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UBS Says "A Market Dislocation Is Necessary To Focus Minds" And Stop "Underestimating Grexit Risks"
Had the current Greek episode, where the terms "Grexit", "bank runs", and "funding freeze" are tossed around as casually as black tie event at the Tsipras household, taken place two years ago the S&P, Dax and the Nikkei would have been halted limit down. Today, however, there is barely any move in risk assets because, as conventional wisdom would have it, a Grexit is suddenly a "great thing", and in fact will serve to not only push the EUR higher but send the DAX to all time-er highs (ignoring that it is just the ECB doing the buying).
However, according to UBS' Larry Hatheway, as ever so often happens, conventional wisdom is wrong. Instead the UBS economist and his peers "believe investors are underestimating the risks associated with Greece's difficult negotiating position with the troika. Matters are likely to 'come to a head' in the coming weeks, particularly as the current program must be re-approved and extended by mutual consent at the end of this month."
Here are UBS' conclusion:
- The terms of a compromise are easier to see than the willingness to compromise. At the time of writing, Greece is deadlocked in its bilateral discussions, as well as with the troika members.
- Breaking the deadlock voluntarily may not be easy. Political realities in the rest of Europe argue against granting the Syriza-led government concessions on debt or fiscal relief. Yet the Greek government feels it has a mandate to demand such relief.
- Hence, outside pressure—in the form of financial and market dislocations—seems necessary to focus minds.
- A Greek exit remains the worst case outcome, both for Greece and the rest of the Eurozone. But that logic, alone, may not drive parties to an easy or quick compromise.
- The rising probability that financial pressures will increase—as has already been evident in depositor flight from Greek banks—makes us tactically cautious on risk assets. Our asset allocation team has accordingly cut its allocations to risk assets.
- Contrary to some narratives, an escalation of the crisis or even a 'Greek exit' is unlikely to push the euro higher. We think contagion effects would have the opposite impact.
- In the (still unlikely) event of a Greek exit, Greek banks would not have sufficient capital to address losses and bank lending would likely collapse.
- In a scenario of Eurozone exit, we believe European cyclicals and financials would do worst, while safe haven markets such as the UK or Switzerland would outperform.
There is much to read, digest and ponder in UBS' note "Can Europe avoid a Greek tragedy?" and we will touch on much of it in subsequent posts, although we immediately disagree with UBS' chief contention namely that "outside pressure—in the form of financial and market dislocations—seems necessary to focus minds." That may have been the case in 2012 but now it is precisely the opposite - after all the ECB wants to telegraph that it has not only Grexit but its associated contagion under control (thanks to Q€, OMT, you name it), and as such the worse the negotiations get, the higher the EUR is likely to rise (on ECB and SNB buying) coupled with a rise in risk assets.
Remember: it is all about leverage, and the way the Eurozone is telegraphing its leverage to Greece is by advising Varoufakis that he has none, and if stocks refuse to sell off on any Greek threats, no matter how credible, then Greece clearly has no leverage, and thus has to conceded.
Of course, once the negotiations are over one way or another, and assume Greece is out, at that point the ECB's posturing can end, and the real selling begins once the realization of what just happened - a realization facilitated by the ECB's intervention in the market - then, and only then, will UBS be correct. But the bottom line is that the calmer the market is, the more likely Greece is to actually exit, all courtesy of the now ubiquitous central planning which as we noted earlier, will result in central banks monetizing more than 100% of gross bond issuance for the first time ever in 2015.
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<-- Focus Minds
<-- Whoop Asses
Coincidence? Greece decision by end of February and ECB Printing begins early March. I think not.
The Greeks have no good choices left, nor any semi-bad ones. It's come down to the point of mutual assured destruction becuase if the new government flinches the populace will riot.....
Goddamn right. I wonder if Soros can figure out how to pay them not to riot.
greeks don't have choices, it's the leadership and oligarchy that has choices. democracy is a mirage.
There are always choices but whether they are acceptable is another matter.
Exactly. the ECB QE was never intended to stimulate the economy. It was a failsafe to bail out the banks when Grexit occurs in whatever form they try to pass off.
... and the Russian base on Cyprus get inked on 2/25.
Bullish for DOW, no doubt.
Please, I don't see how the "market" could possible be any more "dislocated" from reality already. WTF?!?! Everything now is "mark to model" (mark to fantasy IMO)! Fuck em.
exactly.......translated they'll paper over anything they decide to let happen and lie through their media whores and kick this can even further until the last of the physical gold is in China's hands
Energy and public consumption are really driving this imbroglio.
The cost of living and industry.
Recall before WWII the USA was one of the largest Oil exporters, and the primary (or only) source of Oil and Gasoline for Japan.
When US cut off Japan before WWII...see what happened ?
Maybe it is something to consider, how things escalate slowly, then quickly.
History rhymes.
Correct. So, whereis all the energy coming from now? A tremendous amount of calories, that are transportable and available for consumption, are necessary in order to simply maintain the status quo.
Admittedly, I would love to see what happens should the power go out for a couple months in southern california. Who knows, potentially nothing could happen and you would see "urban gardens" everywhere. In any case, the math is what is it is and the laws of Nature and physics really don't give a shit either way.
Yes. Existential threats (Ukraine, Greece, Iceland...) lead to sudden and abrupt responses.
Even the 29 port West Coast shutdown is being ignored, until it hits the retailers between the eyes.
I see short Russell (SRTY) and long precious (CEF)...it's a win-win no matter going forward.
Are these the same economists that do the GDP projections?
Not dislocated, disconnected. There is more reality in Alice in Wonderand.
I read this as UBS believes the market needs another short sharp shock to remove any resistance to another round of free money for the banks, like TARP and all the QEs before.
"When you have an economy that is in freefall there has to be a growth strategy and not simply an effort to squeeze more and more out of a population that is hurting worse and worse.” -Barack Obama
What planet is this asshole who is pretending to be the President of the United States from and which one is he ON??
And that is why it won't happen until the whole shitshow is over. The next correction is game over. You will wake up one day, when everything seemed fine on TV the day before, and you will have nothing. The US government and its banking system are willing to sacrifice everything for whatever insane goal they have at any given moment.
Pretty much with the only variation on being whether we collapse to a neutron star or go all the way to black hole when we implode......
Putin can throw a wrench into the troika's gears. Offer an alternative.
All Greece needs to do is default like Iceland. Others will follow.
Then Putin wins this game.
Thanks from Russia for these people demonizing Putin and destroying their economy with sanctions.
Would not Putin be throwing rubles down the drain, though, like the Euros have been doing by propping up the unproppable?
Or even throwing rubles straight to Europe, like they do to him through Ukraine energy bills. A precondition of any other country providing aid would have to be full default. Otherwise you're just giving your money to europe anyway.
Once a defunct country defaults, they are then 'debt free'.
So Russia gains debt-free 'friends of Putin'.
Of course, they need defense supplied by Russia, but in a war-free environment, it's just business as normal.
What is being offered by Russia is like Amnesty for US illegal aliens...they vote for you too ! *quid-pro-quo*
Title: "Survival at the dismal fringe"
SYIRZA has one strength: They do not have a portfolio so they don´t give a shit about "portfolio loss".
The Tsipras gov't is about greeks. If "markets" were that important I think a deal would have been made. Greece has turned an incredible unpayable debt of fiat into a royal flush and winner takes all.
I would be willing to bet that Syriza had some secret talks before the election and may have lined up a new credit line, with either China, Russia, Brics, or most likely a multi-national fund. These investors would get Greece without almost all of its debt, and could simply back the Drachma, or loan Drachma's to the Greek government in return for hard assets or future interest. Greece could sell off tax collection futures, allowing for a greater tax take. Greece could complete the gas pipeline. And we all would watch the Eurobanks and derivatives plunge. A few years down the line, and Greece is doing fine thank you very much. Italy and Spain will leave the EU monetary union and repudiate their debt as well. I think the banks are putting out a big stream of PR garbage saying how tough the Greeks will have it. I don't believe it. I think the Greeks have a strategy, and made some new friends, and are ready for grexit.
I don't know, my bet would be that this gets resolved. None of these supposed defections seem to ever happen. I'm just going on history.
"A Greek exit remains the worst case outcome, both for Greece and the rest of the Eurozone" BS!, don't start to believe in all the lies floating around. It's the best thing that could happen to Greece and Europe. End this fake terror debt made up out of thin air. It's a bloody fugazi! Politicians only think 3 inches ahead. In the future this whole debt thingy is unsustainable and totally unnecessary. 0 – FORCE MAJEURE! – Call Void All Bankster Bogus Derivative Debts! Because paying off these trough fraud induced debts have become a technical and practical impossibility. http://forum.prisonplanet.com/index.php?topic=216627.0
A Dislocation is usually followed by a Relocation by smart people.
As in "I'm outta here!"
There seems to be little understanding of the people running Syriza.
Tsipras lives in a flat in a working class area of Athens, money and markets are not his God.
The financial minister can be seen here in an old Max Keiser which is even better now:
https://www.youtube.com/watch?v=pwAClUrhrek
The debt as money system is fraud.
Anyone who knowingly participates in the fraud is complicit.
Get out. Shut it down.
Replace it with an honest money system.
The Biggest Scam In The History Of Mankindhttps://www.youtube.com/watch?v=iFDe5kUUyT0
So we have to have the default to see what's in the default?
dup
Perhaps the Greeks could take a page of actual REAL history from the past, just before WW2 and just not use international banking at all
http://freestatevoice.com.au/politics/item/1064-how-hitler-defied-the-bankers
Banking With Hitler (Full Length) British http://www.youtube.com/watch?v=veQfroRUWdM
Ah, Come on!, We all know whats going to happen. Kick the can down the road for another 6 to 12 months. Carry on.
Nice, all we need now is a Market.
The problem is not economic. It is political, ideological. The economic solution is as clear as crystal...unpayable debt MUST be written-off, and the losses taken. But those who stand to lose are unwilling to let the scenario play out.
It's not that they fail to understand that losses are coming. It's just that they hope to 'spread them out' to the whole world rather than take them themselves.
THERE'S your REAL moral hazard! If this was about the MATH, the problem could be solved in short order, and little disruption to most people. The "suffering" would be mainly among the uber-rich, who would lose several zero's on their bank balances but STILL be the richest people on the planet.
Well, regardless of what these idiots DO, reset is coming, one way or another. If TPTB want this bubble to stay inflated, they're gonna have to blow it up themselves, and with their own money, cause the rest of us just don't have it. If they don't, the economy will continue to shrink down to a level where the majority can function again, and that process will liquidate much of the hoarded wealth anyway.
10 years from now, the world economy will be a fraction of it's current size. The thing is, it will probably be running much better, albeit at much lower prices. Artificial inflation doesn't only create bubbles, it creates inefficiencies and bad investments, which bog down an economy regardless of ever-higher prices. Clear them out, and you destroy much false wealth. But you also clear out the dead wood and allow a burst of new growth.
This is just scaremongering!
Any calamitous financial event will be announced on the evening news beforehand so that we will all have plenty of time to load our nail guns.
Scaremongering at its best. ZH is trying hard to sell it, but Im just not buying in to "Grexit" hysteria. I'd be more concerned, longterm, if Greece stays in.
Yea I think the only actual danger in a GREXIT would be to bankster pirates, fuck them.
Yea I think the only actual danger in a GREXIT would be to bankster pirates, fuck them.
The 24/7 mantra has been 'Everything is fine in his splendid recovery, nothing is wrong banks and markets fine'....now those who have been pimping that line are saying we need a wake up call to stop living in fantasy? Whatever, every mahfaka for each own mahfaka ... As J-Roc would say.
Ireland and Portugal both oppose Greece getting too much assistance, because it makes them
look like fucking idiots for putting their people through austerity.
Varoufakis sounded pretty sure Eurogroup will come crawling with some new proposal any hour now.
but I am pretty sure EuroG is afraid that in case of any better deal gets offered to Greece
other PIIGS will get hungry for lowering austerity as well.
Euro was a failed project anyway, in my opinion it only satisfied hitler's hunger for great Europe under German leadership.