS.
The PIIGS have their own national currency, and thus reboot their economies on a branch-plant model plus national brand specialty goods and tourism.
Which is what it should have been all along.
How would this affect Morgan Stanley again?
There was a time when the Euro was trading down around .85 and fundamentally speaking, perhaps there is no reason why it shouldn't be trading there now.
It's all relative the bullshit every other county does to devalue their currency.
Europe seems to be trying the hardest at this moment.
For the US, a weak Euro has no advantage except easing the trade deficit. Weak euro most likely a concession of th US to Eurozone as compensation for the losses EU-countries suffer for supporting the war against Russia with suicidal sanctions.
I can't imagine them being that organized.
Yes, and the world didn't implode.
But all this Dollar strength is not good for US exporters. Boeing for example, cannot compete with Airbus and a Euro that is now all of a sudden 30% cheaper! Can they? This is a Bad Moon Rising.
it is fiat world...
For a country with a trade imbalance this is good news, overall. We IMPORT much more than we export, so a strong dollar is a net gain to the US.
tell that to all the exporters.
We're already making up the difference in printed money right? So more imports is "good" in the same way robbing a bank is "good" for you.
Make those F-35s from Lockheed even worse value for money
Its kinda hard to deliver on those plane orders when you have manufacturing facilites in countries that may bail out of the Euro
And the WW $ based pyramid ponzi scheme will receive a VERY heavy blow because of it all. Thanks to "Greece", the land where demoncrazy supposedly started. The irony of the whole situation is "quite" amusing. Hare Krishna.
The moment the € trades at 0.9 we will not be talking about Grexit, we will be talking about Gerxit, Frexit...
utter drivel. Do you work at Goldman Sachs?
Looks to me like Greece holds all the cards here regardless of what Germany thinks. Problem is that if Germany relents then all the other redheaded stepkids come begging at the door for their deal. Threatening the Greek leaders will do nothing either since if they don't stay the course that they were elected to steer then they will be tossed from power overnight and an even more radical government will take power. No-win situation for the Euro.
They win by kicking them out.
Yeah sure then the derivatives kick in, the other kids start leaving one by one and the Euro folds sending the entire line of dominos around the world toppling over. Sounds like a win to me...
So Grexit could be exactly what Super Mario wants then. Afterall, QE was in a large part, about crushing the EUR...
Or maybe...QE was preparation for a Grexit, have all that money ready to absorb toxic writeoffs on German balance sheets in the event of a Grexit.
Hmm.
It looked like it was meant as a two-fer to me.
QE was a backdoor bailout of the European banking system on the tax-payer's dime. Same as it was in the US but for the US banks. There are central bank papers out there which state as much (albeit in not so obvious terms). Why are we still talking about QE as if it is some kind of inflation causing genie?
The only way QE would EVER cause inflation is if it brought new loans into existence, and it probably indirectly does, for some. However, there are two sides to every market. Supply, and DEMAND.
Seeing as how most households and businesses are trying to deleverage, or hoard cash, or buy assets (which store value because they expect the worst (see: PM's/stawx etc.)) it is impossible to expect QE to cause any kind of major inflation. The demand side of the loan creation equation has kicked over the board after the events of the Financial Crisis, and have gone home.
So yes, we have deflation for now. And no we will not see inflation, even with QE. And no deflation isn't necessarily terrible for PMs. And yes the stock market is probably going to keep rising in the near term too. Watch a bunch of people shit their pants and run from the market this year, watch their faces when the sovereign debt markets go thermonuclear.
International capital is bouncing around like a wrecking ball right now. The Euro, the Yen, the US dollar, the Chinese Yuan, the Swiss Franc, even the Danish Kroner: all becoming victims of capital flows which can, and will, turn on a dime and head into whatever region of the markets that seems safe at a moment's notice.
Maybe, in the very short run. In the longer term, the Euro would be much better off.
That small country named Greece has the ECB by it's balls.
Imagine what others like Italy and Spain can do.
I stand in the presence of brilliance.
Been waiting patiently for years for Italy's turn.
Indeed a curious DAX downgrade:
Germany enjoys record year for trade http://www.marketwatch.com/story/germany-enjoys-record-year-for-trade-2015-02-09-64852055
German December adjusted exports up 3.4% http://www.marketwatch.com/story/german-december-adjusted-exports-up-34-2015-02-09
Drop in Euro is now the best reason to force Greece to exit, then all remaining countries get a boost in competitive international pricing, good for economic activity, and the ECB gets to import more inflation, contributing to their objective.
Expell the Greeks, make an example of those who borrow and do not repay, ie who steal money.
I agree with the latter half of your post... what I can't get my head around is why kicking out the weak sister makes the Euro weaker. If anything it shows resolve and a maintenance of standards and expectations of EU members. Merkel is willing to let the Greeks go, as their suffering will serve as an example to any other would-be defaulters within the union. This is the only way they can posibly save the euro and the dream of a united europe. I still don't see much chance of success, for structural and technical reasons, but if one wants europe to stay together, this is the only sustainable course.
question is, who will be part of the stronger euro ?
Before we reach the core, there will be a long and painful process of deciding, country per country, whether it belongs to EMU. Re. investors, if one feels that Spain (or Italy, or France) may be dropped in a few year off EMU, why invest there and take the risk ?In aggregate this means less investment in EMU, and thus less appetite for the euro. But I am not sure this (a lower Euro) is the goal of all this.
The good side of this process is that the problem of the EMU was actually the blindness of investors who treated Germany on the same level as Greece. Once a real exit possibility is reintroduced, it is likely that interest rates will differentiate strongly between countries to reflect this additional risk. This is good since it could prevent a repeat of the current crisis (see Michael Pettis article posted here this week-end)
This is exactly as I have been saying. They kick Greece to the curb, make an example of them, and then during a panicy emergency, offer all of Europe a teke it or leave it proposition - full fiscal and political union, or bust. An offer that most can't refuse. Even Greece may be humbled enough to rejoin EU 2.0 on its hands and knees.
Check... and Mate.
Maybe possible after the Greek finance minister gets in a surprising but terrible plane/car/skydiving/Segway accident and the president'so wife is afflicted by mysterious rashes similar to polonium poisoning.
The one thing that has become apparent to me with the behavior of the Germans is they dont trust their European partners. The EU isnt fucked up because the little fish designed it as such but because the big fish, mainly Germany, wanted the fish tank to be the way it currently is. Do you REALLY think the Germans are going to overcome all their (lack of) trust issues and lead the way towards a fair and full fiscal and political union? A EU 2.0?
The "problem" is that they won't suffer. That's the real point. Like Iceland --in fact, even more so-- an independent Greece will rebound in a few years in a significant way. It exposes the fraud behind a purely fiat euro and threatens the entire power structure that is built up upon it.
The Euro currency isn't about a united Europe. Far from it. It's about control. Look to see the few exporter countries that benefitted from the Euro. The rest just gave up their sovereignty, allowing a committee, made up mostly of foreigners, telling the peon street sweepers and beat cops that they must give up their pensions to pay off debt that they have done nothing to incur. This money "loaned" go bail out Greece didn't come from the poor hard working savers personal accounts. It came from crooked central banks. Whenever something big like this happens, look to see who benefits. The Greeks don't benefit from the loans, even if the loans are not paid back.
It's a reduction in demand for euros. Thus, the price of euros must fall.
Euros are destroyed when debt is written off, so less of them available.
That is why the bailouts, to prevent this deflation Greece is betting they will make a better deal to avoid the write down.
There are larger write downs if that happens so Greece may be left to look for money from its own people with a worthless D. To make example.
morgan stanley makes money the old fashioned way, they steal it
pay token fine, collect bonus, hi ho, hi ho...
Yawn.. nothing is going to happen.
The last person out...please turn out the lights.
Short the Euro Bitchez' / I'll bet Georgy Swartzy is...
I'm gonna buy a Gauguin to store my wealth.
Should do wonders for US multinationals in Euroland. Sounds like a great reason to raise US rates. Just think, a country with a GDP the size of Oregon can crush a currency and a continent. Don't worry everything's fine buy some more S&P'S on the dip.
I thought I saw the term "Grexit Wound" in the headline.
So what happens when Spain and Italy have had enough?
When, not if, the euro declines, the process will immediately drive up the federal reserve note, thus hastening the demise of this "dollar" with self-crushing "strength," forcing its final rejection by the global community as simply toxic.
Both currencies will consequently be reformulated before the end of 2015. Europe will reorganize with a restructured euro that will be little more than a barely disguised deutchmark, but backed by the total bullion stores of the nordic nations; while a new dollar will be issued by the US, but still backed by little more than bluster and "deep storage" gold.
A sequence of dollar devaluations will thus ensue as America sinks into an hyperinflationary stupor. Numerous local currencies will thus spring up among the States as the Federal government progressively evaporates as a centralized power structure --viable money being its only glue.
If all this follows the ancient script, we can thus expect a military coup, but whose only credibility will come from an attempt to resurrect Constitutional democracy. And why not, it all began with a military coup in the first place...?
All this is consistent with an age-old pattern, allowing for certain variations on a theme, and although it may sound like apocalyptic science fiction --and I suppose it is-- the events in progress today are merely following an inner logic, whose cause-and-effect are not really that subtle or difficult to discern. In this instance, the only optical barrier is normalcy bias. So if you're "yawning," you better wake up.
Or USD at 160 walks into Europe at 90 and buys everything of value.
On a per capita basis (according to Bloomberg) Greece has a debt of $38,000. Or 38% of that of Japan's ($99,000). Thank god the USA is third on that list at $59,000 or else we might be in real trouble.
Or the EUR will just go to where ever the FED and the ECB decide to put it with their printing presses and margin accounts. They have had plenty of time to prepare. Forex is not a free market.
What idiot, in their right mind, would think that its a good idea to put countries with huge trade deficits into the same monetary system with a country that has a huge, long running trade surplus? Eventually, the trade surplus country would own everything. There are no economics PhD's in those countries? Or corruption just take over.
Of course it would. That's part of the logic for Germany.
Morgan Stanley Says Grexit Would Send EURUSD Crashing To 0.90
Whew some positive news for once