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How To Trade The Grexit Scenarios, And What The "Worst-Case" Looks Like
When it comes to trading the possibility of a Grexit, Bloomberg strategist Vassilis Karamanis writes,that there are three possible outcomes.
Scenario 1: Greece exits the euro
- Probability of Grexit is now increased to 50% from 25%, Commerzbank economists including Christoph Weil write in client note
- EUR/USD will probably fall sharply to 1.07 area, with ample room to test parity in 2015, three traders in London say
- EUR will drop 5% vs USD in a matter of few weeks, a buy-side trader in Southern Europe says
- September 2003 low of 1.0765 and March 2003 low at 1.0504 are levels to watch for before 1.0073, 76.4% fibo of Oct. 2000/July 2008 rise
Scenario 2: Capital controls are imposed on Greek banks
- Should ECB turn off ELA liquidity, capital controls might be needed, Barclays’ economists including Antonio Garcia Pascual write in client note
- EUR/USD may test recent 1.1098 low and fall to 1.10 psychological lvl, where heavy demand is purported, the traders note
- 1.10 sees significant option barrier protection, two of the traders say
Scenario 3: Agreement is reached within the next days
- Bailout deal remains base-case scenario, Goldman Sachs analysts write in client note
- Should a compromise be reached by Friday, EUR may test 1.1600/50 area on back of relief rally, all four traders agree
- Monetary policy divergence would resume as main theme once again, two of them say
- EUR/USD was bottoming around 1.1541/46 on Jan.19-21, before ECB announced QE program on Jan. 22
Of course, since it is now Draghi's determination to keep injecting as much paper money into the system as is necessary to keep pushing asset prices to all time highs, any rebound in the EUR will be short-lived.
Furthermore, Commerzbank AG on Monday raised the probability it assigns to a Greek euro exit to 50 percent from 25 percent after euro-area finance ministers’ talks in Brussels broke down. Bank of America Merrill Lynch strategists, including Athanasios Vamvakidis, wrote in a client note Feb. 10 that the Greek government “can potentially get through the IMF payments in March, but would have difficulties after May.”
And in case that wasn't enough, here is again Bloomberg laying out how a worst-case scenario could unfold.
The Greek government, companies and lenders have all effectively lost access to international markets, due to the uncertainty over the country’s future. The current sources of liquidity are bailout funds from the euro-area nations, the currency bloc’s crisis fund, the International Monetary Fund and the European Central Bank’s Emergency Liquidity Assistance.
Failure to strike a compromise means that these payments would cease. This means that the state would be unable to service its debt obligations, which stand at 22 billion euros ($25 billion) this year, excluding treasury bills, according to the 2015 budget. Greek aid talks in Brussels ended abruptly Monday.
“If the ECB considers the talks to have stalled, there is a risk that it will suspend ELA, perhaps leaving Greece with no choice but to exit the euro zone,” Jennifer McKeown, senior economist at Capital Economics Ltd. in London said by e-mail.
Lack of access to bailout funds would also mean that the Greek state wouldn’t be able to repay its 15 billion euros outstanding of short-term debt held by the country’s lenders. At present, Greek banks continuously roll over bills, helping the government stay afloat. The ECB decision not to accept Greek bills as collateral for financing operations and accelerating deposit outflows are limiting the ability of banks to buy new bills.
All of which would finally lead to what everyone's known for years is inevitable: the return of the Drachma
With no access to any source of financing, the insolvent state and its banks would have to start using a new currency, or a currency equivalent, as no economy can survive without cash. This would be the start of a de-facto exit from the euro area, caused by Greece’s inability to deal with a stripping of liquidity worth as much as 96 billion euros, according to Bloomberg calculations below.
Finally, here is a list of the loans Greece would loses access to in case of a Grexit:
- There are 10.9 billion euros in European Financial Stability Facility notes, kept as a buffer in Greece’s Financial Stability Fund, which can be used for bank recapitalization purposes. If these funds are not requested for such use, or if there is no political decision on the Eurogroup for other usage of this amount until Feb. 28, then the buffer will be canceled and returned to the EFSF, its director Klaus Regling has said.
- In 2012, euro-area member states agreed to pass on to Greece profits their national central banks and the ECB made on their Greek bonds portfolio, subject to the condition that the country would abide by its bailout commitments. According to the latest IMF review of the Greek bailout, projected revenue from this agreement in 2015 and 2016 is 3.7 billion euros. Another 1.9 billion euros are still outstanding from 2014. These rebates are conditional upon “a strong implementation by the country of the agreed reform measures in the program period as well as in the post-program surveillance period,” euro-area finance ministers said in November 2012. In other words, the country’s creditors have no obligation to pass on these profits, if Greece rejects its bailout terms.
- If Greece completes the last review of its current bailout, or asks for its extension, then it will be able to claim 1.8 billion euros still outstanding from the EFSF’s commitments. The government has said it plans to forsake this money, which is still on the table, as its disbursement is linked to belt-tightening measures and other conditions with which it disagrees.
- Even though the euro-area-backed bailout expires on Feb. 28, a parallel support program by the IMF is set to run until early next year. The previous Greek government had said it wanted to convert outstanding IMF tranches into a credit line, together with a parallel credit line backed by EFSF funds. Failure to agree on a program with the euro area would mean that the IMF won’t disburse the outstanding tranches of its own program, worth about 12.5 billion euros. Disbursement of IMF funds is subject to the same belt-tightening measures as euro area tranches and which Greece’s government rejects.
- Greek banks have also lost market access and are bleeding deposits, while they have very few assets eligible as collateral for normal ECB financing. They are being kept afloat thanks to the ELA lifeline extended by the Bank of Greece, subject to approval by the ECB. ELA access, which currently stands at 65 billion euros, is only extended to solvent lenders. If, at the end of this month, there’s no agreement securing Greece’s financing, then the Greek sovereign could become insolvent and default on its own banks. The ECB could then discontinue access to ELA funds.
Naturally, the implication of all this is that Greece has "no choice" but to grovel in shame, and retract its hard-line negotiating stance if it wishes to enjoy the fruits of the ECB's money printing labor.
There is one problem: Greece continues to not play ball with the group of unelected Eurocrats, for whom the Greek behavior is simply confounding - after all how can anyone reject "free money" (even if that it means nothing but ongoing debt slavery).
So with Europe having made it very clear that the only possible next step is for Greece to approach Europe next and request a bailout extension as the Austrian FinMin explained earlier:
“There won’t be a meeting where we have to listen to how the world is working,” Austrian Finance Minister Hans Joerg Schelling said in an interview Tuesday. “There will be a meeting only where it’s clear, the letter is there, the request is there, the conditions are confirmed.”
... Greece has refused to take the hint.
It’s over RT @EmilyPurserSky: Hearing that Varoufakis has left the #ecofin meeting and is back at his hotel. Due to leave for Athens tonight
— Ed Conway (@EdConwaySky) February 17, 2015
So why are futures rallying, and why is the EURUSD acting as if yesterday's fiasco never happened? This is why.
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Scenario 4: The EU house of cards comes tumbling down
Scenario 1: Greece exits the euro [bankers noodle over EUR:USD cross levels & Greek people are FUCKED]
Scenario 2: Capital controls are imposed on Greek banks [bankers try and create new derivatives for themselves to play with & the Greek people are FUCKED]
Scenario 3: Agreement is reached within the next days [bankers celebrate with hookers & blow, pat themselves on the back, & the Greek people are FUCKED]
I'll take Scenario 1 please for 80 trillion Alex. Let Greece leave. Let markets correct/crash like it always should have been. You listening bullard/bulltard
Greece Update: Greece Should Play It's China/Russia Card and threaten to quit the Euro http://ian56.blogspot.com/2015/02/greece-update-greece-finally-plays.html
Yanis Varoufakis says Syriza have no intention of leaving the eurozone. How the hell does he think he will get any decent sort of a deal if he doesn't threaten GrExit?
That promise is for political consumption only... He is of course threatening to leave..
getting a strange feeling that this is linked to Ukraine...
so 3.1 agreement reached within days of truce...
red lines (eh, blue highlights vanished)...
or not, hell then.
The dollar is going to kill and bury the euro. Somebody should explain to the dollar that the euro is the cover/hostage that it is hiding behind.
Nobody move or the nigga gets it...
How about.... Over a weekend EVERY Greek bank officer is arrested, all the banks are Nationalized. The Greek government allows Greek citizens to withdraw as many Euros as they wish over a 1 week period but encourages them to keep money in banks. The Greeks then convert all bank debt into new Drachmas at a very favourable rate to them. Tells the EU banks to go fuck themselves. Releases bank officers and pays them in Drachmas. Citizens how have Euros and Drachmas. Banks, and governments start fresh.
option 5) sit tight and do nothing. review lakefinder maps, count your c's and then go for a walk in the countryside. tune back in a see the negotiating can has been kicked.
"We are not in a hurry and we are not compromising," says Alexis Tsipras, who is in a hurry, and will have to compromise. (h/t @YanniKouts)
Greece wants free money that is truly free. They hold all of the cards regardless of what people want to think. The EU wouldn't mind if Greece leaves but they don't want to throw them out of the EU. The PR wouldn't be good.
"Greece wants free money that is truly free."
Well in that case, all they need to do is sail over to Mexico, cross the border, & make their way up to Chicago or Detroit.
The EU/ECB have to be desperately hoping the Greeks cave, if the EU have to concede they open the door to renegotiation for Spain and Portugal and the EFSF unravels, if they don't and try and punish the Greeks their whole system explodes. If Syriza concede you could see unrest across Greece as democracy is seen to have failed.
There's no easy way out for anyone. That said, Im reasonably confident we see some more can kicking.
When the system blows its going to come from no where, this is a little to predictable for my liking.
Greece is a precedent, nothing more. Billions of loses can be absorbed, especially if it precludes trillions lost when Spain, Italy, Portugal, etc., go 'tits-up'.
I agree. Months of can kicking and hand wringing followed by a messy complicated other solution which saves the new government face but keeps the Matrix in charge.
>>> The EU/ECB have to be desperately hoping the Greeks cave
It's impossible for Greece to cave. Syriza may eventually be displaced if they don't cave in; but Syriza will immediately be finished if they do.
The Eurocrats are asking Syriza to commit suicide - and that will not happen. Business as usual is simply not an option - that is the platform upon which Syriza was elected.
Being connected is how you trade in ANY system
just BTFATH SP !!
and sell GOLD
Force them to take the gold if necessary.
gold plate everything maluable and think rich...
The scenario 2 is effectively equal to the scenario 1.
Scenario 3 = Greece caves in and screws its peasants
Any outcome will be DRAMATIC. Let's hope it's going to be DRACHMATIC.
Peasants get screwed no matter what scenario plays out
paddy power has Grexit odds at 11-8...compared to 3-1 just yesterday
http://www.paddypower.com/bet/other-politics/european-politics/Will-Gree...
Had that source been MSNBC....I wouldn't have payed any attention to it.
Credit where credit is due.....you're fast!
Varoufakis-Moscovici dialogue revealed
Yeah, negotiate by take it or leave it, so they left it.
I think the 'negotiation' phase is over.
but but but but but... they told me the USD was a pile of worthless paper printed fresh in a HP deskjetg... why the sudden explosion in USD price ? Âs far as I know US has printed COUNTLESS more notes than the EURO...
For now, there is still a large demand for USD, since it is an appreciating asset and supposed "safe haven" until it is not. ALso, the EUR has the largest weighting in the US dollar Index (DXY) so when EUR goes down, USD index tends to go up.
How many aircraft carriers does the EU have?
Greece will take the deal. They are just dancing around to try and save a little face for all those that just elected them. The can will be kicked and no matter what happens the US markets will find it to be bullish. BTMFATH!
I think the lenders overplayed their hand. There's no way Greece can repay so let the strip mining begin, so they planned. Now the Greeks refuse to hand over their country to the IMF. I wonder where the parasites that took the money are hiding out?
The peasants may come for them once they see how they gave away the future of their kids and grandkids.
Live Updates from The Guardian - http://www.theguardian.com/business/live/2015/feb/17/greece-bailout-talk...
Maybe Greece will tell the ECB to get stuffed, which would be hilarious.
Check the box "Paided in full" and move on?
Whatever happens, it seems like the market has already priced in the Grexit. Markets "broke" this morning. They didn't want people to tade is more likely. The entire system is so much bullshit. I don't understand how most people don't see everything that is wrong with what is happening right now.
My prediction: Greece pulls the plug, the Euro begins the slow slide into irrelevency, and thesouthern countries all fall off the union currency one after the other. Germany is forced back into the Deutch Marks. They get furious, and rearm again. (They did it twice, why not a third time).
Never underestimate German hubris. Case in point, the current German Fin Minn.
The current investing environment is too surreal. Distorted, manipulated shitshow on steroids.
Meanwhile there is less focus on the swiss franc. Something seems to be going on.
"Swiss banks are uniformly denying refusing withdrawals of cash accounts by clients whose account sizes are between hundreds of $millions and $4 to $5 billion, with clients coming mostly European and Swiss but also Asian, Latin American, even Russian, some of the accounts drug money, making evident a bankrupt Swiss banking system suffering the aftermath of the SWFranc de-peg three weeks ago..."
http://www.goldenjackass.com/main5.html
"We are, as private parts to the Gods. They play with us for their sport."
Now and then, it's necessary to employ those parts to shape the future. As circumstances compel or permit.
So all 3 scenarios will be awful for Gold and Silver. Got it. (Still waiting for the one scenario in the Universe that is not bad for Gold)
Well I suppose that once the euro is out of the way and the tide goes out, so to speak..., the dollar will be seen for what it is.
PMs might soar...
it looks that we re seriously missing information on talks between Greeks and BRIC financial institutions. Are there any in progress?
I vote for number 1& 2 concurrently.
If there is a Grexit with the US markets rally on the fact that Greece can now stand(haha) on its own?
How gold remains so subdued in such an uncertain environment is beyond me. The paper pushers are enjoying themselves now, but it wont last. A house made of cards falls eventually.
Have you even studied the decline of PMs during the early 1930s? Just curious. It might answer your questions.
i like the woodshed. cool place. great smells. is there a loft? hmmm
fuck you troika
Try saying that with the troika's barbed-cock in your mouth.
Capital Controls on the way. Even the whiff of them are devastating.
http://www.ekathimerini.com/4dcgi/_w_articles_wsite2_1_17/02/2015_547352
<--- Dra(ch)ma queen
<--- Drag(hi) queen
Who is Mr. Dijsselbloem?
He's the man with the "template".
This dude
https://pbs.twimg.com/profile_images/2091177231/image.jpg
HOW TO TRADE THE GREXIT SCENARIOS.
SCENARIO 1- BUY STAWKS
SCENARIO 2- SEE SCENARIO 1
SCENARIO 3- SEE SCENARIO 1
IS THERE REALLY ANY OTHER WAY TO PLAY THIS GARBAGE?
Just keep stacking.
Of course there is a myriad of ways to play this.
Buy Greek stawks
Buy EU stawks
Buy US stawks,
Buy Jap stawks
Buy EM stawks
Of course, timing might be important.
'Trading' the Greek situation is a dangerous game because it will be rife with hopeful rallies regardless of the result.
http://market-guru.co.uk
Not if you're awake and can see what's happening. This is like shooting fish in a barrel.
+1000
Why Greeks doesn't demand to leave EURO zone?
Let them walk with drachma. Why not?
Because then they'd have to work for the first time in their lives. Greeks, like all good socialists like free shit. C'mon kids, open up your wallets!
Greece won't take the free money. Reminds me of the early days of the collapse when some banks didn't want the cash either. Fed told them take it or else. We'll see what happens in Greece but I think Plan C is for a NATO orchestrated coup.
We Greased some folks.
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I was in serious financial trouble about 25 years ago. The last fucking thing I needed was a loan. I lived like shit for a couple of years, worked my balls off, cut deals with the creditors who would work with me (and they got every last dime), and told those who demanded money I didn't have to pound sand. I lived on a cash-only basis, cashing checks at the bank they were drawn on and buying money orders at the post office to pay my bills. Didn't have a bank account or a credit card for a decade.
Long story short, I now have a credit rating well over 800.
Point being, finance isn't going to get you out of a financial hole. It's possible to do it, but there are no shortcuts. And the sooner begun, the sooner done with that sort of thing. You just have to get to the point where you don't care what happens next; you just know you can't take being a pinata anymore.
Herr Krugman would beg to differ.
Meanwhile in Ukraine...
Ukrainian Households Face 264% Spike in Utilities Rates on Gas
IMF officials and the Ukrainian government have been negotiating proposals that would substantially raise gas and heating tariffs for Ukrainian households, as part of the IMF's agreement to provide Ukraine with a new $17.5 billion rescue plan
Read more: http://sputniknews.com/europe/20150217/1018374170.html#ixzz3S0cpayB4
Meanwhile national assets will be for sale at a 264% discount.
Shares in banknote printer, Del La Rue, up 5% in London.
Well they're not exactly going to use Giesecke & Devrient, are they??
NIRP NIRP NIRP Pay the Greeks ROTFLMAO
I also think it will be NIRP in the end. A generous 10 year loan at -1%
what is it that you desire?
what is in your heart?
what ,
do you trust?
The Germans will cave, they always do
Grexit means Euro rallies. its already priced in.
do the opposite of everything these banksers say and you should be ok...what you think they giving away money making advice for free? lol I have couple bridges in Athens I can sell you.
First of all, the article as many previous articles by zerohedge are confusing two things: Greek financial and economic situation with its political one. A greek default doesn't mean a Euro exit. Two different things indeed. If you read the Lisbon or Maastricht treaties, there is no formal law or clause stipulating how a country can leave the Euro zone. Again Detroit defaulted but didnt get kicked out of the USD "union". The european bureaucrat pricks dont want a broken country with a grudge, it exposes them to political hazard (i.e Russia, China etc). It's going to be a political bailout until they figure a way to kick them out of the euro zone legally and that will mean time to amend the treaties. The greeks know that the only leverage they have is a political one. Keep in mind the russian ukrainian conflict and how merkel and holland are trying to extinguish that fire because they knoiw that the greek's last strong political card to be played is an eastern rapprochement. Again, no Euro Exit for Greece, Default is possible.
I am sure that we have a deal looking at the euro against $ and gold.
If the Euro explodes, it will be easy for Greece to pay back the Euros it owes other people.
The forward escape!
Why are we listening to these prognosticators anyway? Is there ANY indication that any of these predictions have any merit (50% change of grexit, $1.10 is a good floor for the euro)?
We live in a command-and-control world economy. Those closest to power will have access to those who pull the levers, and thus will win all bets. The free market is dead. Real world data means nothing. The system will NEVER fail.
Absolutely disagree: Grexit may trigger a quick downward emotional reaction, but will rapidly turn out to be good for the euro. Vice versa a compromise means throwing more money in the bottomless hole and invite other countries to demand the same treatment. How can that be good for the euro?
So the only thing that matters is EURUSD, according to Citi?