Bank of England

The divergence theme is not longer being eclipsed by the Greek drama and the Chinese stock market slide.  See how this week's developments fit into the bigger picture.  

There’s one side of the story which hasn’t been highlighted at all by the mainstream media...

One senior UK bank director said: “The problem with Martin was that he made so many enemies, partly for good reason because banks did rightly need firm treatment after the crisis. But he seemed to have a mindset that all bankers were evil.”

• Tsipras Braves Parliament on Aid as Greek Outlook Worsens (BBG)
• European markets rise before Yellen speech, Greek vote (Reuters)
• China’s Growth Beats Economists’ Forecast as Stimulus Kicks In (BBG)
• China stocks drop again, positive data shrugged off (Reuters)
• Yellen intensifies Republican outreach amid Fed probe, Senate bill (Reuters)
• Iran deal holds both promise and peril for Hillary Clinton (Reuters)
• Iranians Party Into the Night as Khamenei Backs Accord (BBG)

• Greek lawmakers split over bailout as vote looms (Reuters)
• Greek Bailout Rests on Asset Sale Plan That Already Failed (BBG)
• Greece Needs $25 Billion to Get Through August, Scicluna Says (BBG)
• Tsipras Enters Parliament Den to Sell Aid Deal to Greeks (BBG)
• Greece makes samurai bond repayment (FT)
• Iran, World Powers Have Reached Nuclear Agreement (BBG)
• Janet Yellen’s Fed Flounders in Political Arena (WSJ)

"The Bank has started work to ensure there are no technical obstacles to our ability to accept equities as collateral should the need arise."

It's true that “the authorities” want the price of financial assets (stocks, bonds) to go up, and the price of hard assets (commodities) to go down… which is exactly what has happened. So do governments and central banks ever lose? In the old days, they lost all the time. In one extreme example, an individual hedge fund took out the entire Bank of England. But central banks are currently on a massive winning streak. So to answer the question, “Will we ever have a crisis,” you need to answer the question, “Will we ever be allowed to have one?”

The Fed’s Stanley Fischer has said that the U.S. was preparing such legislation – after Tucker had indicated that such legislation was in place. The EU is also at an advanced stage in forcing countries to ratify bail-in legislation. The legislation is being devised to protect the larger banks against the interest of both depositors, taxpayers and the wider economy.

• Fed Chair Yellen To Speak As Global Tensions Rise (WSJ)
• Greek PM Tsipras seeks party backing after abrupt concessions (Reuters)
• France Hails Greek Aid Proposals as Germany Reserves Judgment (BBG)
• Greek PM says does not have mandate to exit eurozone (Reuters)
• France Intercedes on Greece’s Behalf to Try to Hold Eurozone Together (WSJ)
• Frozen Funds, Fleeing Tourists: Greek Startups Feel the Pinch (BBG)
• Doubts Simmer Despite China’s Gain (WSJ)

Given the weekend ’s events it bears repeating that the echoes of 1914 are growing louder and louder. We are likely embarked on the death spiral phase of a game of Chicken, just as in the summer of 1914. The stakes are, for now at least, not nearly as cataclysmic today as they were a century ago, but the social and political dynamics are eerily alike.

• Greece Bailout Referendum: They Voted ‘No’. Now What? (BBG)
• Varoufakis Quits as Greece Enters New Showdown With Europe (BBG)
• Merkel to Meet Hollande as Greece Told to Make Next Move (BBG)
• German line hardens after Greek referendum 'No' (Reuters)
• BOJ keeps rosy view of regional Japan, watching markets after Greek upset (Reuters)
• Oil falls on Greece vote, China stock market turmoil (Reuters)
• China Urges U.S.-Iran Compromise 36 Hours to Nuclear Deadline (BBG)
• U.S. and Iran: the unbearable awkwardness of defending your enemy (Reuters)

What investors will focus on in the week ahead

When it comes to Europe, Greece lost the blame game, and just like the Ukraine civil war last year, became an unwitting catalyst greenlighting Germany's concession to ECB QE, this time it may be Greece that launches the next step in the ECB's master plan: not just QE but more QE. This is precisely what Goldman's Franceso Garzarelli, co-head of macro and markets research, admitted earlier today in an interview on Bloomberg TV, when he said that the ECB "will have to go big" if the situation in Greece worsens and leads to wider peripheral bond yield spreads.

Speaking at Russell Napier’s Library of Mistakes in Edinburgh earlier this month, Jim Grant of Grant’s Interest Rate Observer was asked what financial mistakes we’re making today that future generations will regard as the most ridiculous. If you’re familiar with Grant’s writing the short answer won’t surprise you...

• This headline needs updating: Creditors set bailout ultimatum for defiant Greeks (Reuters)
• Greece’s Fragile Banks Leave Alexis Tsipras Few Options in Bailout Talks (WSJ)
• Dueling Greece Plans Presented as Ministers Race for Aid Deal (BBG)
• Icahn Cashes In His Netflix Chips (WSJ)
• Meet the Health-Law Holdouts: Americans Who Prefer to Go Uninsured (WSJ)
• ECB holds Athens lifeline unchanged as Bundesbank protests (Reuters)
• Supreme Court Guide: Six Big Decisions Remain (WSJ)
• The Rise of the Compliance Guru—and Banker Ire (BBG)