With the S&P 500 2% off record highs, we are sure talking-heads will proclaim "any Greece actions are more than priced in," but as Bank Safra's chief economist Karsten Junius warns, forget happy endings, "Disorderly Default" is now the most likely outcome for Greece.
Of the five scenarios that could play out for Greece, a happy ending is the least likely, Karsten Junius, chief economist at Bank J Safra Sarasin, writes in client note.
1) Disorderly default: 35% likelihood
Greece defaults, but pays maturing bonds and loans solely on basis of cash position; creditors would have incentive to continue talks to prevent a total loss. Capital controls would be necessary to keep Greece in euro
2) Orderly default, within euro: 25%
Greece defaults, with prospect of new talks with creditors, who want part of the debt serviced in return for aid that would allow Hellenic Republic to keep euro. Capital controls would be likely; Greece might have to issue IOUs for some domestic payments
3) Interim solution: 20%
Eurogroup offers a bridging loan, which prevents Greece defaulting on its debts this summer
4) “Sticky-end” or orderly default, with euro-exit: 15%
Greece makes a clear break with creditors, embarks on its own monetary-policy course
5) Happy ending: 5%
Greece agrees on M-T adjustment program, which enables it to return to stronger growth path
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Because while the flows signal anxiety, price is anything but pricing this in...