Skip to comments.Global banks see market rally on Greek exit
Posted on 05/17/2012 8:35:26 PM PDT by bruinbirdman
Major global banks are advising clients to prepare for a stock market rally and a resurgence of the euro if Greece is forced out of monetary union, betting that world authorites will flood the international system with liquidity.
Bank of America said EU authorities will pull out the stops to keep Greece in the system as they weigh the full
dangers of contagion. Should that fail, it expects a series of dramatic moves
Bank of America said it expects a "powerful short squeeze" in risk assets as speculative funds unwind positions, led by a rebound in battered bank stocks and Club Med bonds. The euro would surge 10pc to $1.40 against the US dollar after dipping first to $1.20 in the immediate panic.
The benign outcome assumes that the European Central Bank steps in with massive support, backed by the US Federal Reserve, the Bank of Japan, and key central banks along the lines of concerted action in 2008-2009.
Bank of America said EU authorities will pull out the stops to keep Greece in the system as they weigh the full dangers of contagion. Should that fail, it expects a series of dramatic moves.
The ECB would cut interest rates, launch quantitative easing (QE), and back-stop Spain and Italy with mass bond purchases; the authorities would inject capital into the banks and create a pan-European system of deposit guarantees. The combined moves would be a major step towards EU fiscal union.
"We think the worst is over for the euro," said David Bloom, currency chief at HSBC. "The central banks will have to step in massively and that will be a soothing balm for the markets. The Fed is already leaving the door open for more QE. We could see quite a powerful rally
(Excerpt) Read more at telegraph.co.uk ...
The global banks need new glasses.
They are advising the suckers to buy. Know one knows what they are advising their fee paying customers.
Sounds like a scam to try to draw the muppets back in to buy bank stocks. When Greece falls, the rest of the PIIGS will go down like dominoes.
Spanish banks not doing well:
Do they seriously really think that Greece was the only drag on the EU? The EU is the real drag on the EU.
Germany & Austria will also sit passively as massive inflation from massive increases in liquidity are injected into the system thereby ruining their hard earned prosperity?
According to UBS Greece would see a 50% collapse in GDP. The cost of a weak country leaving the Euro is significant. Consequences include sovereign default, corporate default, collapse of the banking system and collapse of international trade. There is little prospect of devaluation offering much assistance. We estimate that a weak Euro country leaving the Euro would incur a cost of around EUR9,500 to EUR11,500 per person in the exiting country during the first year. That cost would then probably amount to EUR3,000 to EUR4,000 per person per year over subsequent years. That equates to a range of 40% to 50% of GDP in the first year.
The graph at the right shows the scale and maturity of ECB and NCB holdings of Greek debt. While it would be difficult to actually render the ECB insolvent, such losses would nonetheless alarm investors worried about its credibility. Further, NCB exposure to the Greek central bank via TARGET II transferswhich allow NCBs to fund bank withdrawals with money not currently in the countrywill likely result in even deeper losses.
Buy the crap we are holding before everything unwinds, so YOU take the loss, not us....
"The benign outcome assumes that the European Central Bank steps in with massive support, backed by the US Federal Reserve, the Bank of Japan, and key central banks along the lines of concerted action in 2008-2009."
A E-P anticipates a grand Quantitative Easing. No scam. Lots of euros floating around.
Chronic deficit spending squanders capital, causes unsustainable debt and leads to poverty.Greece is not alone. No amount of financial gimmickry can restore the capital. Things will get ugly.
“According to UBS Greece would see a 50% collapse in GDP.”
Which is in line with what happened in Iceland.
If you walk in the door with US Dollars in Iceland these days, they treat you like a King.
The Dollar will soar and Euro will tank. No wonder money is exiting the Euro.... to avoid devaluation overnight. GO DOLLAR!!
Our market will fall hard then Big Ben will “play that tune” and start QE 3 by selling dollars (just like Mortimer in Trading Places). Then the Dow will rally hard!
Grand Finale....Check Mate and One World Currency.
I think what they mean is that global banks will SEE TO IT that the markets rally upon a Greek exit.
Of course a Snikers bar will cost $25.00, but at least the world stock markets will remain rosey!
Increases in Euro value hurt German exports, causing a good deal of pain.
Holders of sovereign debts, mostly financial companies, will take charges on writedowns. They can be absorbed over time if they can be paced; if too many losses are realized in the same year, of course, insolvency can result.
Mostly this is a confidence-building news release by big banks, meant to instill confidence in big banks like themselves, in order to keep their market valuations from dipping on coming bad news from Europe.
The hope/theory is, of course, that if enough investors see the bad news as a buying opportunity for a given big bank, market valuation could be supported enough to avoid complete loss of confidence in the concern and consequent client withdrawals, which equate to liabilities coming due, i.e., a liquidity crunch.
The following statement from the article is telling:
“If a return to the drachma proved to be a “ruinous experience” for the Greeks as HSBC expects if would mightily deter Portugal, Spain, and other from such temptation.
The worst outcome for euro and monetary union would be a double whammy where the authorities fail to control EMU-wide contagion, yet Greece somehow manages to claw its way out of crisis and make a success out of a devalued sovereign currency, as Argentina did after breaking the dollar-peg in 2002.”
The key is that Euro-denominated sovereign debt issued by governments that exit the Euro would be rather worthless as it would be much less of a priority for the issuer to service the debt. It’s kind of like giving up on one’s credit rating and just stopping paying all one’s debts; just declare bankruptcy already. Once one has already experienced the worst consequences, one is no longer worried about consequences, and creditors are simply put into an orderly line by the government. Once a nation like Greece starts operating completely internally for production and consumption with it’s own nice cheap drachma, Greece will still be functioning, but just simply playing with cheaper chips of their own making. Then their standard of living will simply be determined by how well they run their country internally. There’s actually a great potential upside: if they manage to restore order, their primary export - a vacation destination - will produce a windfall of profit for them, as vacationers from wealthy countries will flood them with dollars and euros in exchange for drachma to spend locally. Foreigners would love the idea of getting tons of Greek funny money to spend and go wild with on vacation in exchange for a few of their own dollars.
This scenario is the last one elites around the world want, as it starts a deconstruction of their precious “globalization”, which is really simply foreign trade ramped up and opened up to allow undfettered escape from the laws of sovereign nations. Kind of taking the best each nation has to offer while paying the least for what they buy.
The unfortunate part of this unwinding scenario for international financial companies that hold a lot of sovereign debt or are neck-deep with counterparties that do is that it entails big writedowns on the debt that they will have trouble swallowing without going bankrupt if it happens too quickly. No large business likes the idea of their own bankruptcy. So their lobbyists are working overtime striking fear into the hearts of politicians of a “global collapse of banking”, when really what will happen is the collapse of global banks. The deposit customers of those banks can easily be made whole by their governments and simply deposit their money into smaller banks that survived. This would drastically improve the capital ratios of those small banks, of course.
The whole difficulty is rooted in the fact that politicians don’t understand finance at all, are afraid of it, and big finance plays them like a fiddle. What’s more troubling is that big finance is not privately owned any more, so the risk is actually all born by the general public which owns them, either directly or indirectly.
As stewards go, publicly-held big finance is sinful. They are also lazy, they don’t want to make money the “old fashioned way, we eeeearrrn it” (like that fellow used to say on the commercial) they want to make huge profits in some easy way. Trouble is, this is impossible without repurcussions, of course; it’s financial alchemy.
At the end of the day, if it comes down to either big finance or government having to go down because of some financial problems, of course government will sell big finance down the river in a heartbeat. Dumb as politicians are, the bankers have all the chips, but the politicians own the casino.
Yep - trying to cause another artificial uptick so the big players can rake in a few more bucks from the suckers. I'm surorised the latest decline took so long and has dropped as slowly/little as it has. They keep shoring the market up with foundations of sand and the tsunami is on the way to wash the sand away...