The Greek Default: “It’s Already in the Market”? What Will the World Look like the Day Markets Try to Reopen?


global-economy-stocks-400x256You have heard the phrase many times “it’s already in the market”, meaning if “something” or some sort of event happens it is already factored in to prices.  I was overseas last week, travelled much of the week and stayed in a hotel that had only two English speaking channels …one of which was CNBC.  I cannot tell you how many talking heads were paraded forth whom all parroted the same pabulum, “a Greek default is already factored in the market”.  Really?  REALLY?

For CNBC or any media outlet to downplay a Greek default is plain evil deceit at its core.  We have looked at this many times and from many angles, Greece owes close to 350 billion euros and when the amount of written derivatives are included we are probably talking well over 3 trillion euros!  Yes, the talking heads keep saying “much of the Greek debt is now off of the banks balance sheets and is now owned by the ECB itself”.  Does this make it any better?  Or could it make the situation even worse because now a central bank has its balance sheet in peril and exposed?

The other side of the coin is the derivatives situation.  Please remember when a “default” occurs, the “notional value” becomes the true at risk amount.  This was the problem caused by Lehman Brothers in 2008, derivatives which had been supported by margin alone (and very thin at that) saw margin calls explode and the demands of 100% notional payments began.  This is why no one, ever, can be allowed to fail.  Because then the triggers are pulled and notional settlements begin …with a minor problem.  Derivatives simply cannot perform because they total more than the value of everything else added together on the planet.  The “money” simply does not exist for everyone to be paid.

The purpose for writing this piece is not to discuss Greece, whether they pull an “Iceland” and leave the central banks holding the bag …or talk about the odds of their banks opening Monday morning …or to speculate as to “when” they default (“if” is already in the rearview window).  A Greek exit from the Eurozone or a change in allegiance from NATO to Russia are both very real possibilities …but NONE OF THIS is “in the market”.  Greece is but one of an absolute litany of potential events being ignored!

The list of potential events being ignored by the markets is very long.  They include the geopolitics of Ukraine, Syria, Iraq, Yemen, the South Sea islands Iran, and we might as well throw Israel into this mix.  Russia and China just announced trade to be done exclusively in yuan and rubles, is this factored in to the valuation of the dollar?  The U.S. has moved missiles into Poland and elsewhere to ring fence Russia, Russia has responded by repositioning ”EMP” weaponry.  China’s economy is slowing while their margin debt and speculation in stock markets are at an all time high after doubling in value over 6 months.  As for the U.S., bogus number after bogus number is being reported while the economy declines in recession…and the world moves further and further from the dollar.  It’s all “business as usual” as long as markets can be controlled…

The biggest “factor” being ignored is the fact credit markets around the world have already seriously cracked  Interest rates are rising and bond prices falling.  Please, never forget this, ”credit” is THE FOUNDATON to the “value” of everything we know and believe to have value.  “Credit” (debt) is THE foundation to every current currency on the planet.  If the underlying debt is beginning to lose value, what will this mean for currencies?  What will it mean for the “discount process” to be used to value stocks?  Or real estate?  Not to mention the fact current cash flows will have the capacity to carry LESS debt …which has been used to hold up current values?  To finish this thought process out, the big picture is quite simple.  Debt has continually expanded faster and faster than the underlying global GDP.  Current GDP is simply not sufficient in size any longer to carry the global debt burden…

I am going to tell you, NOTHING “bad” is factored into today’s markets… even slightly.  All markets, all assets, everything has been “priced to perfection”, FORCEFULLY “PRICED”.  Do you understand what I am saying here?  “Prices”, all prices are being “made”.  They are being made to paint a picture of a perfect world.  This picture is a must to portray “all is well and no worries”.  Almost none of the potentials I wrote of above (and there are many more) have even seen the light of day in the Western mainstream press …because if they did then they might affect values and partly be “priced in”.

Let me finish by talking about “black swans”.  A black swan by definition is a surprise event taking participants unaware.  How can anything we already know about …and is supposedly priced in to the market be a black swan?  Maybe because so few believe a systemic failure can happen?  Maybe we should categorize the entire financial system or even our way of life as a “black swan” because almost no one believes “it” (the ride) can ever end?  Americans in general know something is wrong but they just can’t put their finger on it.  A recent poll taken by Gallup shows confidence in almost everything has dropped to previously unseen lows. 

As I have mentioned many times before, the last piece of glue holding the system together is confidence.  The confidence of a central bank in another central bank, the confidence of institutions in other institutions and of course the confidence of the general public.  While on this topic of confidence, why do you believe four European central banks have requested their gold back?  Or closer to home, why does Texas want to retrieve their gold from Yankee bankers?  Confidence is a peculiar thing, it takes a long time to build and may be retained by “reputation” for quite some time …but when it breaks it goes away like lightning!

None of the potential black swans have seemed to even move the dial because the puppeteers have used derivatives to collar, support and suppress various prices and thus “hide” any bad reaction.

I have to believe the ultimate black swan is exactly this, the loss of control of everything including perception.  After all, the most ingrained of thoughts are these; the government can never go broke, the government will never allow it or let it happen.  Maybe THE black swan is the most obvious of all, the government is in fact broke and Mother Nature does still exist.  We have gone so far down the rabbit hole where absolutely nothing is actually “in the market”, I believe the biggest shock of all will be what the world looks like the day markets try to reopen?



Europe’s big fat Greek crisis is heading for its crunch moment. Five years of haggling and half-deals are coming to a head. The question is simple: can Greece and its paymasters kiss and make up, and secure an agreement that will keep the country inside the euro-zone and inside the EU? The answers are elusive: Greece has run out of money, its creditors have run out of patience, and even journalists have run out of cliches and metaphors to describe the never-ending saga. So what is the best outcome? An orderly, planned Grexit? Some sudden largesse from the German-led euro-zone? Or another fudge?

Greece’s day of destiny takes bizarre turn with phantom eurozone summit


Athens’ fate may soon be determined regardless as despite no breakthrough and another wrong paper fiasco, proposals were welcomed as ‘detailed and credible’



Alexis Tsipras is welcomed by the European commission president Jean-Claude Juncker in Brussels on Monday. Photograph: Yves Herman/Reuters


Greece’s date with destiny started with its upstart prime minister, Alexis Tsipras, being slapped on the face. It is the customary gesture of endearment from Jean-Claude Juncker, president of the European commission. It means the two men are friends, despite Juncker saying at the weekend he no longer trusted Tsipras.

And the day that was supposed to arrest Greece’s collapse into bankruptcy, and prevent the euro’s diminution, ended more than 12 hours later on Monday evening with the bizarre spectacle of a phantom summit.

Monday’s hotly awaited emergency gathering of eurozone leaders, called last Thursday evening to fix the Greek crisis or at least to attach sticking plasters to Greece’s bleeding wounds, had nothing to decide and no real agenda to discuss.

For that to happen, the finance ministers of the single currency bloc who gathered earlier in the afternoon had to assess the chances of a deal and make their recommendations to the leaders. They could not do that, said Jeroen Dijsselbloem, the Dutch finance minister who chaired the session, because they did not have enough time to study what Athens was proposing. Their minions would have to negotiate hard and come back later in the week.

“The leaders are always free to have a different opinion,” the Dutchman smiled.

The leaders flew in from Paris and Berlin, Madrid and Vienna, Dublin and Bratislava in any case, perhaps to teach Tsipras a lesson.

“There is no question of cancelling the summit,” said an EU official. “The idea is to remove from Tsipras the illusion he can get a better deal at the summit, or that a decision can be taken at the summit level. The point is to have Tsipras learn the position of the other leaders. No negotiation, no technical discussion. Make sure everybody understands where the others are.”

It was Tsipras who wanted a summit in the first place, insisting that Greece’s pain and the eurozone’s troubles could only be sorted at the highest political level. The answer to Tsipras on Monday evening from the chancellors, presidents, and prime ministers was an ultimatum: “You can have your summit, but you’re not getting a negotiation.”

Behind the confusion and the last-minute improvisation lay a weekend of frantic communication and crossed signals over a Greek proposal that was not really a proposal. Or was it?

Negotiations collapsed in Luxembourg last Thursday with Christine Lagarde, the head of the International Monetary Fund, memorably complaining there was no point in engaging in dialogue with the Greeks unless there were “adults in the room”.

Tsipras, a neophyte prime minister, then spent much of Sunday on the phone to the German chancellor, Angela Merkel, President Hollande of France, and Juncker, trying to prove he was an adult. Following a long list of rejected economic reform offers aimed at securing bailout cash, he promised new proposals.

The number crunchers from the creditors – the commission, the IMF, and the European Central Bank – assembled in the Berlaymont building in Brussels at 5pm on Sunday to receive the Greek offer.

They waited. And waited. At midnight the lights were still burning on the 13th floor of the Berlaymont. It was already Monday when the Greek paper arrived just after midnight. The technocrats got to work on the arithmetic that would determine whether a deal was doable: VAT rates, pension costs to GDP ratios, fiscal targets and primary budget surpluses.

Martin Selmayr, the German christian democrat and Juncker’s powerful chief of staff, tweeted that it might be tricky, but for the first time an agreement could be discerned. “Ein Zwangsgeburt,” he predicted – a forceps birth.

The commissioner for the euro, France’s Pierre Moscovici, instantly took to the French airwaves to talk up the chances of a deal. But as he slapped Tsipras playfully on the cheek, Juncker started sounding worried.

The Financial Times reported that the document the technocrats had been working on was the “wrong” one. The Greeks had sent the wrong piece of paper and only supplied the right one on Monday morning. Not for the first time. In February at a crucial stage in the bailout negotiations, Athens also sent the wrong set of proposals to Berlin. The weekend before last, the Greeks showed up in Brussels for negotiations without any proposals on the Saturday afternoon. They were asked to document their intentions and came back 24 hours later with nothing new.

The latest “wrong paper” fiasco on Monday morning gave eurozone finance ministers cause to dismiss the chances of any breakthrough on the grounds that Tsipras was playing for time and seeking to avoid detailed technical negotiations. The German, Finnish, Irish, and Austrian finance ministers voiced contempt. The Greeks maintained their habit of tardiness when Yanis Varoufakis, the outspoken finance minister, turned up 45 minutes late for the session. Dijsselbloem said the meeting could not decide anything because they did not have enough time for their aides to check whether the Greek sums added up.

But commission sources, keen to strike a deal, believed the hawks on the creditor side were trying to wreck the agreement or at least make it more difficult. Juncker’s spokesman said they had received the Greek proposals just after midnight, signed by Tsipras (a first), and that the Greek plan had been passed to the ECB and IMF. The “new” version on Monday morning contained only minor and cosmetic changes. Dijsselbloem admitted that and conceded the confusion over the two papers was not much of a problem.

And despite the ministerial dissing of the Greeks, officials on the creditor side not normally known for being lenient towards Athens agreed that the Greek proposals were the first “detailed and credible” policy shifts they had seen from Tsipras in his five months in office.

Merkel, as usual, hedged her bets and noted that there were several days in a week – a week being the time remaining until Greece’s bailout lapses and a €1.6bn (£1.15bn) payment is due to the IMF.

The ministers will be back in Brussels on Wednesday or Thursday, the leaders on Thursday and Friday. And there will be no phantoms.

Eurozone crisis Europe Greece European commission European Union


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