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Goldman Gets Cold Feet:"It Is Difficult To Predict How Negative The Market Reaction To Grexit Would Be"
On Friday, courtesy of Bloomberg, we showed a very detailed Greek repayment schedule which laid out just how difficult the next few months will be for the bankrupt, in the words of its finance minister, country.
Below is a far simpler calendar this time courtesy of Goldman, which nonetheless captures vividly why Goldman thinks that "the ride over the next several weeks is likely to be bumpy."
Some more details on how Goldman, which as a reminder aided and abetted the Greek entry into the Eurozone by masking its unacceptably large budget deficit as well as its non-compliant debt/GDP ratio over a decade ago and whose former partner now is in charge of the ECB and is threatening with causing a terminal bank run in Greece any day now, sees the Greek calendar over the next three months, and why for Greece, now July 20 is the "hard deadline.
We believe negotiations could drag on likely through May and possibly into June. A ‘hard’ deadline could be July 20, when Greece faces a payment of €3.6 bn to the ECB, for which, we think, the country will not have sufficient cash. Exhibit 5 shows the timeline of cash disbursements Greece faces until August and the scheduled meetings of European policymakers. Peripheral spread volatility is likely to increase as time goes by, as investors will associate a higher probability of default to a higher probability of Grexit, although this association will depend on what conditions have led to the credit event.
We believe that peripheral markets would sell-off as the July 20 deadline approaches but, as long as the dialogue is still ongoing, spreads between Italy and Spain versus Germany are unlikely to widen more than to around 200-250bp. The tightening trend would resume upon Greece and its creditors finding a solution on the pace of reforms, how to fill the new funding gap and, eventually, also how to reduce the debt stock.
As a follow up, Goldman asks "where do peripheral bonds trade in the case of a Grexit." Here is its answer.
If Greece defaults on the official sector and negotiations were to break down leading to Grexit, instead, we would view this as a systemic event for markets. On its occurrence, we believe peripheral bond yields spreads to ‘core’ would widen significantly. Yield curves would steepen due to the possibility that an activation of OMT would skew the ECB bonds’ purchases toward short-dated maturities. The length and size of the sell-off would depend on how long it would take for policymakers to respond to the shock.
Respond to the shock? As in threaten to buy even more bonds which the ECB can't procure, and cause a terminal liquidity crisis across the entire fixed income market? We thought the launch of Q€ was precisely the pre-emptive response to the "shock"- or is Goldman hinting that the ECB's monetization of debt will be insufficient to keep Europe in a state of orderly insolvency? Of course, the ECB can always threaten to buy even more debt, although at this point not even tenured economists believe that this leads to any economic improvements.
During the Euro-area sovereign crisis, the spread between 10-year Bonos-Bunds and BTPs-Bunds peaked at 470bp and 512bp, respectively. This time around, the Euro area is better equipped to react to a large negative shock via the ESM and OMT and the ECB QE should provide a first line of defense. Also, in the periphery, a larger share of sovereign debt is now held by domestics, which should reduce the probability of a very sharp sell-off. Finally, economic activity is picking up and, after the fall-out post Greece’s debt restructuring in 2012, policymakers should be more aware of the negative consequences that a ‘credit crunch’ would have on the real economy, speeding-up their policy response. All this said, we think that, at the 10-year tenor, the spread between Spanish and Italian bonds yield versus Bunds yield could still widen to around 350-400bp before a policy response is enacted. We stress that the departure of a country from the ‘irrevocable’ monetary arrangements of the EMU would take us into unchartered waters and it is difficult to predict how negative the market reaction could be.
Needless to say if anyone knows whether Greece is "in" or "out", it's Goldman. Oh, and by now we hope it is all too clear which outcome Goldman and its banking peers would prefer: the one where the ECB doesn't do more monetization of risk assets, or the one where it does...
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you are on your own ... FED told you so, now from GS ... good luck
Better to exit now than make all those payments.
Does anyone think that once all the money has been looted the Greeks will ever see another dime from the IMF or the EU?
The Germans and Brussels will probably figure they've squeezed all the blood out of that stone by that time and kick the Greeks to the curb.
since august has been money from greece not loans.
yesterday, they passed a law to seize all the funds from local government and all hospitals in order to make payments for May to the IMF.
Thereafter there is no money to be collected, since 50% is unemployed.
Default is logical, however, last week on his visit in US, Varoufakis and Kamenos (Secretary of Defense) met for 4 hours with George Soros ... nothing has been made public of what was discussed.
Goldman Sachs got them into this problem so it should be Goldman Sachs that gets them out.
Do the Greeks have an extradition treaty with the USA and England?
Do "Crimes Against Humanity" still carry the death penalty?
"A ‘hard’ deadline could be July 20"
"hard"?? Give me a break. How many fucking "hard" deadlines have we seen with Greece already? Check, please !
No Greexit.
first make a problem ( robb them) then offer the solution ( enslave them)
globalization happend over last two decad, i dont see no exit anywhere just more integration, under the rule of international banks.
and the name of the game was frst inflation then deflation
and looks like we are in deflation ( lowering money base - rothschild control that)
and in deflation environment owning money is a best think
and only gold is money
but no problem for international banksters coz they own the majority of gold.
Smoke to distract young fools.
The world economy is in the shiter.
Not because of Greece.
IBD banking must have them scared shitless. Poor fucking souls.
http://www.goldmansachs.com/what-we-do/investment-banking/
We are looking at Goldman Sachs blank crossword puzzles.
http://puzzles.about.com/library/grids/blankind.htm
It is certain that the eurocrats already examined various scenarios, but in reality they have no idea of what will actually happen in case of Grexit, or, Grexident.
They probably already have plans for a Grexit. They just want to see how much they can squeeze out of them before they dump them like yesterday's trash.
http://www.goldmansachs.com/careers/why-goldman-sachs/our-divisions/inve...
Sucking dick and spreading your legs is the only fundamental role in stealing money.
If the ECB does enough QE, the GREXIT will be a blip on the screen.
Then, just sit back and wait for the QE to catch up and show how FUCKED UP the EU really is.
The real contagion is QE.
Simply a overdose of Operation Twist gone wild.
My GOD, you mean southern European bond yields might rise ABOVE those of US Treasuries??? Inconceivable.
For short term, buy into depends diapers.
Nothing will happen. Nothing ever happens. ZH glooms, dooms and prepares for booms. Then nada.
The Feds will set up a soft landing of some kind saving the day and thereby proving that we need their benevolent oversight because we great unwashed are barely better than monkeys and only they are smart enough to hold the reigns of power.
Good for you. You just stated the fraud and colluding crony capitalism for the last year's.
Sorry, your meal ticket is going to complete with a illegal alien.
/hahahahahaaha
"...before a POLICY RESPONSE is enacted."
Code words for: MONEY IS PRINTED.
Default is a certainty.
The biggest question is whether it is better to default sooner or default later.
"unchartered"- not the word intended, I believe ("uncharted"?), but symbolic of the true nature of the system, if you interpret to meet "lawless."
Should have been "uncharted"... of course. It's a sailing term meaning a ship that is venturing into waters for which there are no navigation CHARTS. Sigh....
what's with "interpreted to meet"?
Prediction:
We'll be talking about the 1723rd Greek bailout in 2049.
Oh wait, I'll be dead before then.
Alan Greedscum already stated that he thought Greece would exit the EU. What Greedscum wants Greedscum gets, Gubberment Sachs. ERGO Greece will exit before the next payment is due to Madame Whore Lagarde for blowjobs rendered.
Up until now, European officials were saying that Grexit was manageable. It appears that this was a bluff to get Greece to agree to another bailout (of its creditors). The bluff has not worked so now reality is beginning to 'sink' in. Yes, 'sink' is the word for what is likely to happen to the value of financial assets.
Predators
Vultures
You guys damn all your people
The fox says the chicken is starving because you are not feeding it enough.... but it really does not matter what time the chicken will be eaten so better eat it early because the fox will not wait until Jul 20...
Now I know Hillary left a few reset buttons around here...... Where did I out them? Or was it delete buttons Hummm!?
My bad
Not hillaries!