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Four Euro Divorces But No Funeral (Yet)
"We think the ramifications of a Greek exit are more serious than the market anticipates", is how Morgan Stanley starts their European strategy report this week. They have raised their probability of a Euro break-up to 35% but the most likely outcome they foresee is a Euro divorce with Greece's exit preceded by strong contagion via three main transmission channels: the sovereign, the banking sector, and the political situation. Italy, Spain, Ireland, and Portugal are unsurprisingly the most at risk of material contagion and they recommend investors stay positioned defensively across risky assets as we remain in the 'Crisis' stage of the so-called C.R.I.C. cycle - and they note that unlike so many knife-catching US equity and Italian bond buyers, it is not sensible to try to pre-empt the Response phase of C.R.I.C. cycle. There appears to be four scenarios (and evolutions) for the future of Europe (from Renaissance to Divorce with Staggering On and an awkward 'Italian Marriage' in between) and we drill into the four additional possibilities under the divorce scenario for insight into the effects various risky asset classes will feel in each case.
The Four Eurozone Scenarios...
and the CRIC Cycle...
CRIC stands for Crisis-Response-Improvement-Complacency
And the various risk catalyst events in the next few weeks...
Which lead to the following Possible Evolution of Events - and Key Signposts...
With the four increasingly dismal scenarios underlying the Divorce Scenario as follows:
and the impacts of these four Divorce Scenarios...
Source: Morgan Stanley
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Somehow, I feel bullish...... anyone else?
'They have raised their probability of a Euro break-up to 35%'
So, not yet 100% then?
They're a bit behind the curve with this one eh...
Don't worry - they've already raised their estimates to the large investors... Par for the course...
Anyone notice what asset class is conspicuously absent?!
THey don't mention the U.S. market in the information and all the derivative exposure of the banks.
The Risk Managers for JPM looked at it and said everything looks A OK!!!
Yow, that was complicated!
But, the way I see it, making these models and charts does have a use, it is worth the while to think about all possibilities. That allows you to plan better.
Like in the game of Chess. When you know all your moves will end in a check mate, you still pretend to think and plan something while sipping the drink and smoking a ciggy, knowing, technically, the game cannot end till you have made the move.
Except if moves are predicated by a clock! You run out of time and the game is over so stalling will do no good.
yes, even if there is only one outcome, and its end is unavoidable...
... the end is avoidable. You can smash the chess board (war) and then claim afterwards, you'd have won actually had the game continued.
and lets play it again, another day...
That's the unavoidable part, I think. No way does the game come to a "natural" end. Timing.
There wont be a funeral. The "expert doctor" who can pronounce one dead, wont do so.
But the clerics in Egypt have issued a fatwa that a husband can still have sex with his dead wife, as technically shes still married to him.
At least Morgan Stanley is being more open about Greece than about Facebook
How about Greece leaving, strong contagion followed by a weak response.
I don't think that the ECB or the politicians have enough dry powder left to ringfence anything. Especially when France and Germany are not on the same page.
Was thinking the same thing (and its been my gut feeling for a while now) - the EU is not exactly designed for on-a-dime maneuvers.
In that case ... as a conversation starter (since God knows I'm just prognosticating out of my ass at this point)...
The one lingering fearI have is about the Fed in this scenario. Bernake will need to to pump ALOT of electronic US$ into the system to make up the difference of the Euro's absence in the world monetary scene.
In that case, there may be a rally in equities after the Euro implodes as some of that money inevitably leaks into the market. The market may also rally just before the Euro implodes as people rush to exchange the soon to be worthless Euro for anything else of value, including US stocks.
Gold expected to drop further along with EUR when Greece leaves? (in dollar terms, that is)
MS is trying to trick us all here. Do not believe in this report.
MS trying to rebuy its lost virginity, Morgan the fée of bad omen. Using the Boston Consulting group four quadrant chart to "probabalise" its prediction of dirty Euro collapse. Well, for once, crying wolf may be the right warning. Only, the wolf in sheep's clothing is the wolf of DC, the mother wolf of wolfdom which begets global financialisation dystopia.
How about this? Can the Treasury and the Fed afford to NOT have a major crisis in Europe to continue fund flows into USTs to keep funding costs low? I think the answer is no. This is the economic war that has been underway since late 2008. Harder to trace to a specific culprit or event because of the vaguaries of the system - derivatives, equities, etc. - and therefore, no flare up of hostility or open aggression. Yet. Put another way, I'm not sure the US can afford to have the Eurozone stay intact (door #1), and still afford the interest on their debt. Trouble is, behind door number 2 (Grexit) is... what?
So nice they can chart it out. Where are the black swans?
The Black Swans are whats not on the charts.
Glaringly obvious omission is "Periphery Exit, Weak ECB Response"; ie 'The all hell breaks loose' scenario
The latest Geab2020 bullettin doesn't forecast Greece exiting the Euro. They say: " just ask any Greek person, when they go to vote: do you want to exchange your Euros for these new Drachmas"!
Won't spend any time to comment on JPMorgan's releases. I'm using their charts for teaching about big banksters' frauds worlwide.
ah the four quadrant chart - somebody got them a MBA....
And the PhD physicists are using non-Euclidean space while the chaos theorists are eyeing the strange attractor at 0,0,0 for all assets and currencies.
the CRIC "model" seems to ass-u-me the fuktards can NEVER make the decision to stop kicking the can?
b/c of this, the future of europa is somewhat bounded by bullshit, but thePeople over there are so well-educated and respectful of authority that they accept this, as do all bankster-dominated cultures, world-wide
so, that's that!
game, set, match to the banksters and their never-ending bullshit and propwash
any questions?
All these controlled exit scenarios remind me of Building No 7 and Fukushima.
If this happens and that happens and this and that...it certainly is possible.
Your decision tree is so much clearer and so simple to understand. MS could learn IPO magic from u, lol, they goofed that one so bad!
"European Renaissance" You've got to be kidding me. Socialism es muerte, bitchzzzz. :)
Has anyone been watching the GReek market?
While the EU and US markets have yo-yo'd - the Athens exchange has fell steadily - down 12% this week.
This is different to the last period of 'excitement' when all European markets bounced around.
This is the funeral march for Greece.
Listen .... I'm the last person to challenge a sharp monstrously successful independent thinker like Ray Dalio (see past weekend Barron's).
But the consensus 'narrative' that present EU is like 1780s Amerika and Articles of Confederation that had to be traded in for a 'constitution' is just a tad simplistic. Forget the 'minor' issue of slavery which was purposefully avoided just as it was a blossoming factor in the South's wealth generation as technology started to impact super labor intensive cotton farming, etc. ... which led to probably the bloodiest civil war ever fought over a series of moral & legal principles (yeah, Amerika is a putird fiction of a country .. until you realize the above-average moral tone attempted in contrast to humanity's history).
The Articles of Confederation were NOT just about currency and capital flows and trade but a lot more specific to a young post-colonial eastern seaboard 13 colonies.
Arguably the emotional driver of the Treaty of Mastricht was 'anchoring' a confident robust economic nation-state entity created by Bismarck called Germany to 'western europe'.
Always challenge an emerging 'consensus' of what a 'narrative' starts to look like. The fair argument for a revamped 'EU' is to go historo-romantic into what Charlemagne created .. which was an attempt to apply a then-rational overlay (there was still the 'mist' of the Roman Empire in the background back then) onto the ethnic differentiations of Europe. This will take at least 10-20 years if done peaceably. And that is on top of the fact that generations of Germans have paid economically for the sins of their fathers for WW1 (reparations were formally all paid off finally in early 1960s ... compliments to far-sighted Andrew Mellon & Norman Montagu who 'extended out' an unpayable tab), WW2, NATO security blanket (yup - Germany largely backstopped this) and last, the massive funding to absorb former East Germany.
Someone is going to have to make one of the best 'sales' presentations of all time to Germany, Denmark, Holland and the Nordics/Finland.
Who?
All four outcomes are way too optimistic for equities. Shocking a Wall Street firm would avoid being too realistic about pom pom equities.
Perhaps I have missed something, but I still don't understand the legal basis for any country leaving the Euro as it is 'irrevocable' in the treaties and even if that happens surely anyone who has invested in Euro assets effected would have a legal case against the EU as the investment was made based on that lie and therefore was fraudulent? If anyone can enlighten me, I'd appreciate it.
Amazing how many different ways there are to say FUBAR.
There is zero chance that the E.U. will break up. Zero. Get this notion out of your heads. It bothers me to see ZH readers and editors so easily manipulated by the propaganda. Try some out of the box thinking for a change.
I've said it before and I'll say it again, there is no European Crisis other than what has been engineered by the central planners. This is not a meteor about to land on Europe, but an artificial crisis in an artificial system created by man and controlled by man. Therefore, it can be manipulated by powerful men to achieve their goals.
Their goal is a closer economic union amongst European states. Their goal is the eventual destruction of national sovereignty for each individual Europen state to achieve their "United States of Europe" under one all powerful central government. This "crisis" has been engineered to achieve that goal.
http://www.iii.co.uk/news-opinion/reuters/news/36496
They're meeting again in June to discuss not the breakup of the E.U., but further and more tightly binding it together.
"Proposals are expected to include boosting the paid-in capital of the European Investment Bank and plans for 'project bonds' underwritten by the EU budget to finance infrastructure.
The aim is to agree ideas that can be formally signed off at the next summit on June 28-29."
From my study the whole eurozone crisis is a classic antitrust case... In eurozone we can’t enforce freedom in the movement of deposits without respectively and equivalently enforcing geographic freedom of lending...
ECB and EC allowed bankers to create closed markets in every state by not enforcing the removal of clause “country of residence”, so EU SMEs and citizens can't get what Maastriht treaty promised...
So remove the three words clause and enforce banks to do cross-border lending and all is solved...
That simple...
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