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Goldman: "Greece Will Remain In Euro Even If It Votes No", And How Markets Will React
The time to negotiate the Greek referendum this Sunday has come and gone and at this point, one can only sit and wait as the vote results start trickling in on Sunday evening. And, as Goldman's Huw Pill prudently observes, the outcome of Sunday's Greek referendum is uncertain. "Regardless of the outcome, Greece will continue to face substantial economic dislocation in the shorter term." What is interesting is that Goldman says "Greece will ultimately remain in the Euro area even in the event of a ‘No’ vote."
Clearly, this together with the earlier IMF note, is great news for the Greek government, which can now point to not only the IMF backing its original claim that a debt haircut is absolutely necessary, but that none other than Mario Draghi's former boss, Goldman Sachs, agrees with Varoufakis that Greece will remain in the Eurozone even after a "No" vote.
That said, this is how Goldman handicaps the possible voting outcomes and the subsequent reactions:
Result of referendum likely to prove less pivotal than how Greek domestic politics evolves in response to it. We envisage three main scenarios following the referendum:
1. A ‘Yes’ vote, followed closely by the resignation of Messrs. Tsipras and Varoufakis and the formation of a new Greek government. This is likely to be the most market-friendly outcome. Clearly, its implications will hinge crucially on the character of the new government. A government committed to reform, credible in the eyes of the creditor institutions and with a mandate to act (e.g., a technocratic government enjoying a broad base of parliamentary support and committed to a limited tenure followed by elections) could move forward to a new programme that would allow a resumption of Greece's financial and liquidity support. Weaker governments that fall short on these dimensions would likely struggle to move forward with the same vigour and pace.
2. A ‘Yes’ vote, with the current government seeking to remain in power. Such an outcome appears inherently unstable. Creditors are unlikely to resume funding Greece under a Tsipras government, given the breakdown of trust resulting from the recent painful negotiations. The Greek economy would thus remain mired in its current state of 'suspended animation' with banks closed. Eventually the political contradictions and economic fragilities that would follow are likely to create powerful forces for political change in Greece. In our view, these forces are more likely to lead towards a rapprochement with creditors, but a more negative dynamic towards ‘Grexit’ cannot be ruled out.
3. A ‘No’ vote, in which the current government becomes more politically entrenched. This is likely to be viewed negatively by markets. We do not see such an outcome as necessarily implying a definitive ‘Grexit’. In the first instance, such an outcome is likely to perpetuate the status quo: the European authorities would neither extend further financial and liquidity support nor engage in a new round of negotiation with the Greek government offering more favourable terms. As a result, Greek banks would remain closed and the economic situation would deteriorate, ultimately triggering political change as the economy seizes up. Of course, that change could move in a chaotic direction leading to a ‘Grexit’. Uncertainty is clearly higher in this scenario. But our base case would remain that any attempt to shift policies in the direction of exit would prompt a domestic political response bringing down the government and moving to an accord with Brussels to maintain membership of the Euro area.
But while Goldman's assessment that a "No" vote allows for Greece to remain in the Euro and is thus beneficial to the current administration which has claimed just that all along, Goldman's own take is less favorable for the future of the Tsipras government:
Across the spectrum of scenarios sketched out above, our base case is that: (a) eventually there will be political change in Greece; and (b) this political change will ultimately lead in the direction of Greece reaching a new accommodation with its creditors that preserves Euro membership.
So having already effectively decided the fate of the Tsipras government, how do the three Goldman scenarios differ:
(a) the pace at which the political change takes place (which declines as we move from scenario #1 through to scenario #3); and (b) the uncertainty surrounding our base case (with the risks of an alternative chaotic ‘Grexit’ outcome rising as we move from scenario #1 through to scenario #3).
As for the market response, Goldman begins with the bond markets. Fear not says Goldman, for they are all in the hands of the ECB:
With regard to the wider implications of developments in Greece for Euro markets, we maintain our view that the European authorities in general and the ECB in particular stand ready to act as necessary to preserve the integrity of the Euro area in the face of any turbulence emerging from Greece.
In our view, the ECB can be relied upon to do "whatever it takes" to support other vulnerable Euro area countries. The likely method in the first instance would be an expansion and/or reorientation of sovereign debt purchases within the ECB's existing programme. While the ECB is still likely to be reactive rather than pre-emptive in stepping up sovereign purchases, we expect that reaction to be both prompter and more aggressive than in the past. The likely trigger would be a (substantial) widening of peripheral sovereign spreads symptomatic of a re-fragmentation of Euro government and credit markets. We do not expect the ECB to be highly sensitive to falls in the equity market or the Euro exchange rate.
Still, even Goldman is willing to admit the ECB may not be omnipotent and suggests that "in the event of negative surprises, bond spreads could widen out as much as 200-250bp, with 10-year BTPs yielding around 3%. From these levels and upwards we would view the probability of an ECB intervention as increasing.
What about a good outcome:
In the event of a ‘Yes’ vote this Sunday, and a subsequent accommodation between the Greek authorities and the official sector creditors, we would look for BTP/Bonos to eventually go back down to around 100-120bp (or 30-50bp tighter from current levels) as investors anticipate a new political direction followed by fiscal and structural adjustments, comprising a re-profiling of the Greek public debt. These steps would, however, take time to achieve, and the price action could remain volatile."
As for stocks, Goldman's worst case "No" outcome is a 10% plunge in the Stoxx 50:
Based on the impact of sovereign spreads and equity risk premia, our best estimate for the worst-case downside in the equity market in Europe on a ‘No’ vote is a move to around 3150 on Eurostoxx 50 (around 10%)...
... but don't panic because once again...
we think this would be short-lived as ECB intervention would kick in, prompting investors to focus on improving fundamentals; we would see any meaningful correction as a buying opportunity, particularly for MIB, IBEX and DAX for investors taking a medium-term view. A ‘Yes’ vote followed by an accommodation between the Greek authorities and the institutions would likely see equities up around 10%, back to April highs of around 3830.
In short: a "No" vote will roil markets, send stocks tumbling and yields soaring before a "forceful" ECB response (one which the ECB itself hinted at today when it expanded the universe of monetizable collateral) restores (ab)normalcy even as Greece remains in the Eurozone but really, in limbo.
The conclusion: for Tsipras to have had the full leverage he wanted, he should have had this standoff last year, before the ECB launched its QE.
Then again, the much hyped ECB response just may backfire. After all, QE in Sweden has already failed forcing the central bank to do even more QE until the whole thing blows up due to lack of liquidity. And when it comes to lack of eligible collateral, the ECB is just a few feet behind Sweden. It would be delightfully ironic if, in an attempt to save Europe by boosting its QE, the ECB destroys everything and it is Greece who ends up with the last laugh.
* * *
If all of this seems complicated, here is the traditionally far simpler take from Bank of America:
Nai. A “yes” vote is the outcome currently more priced-in to financial markets, and would cause a bid to European assets, at least in the short-term. The reaction of the Euro would be most important to watch: a rally (as EU growth expectations rise) would mean a more durable rally in European assets and a reversal of the long DAX, short banks trade that has worked so well in Europe the past 2 years. Note also that Cyprus shows that even under capital controls some Greek assets could also find a strong bid.
Oxi: A “no” vote by contrast would signal GREXIT; a Greek economy without banks, without a lender of last resort, without access to liquidity, in deep recession and exposed to new social and geopolitical risks. In this scenario we would watch the European banks closely. Failure of FT3FIN index to hold 850-900 would be very negative for global risk assets in July.
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Goldman has spoken, all hail Goldman
+100
I was about to say that lol
Dollars, pounds and yuan will "reset" the entirety of Greece.
So in reality that should mean a pack of Marlboro Reds in Athens and you go from there.
Not actually IN Greece so can't say for certain...but sure seems about right.
"The euro" sure doesn't look like it's worth anything to me so it's hard for me to believe the Greeks will still use it as money...
"The goyim think they have options. They don't."
The end-game is a crisis severe enough to force European fiscal integration. No "Federal States of Europe" without it. This has been the plan of euro architects all along (see here).
So the TPTB want (need) a crisis severe enough to force this impopular "new Europe" through. The IMF, the White House and none other than Goldman Sacks thus overtly and coherently supporting a NO vote.
Pretty simple, really.
(Not saying one should vote YES)
Translation: Goldman is toast, if the first domino is allowed to fall.
Anyone else notice the deafening silence about Porto Rico? Que Pasa?
Moodys just downgaded them to Junk.
That horse has long bolted.
… one of those agencies would make a fortune if they could rate
which Junk would PAY and
which Junk would DEFAULT !
WTF! This is stupid Goldman bullshit scare tactics about the Greek vote.
Cause voting "oxi" means Goldman is fucked as the banking dominoes start falling their way fast next week.
Fuck Goldman.
problem with eurozone, you must be part of europ, problem with eurozone, 1) not designed to flee, 2) if you break eurozone you also break europ, you cannot stay after leave currency union.
and i will simply add, for any of the 490millions other europeans, if 10 millions can not pay back dept and stay in euro and get helped with imf and co,you, forgeign of the whole world, have to understand there is a 100% chance that some % of the europ population stop paying their on tax and start messing with economy, like me, i will borrow as much money i can and will be insolvant and facing justice i will talk about greek case.
of COURSE it will, because Brussells looks ugly as hell shutting down the banking system of 11 million people for this "petty" argument.
they cant win the people through punishment.
"The beatings will cease when moral improves"
If you do not behave like good slaves and vote YES, your economy will be roiled and you will suffer - Your lord and master, the Vampire Squid
finally, a word from our masters
Thats a hard Pill to swallow.
<---- NO
<---- YES
Since the US Treasury is going to end up paying part of the bill you might as well vote.
seems rigged.
When I hit the green arrow it gave more to the red arrows. When I hit the red arrow it gave it a +3.
What does voting have to do with what the US Treasury does? I choose to Carlin approach.
There's your clue short the Euro
"we will not let you get away, one way or another we will get the prime estate that is greece - together with the locals to tend to our every need"
What if the EU and NATO start a Caucasus war with Russia?
Caucasus SITREP here
http://thesaker.is/ukraine-sitrep-july-2nd-2015-by-scott/
If Russia wants to add a "Caucasian Front" to their Ukrainian Adventure..
If Russia wants to add a "Caucasian Front" to their Ukrainian Adventure..
All the "tea leaf" readers are rather humorous. They speak as if everything will be orderly and every step or contingency has been planned for. When the EU matchstick house gets hit by Greek lightning we'll see how fast the ECB gets the fire under control.
That thinking worked out really well in 2000 & 2008. /s
So why is the Squid taking the lead on this, when it's Jamey sitting on a mountain of derivatives?
All the boats are lashed together;)
The squid is saying they need to be excused from the table to take a piss. They are stiffing you with the bill by not returning to dinner.
Where's Deutsche Bank? It seems to me that they have the most "near term" risk exposure, via their derivatives profile.
Greek fire on a house of cards.
GS made millions from cooking the books to get Greece into the EU.
GS should make millions on a Grexit.
Wouldn't be GS if it didn't.
http://www.sovereignman.com/trends/jp-morgan-private-banker-we-cant-make...
The latest polls and betting suggest Greece will back the cash-for-reform deal proposed by creditors in the July 5 referendum. They point to a mood shift since Athens closed banks and limited cash withdrawals
http://rt.com/business/271183-greece-referendum-polls-forecasts/
If they accept it, this all happens again in six months. So we have that to look forward to.
Greece will ultimately remain in the Euro area even in the event of a ‘No’ vote
GS getting pretty bold these days. Coming out and stating voting doesnt matter in daylight. Looks like they got themselves some day-walker blood. Since they own most of the silver, not sure whats left to counter these vampires. Wooden stakes? Watch for GS to corner lumber futures.
Sunlight. The Truth is still deadly to vampires.
http://mcm-ct.com/blog/market-showing-dramatic-divergence-between-price-...
Market Showing Dramatic Divergence Between Price, Actions & Emotions...Which CENTRAL BANK is panic-buying?
Translation: there will be no trigger of CDS...no matter what.
They want CDS to hit because they, Goldman, is holding the deeds.
They will remain in the euro even if they decide to leave euro.
Who's going to stop them from leaving?
Estonia?
Austria to vote on leaving the EU. http://rt.com/news/271279-austria-petition-eu-exit/
"you can check out anytime you like but you can never leave"...
Hotel California - The Eagles
Hasn't anybody noticed?
That's the SAME THING
Tsipras has been saying ... all along.
Tsipras advocates a "no" vote merely to better able him to
negotiate a "deal" with the TROIKA,
not for a GREXIT, not to exit NATO.
Greeks have about the same degree of choice in their upcoming referendum
that voters have had in the US recently.
The moral of the story is to never ever pay anything back. Going to need some better liars when the squid starts talking about fundermentals.
Can't wait for Spain, Italy, and France to default, er ah restructure their debt.
Let me get this straight, if one NATO member is attacked the others respond in defense with massive military force, but if the citizems of one NATO country are scrounging through trash dumpsters for food.....meh?
Let me get this straight. This is the same Goldman Sachs that sold their customers faulty securities while shorting them at the other end, right?
This is hilarious - the extent to which this particular can is being kicked. No default, Greece is just 'in arrears'. Therefore, no CDS, no impact on the financial system. Presumably the missed payments just go into a 'receivables' category on the balance sheets and income statements of the lending banks? And no problem for Greece either - you're still in the EU and still can use the Euro, just your banks stay closed and you Greek citizens who left money in the banks - well, it's gone. But no problem, look at the markets bidding into the last half-hour - everybody wants to be long going into the long weekend on which the greek referendum occurs.
Greece needs to actively pursue bankruptcy to have these debts discharged.
Every other country should also have this option.
This shit where you just can't stop playing the game has to stop.
If the system is dependent on no bankruptcies happening then the system should be destroyed
and all players lose equally. What Idiots.
Does anyone give a shit what Goldman says?
I also can't help but notice that Goldman's already pre-ordained the replacement of the current Greek government with a 'technocratic government' more or less regardless of the scenario they describe. ZH should run a straw poll on which ex-Goldmanite will be running Greece come end-July.
Orderly markets,
a la Squid.
No China or Russia calling the shots for Greece. The rest is distraction. If it came down to it, I could even envision a U.S. naval 'blockade' to make sure the Greek 'potential' isn't given away to the China/Russia alignment.
And then we can all spend the rest of the year jerking off to our new naval "heroes"! Just brings a tear to my eye...
All hail your banker overlords!
Oh, fuck off. Can we just start building the goddamn gas chambers already?
The election turnout is determined by the the people who do the counting and so the result is already determined and Greece vote results will be "yes" even if they actually voted "no", for Greece is "Hotel California"..."You can check-out any time you like, But you can never leave!". Markets may resume climb on Monday or Tuesday & volatility can die once again..
If you wanted to crash this whole thing in a few months, then all who have access to credit should get as much as they can and then buy hard assets and hide them, then default on the debt and see what happens. Also, everyone buys new and used auto with zero-down zero-interest and when they demand payment, then wreck it, strip it, and leave it. Do it with a new house as well. Use it all up!! Just keep in mind, do not hurt the grocers...you still need to eat.
When the first Greek Grandma dies because she didn't get her pills this will all be over - the EU will fold.
Don't get me wrong - these Syrzia guys have a clown car like a 79 Town and Country wagon and they are definitely in the fold up way way back seats.
That doesn't change the fact that the Brussels clowns are driving and this crowd will probably Thelma and Louise it before they are finished.
We all know the issues - they are obvious (No currency union without transfer payments, Weaker economies should have never been let in). However in the game of "who has the most to lose" the Greeks have trumped them.
The EU electorate isn't stupid. They know the Greeks had to be sacrificed in 10 to save the banks and like all good voters they'd be happy to see them starve now.
However the Brussels emporers lost their fig leaves when they allowed this last 86bln in ELA to be handed out and the ECB can't afford that hit.
In my view the Greeks will take this one.
Let's see...
Does the EU electorate know their elections are predetermined and the choices are predetermined? If so, do they still debate/argue over parties? If that is all true, as it is in the US national election, AND it is, then if they are so smart...why do they debate/argue and vote? Just making the point that people are clueless for the most part.
The idiots should have known that the Eurozone was backed by the power of the NWO military. They are toast now.