Stocks Coiled In Anticipation Of Today’s Eurogroup Meeting

The only question on traders’ minds today, with the lack of any macro news out of the US (except for the DOE crude oil inventory update at 10:30am Eastern expecting a build of 3.5MM, down from 6.33MM last week, and the 10 Year bond auction at 1pm) is which Greek trip abroad is more important: that of FinMin Varoufakis to Belgium where he will enter the lion’s den of Eurogroup finance ministers at 3:30pm GMT, or that of the foreign minister Kotzias who has already arrived in Moscow, and where we already got such blockbuster statements as:

• LAVROV: RUSSIA WILL CONSIDER AID REQUESTS, IF GREECE MAKES THEM
• KOTZIAS: GREECE IS WILLING TO MEDIATE BETWEEN EU, RUSSIA

Or perhaps both are critical, as what happens in Brussels will surely impact the outcome of the Greek trip to Russia?

In any case, flashing red headlines – both factual and trial balloony – today will be fast and furious, with many kneejerk responses, and with the “market” reaction most likely to be the opposite of the expected, logical one as the ECB and SNB both intervene fast and furiously to make sure Greece doesn’t get any ideas and become emboldened to demand even more should risk sell off on any increase to its hard line negotiating stance.

Although Greek asset have seen some slight selling since the open and the National Bank of Greece trades as the worst performing stock in Europe, this has failed to fully carry over into the core and the DAX trades flat with no standout out-or-underperforming names in the index to drive firm direction.

The GR/GE 10y yield spread sits wider by over 30bps on the day at just under 1000bps as the ASE trades lower by 3.5%. Impending supply of EUR 5bln from Germany weighed on bunds at the Eurex open ahead of Germany hitting the market with the equivalent 24K 2y Schatz futures with their zero coupon 2y again expected to receive a cool reception. The UK tapped the market with a 30y and the US are due later on today with their benchmark 10y note (266K Mar 10y futures equiv). But perhaps the most notable developments in fixed income was that both Germany and Sweden (for the first time ever) sold paper with negative yields earlier today, getting negative 22 bps for 2 year and 5.03 bps for 4 year paper, respectively. In the meantime, someone continues to hit the sell button with clockwork precision on the Treasury long-end, just because suddenly US paper has become as hated to central bankers as gold.

For the time being, the EUR/USD was seen drifting lower (with the USDJPY rising) in early trade as most algos expect to see “worse than expected” headlines out of Brussels and are pricing it in. The pair has traded in a range of just under 30 pips and inbetween yesterday’s low of 1.1274 and high of 1.1355 despite some weakness in EUR against other major currencies.

A slide in the EUR/GBP cross to lows last seen in Jan 2008 has helped support a bid in GBP/USD and short-covering ahead of tomorrow’s BOE inflation report is helping to lift the pair in quiet conditions. The prospect of a slightly more hawkish report from the BoE tomorrow has also led to a slight climb in UK rates with the short sterling strip trading heavy relative to its peers. Conversely CAD continues to weaken this morning as oil prices slide, exacerbated by a break back below USD 50 in WTI crude futures, and once again this morning the CHF has seen choppy trade as the EUR/CHF cross sits near 1.0500.

Asian equity markets traded mixed after failing to take the impetus from a strong Wall Street (S&P 500 +1.1%) close ahead of the Greek and Eurogroup talks today. ASX 200 (-0.7%) was dragged lower by energy and health sectors amid yesterday’s fall in oil and poor earnings from CSL (-7%), Australia’s largest pharmaceutical. Hang Seng (-0.8%) tumbled with the Shanghai Comp (+0.6%) swinging between gains and losses amid dampened expectations of further PBoC easing. As a reminder, markets in Japan were closed today for the National Foundation Day holiday so markets were relatively quiet throughout the overnight session.

Bulletin Headline Summary From RanSquawk and Bloomberg

• Markets drift as all await the arrival of the Greek finance minister in Brussels for today’s Eurogroup meeting where Greece are expected to push to negotiate a loan agreement but reject an extension of their current bailout program
• Today’s Eurogroup timeline: 1530GMT All Arrivals, 1730GMT Roundtable, 1900GMT Press Conference
• Treasuries steady before quarterly refunding continues with $24b 10Y notes; WI bid yield 1.995% vs 1.93% award in January.
• Germany and Greece drew battle lines ahead of an emergency meeting of official creditors today, with German Finance Minister Schaeuble saying there are no plans to discuss a new accord or give the country more time
• Greek Finance Minister Varoufakis says in interview with Stern magazine that “Greek debt cannot be repaid in the near future” and that Europe suffers from a “deficit of democracy”
• Germany sold 2Y notes with a more-negative yield than the ECB’s deposit rate as investors chose to forfeit more cash to own the securities than banks pay to park funds with the central bank
• Denmark rejected all bids in a Treasury-bill auction today as policy makers struggle to stop investors from hoarding kroner in an effort to save the country’s euro peg
• Sweden sold SEK3.5b 2019 bonds at -0.0503%, drawing a negative yield for first time on record; bid-to-cover 3.21 vs 2.71 at April 23 auction
• BOJ’s Kuroda said G-20 nations didn’t criticize his monetary policy or discuss the yen’s weakening, signaling confidence to proceed with easing that has driven down the currency
• China’s monetary policy has room for easing as financing difficulties and high funding costs remain, according to a commentary published on China Securities Journal’s front page, written by reporter Gu Xin
• Russia indicated Putin will attend talks in Minsk to negotiate a cease-fire in Ukraine and that a deal is likely, as officials wrangle over the degree of autonomy to give rebel- held eastern regions after 10 months of fighting
• Top Democrats remained skeptical of a White House plan for using force against Islamic State extremists, saying the Obama administration is going too far in seeking the right to send ground troops on certain missions
• Sovereign yields mostly lower; Greece 10Y surges ~40bps. Asian stocks mostly higher, Tokyo closed for holiday; European stocks, U.S. equity-index futures mixed. Brent and WTI lower, with latter trading below $50/bbl; gold little changed, copper higher

DB’s Jim Reid concludes the overnight recap

Despite optimism yesterday of a move towards a deal for Greece, ahead of the much anticipated emergency Eurogroup meeting today, it doesn’t feel anywhere near close enough to one minute to midnight for us to see resolution yet. It also doesn’t feel markets are stressed enough to focus minds at this point. It seems to us there needs to be a bit more tension before any agreements can be made if indeed they eventually are.

Greek equities rebounded nearly 8% yesterday and 3y government bond yields pared back some of Monday’s weakness to tighten over 150bps by the close. Yesterday saw a constant stream of headlines ahead of today’s main event. Initial reports out of MNI reported that the European Commission would ‘table a compromise at the emergency Eurogroup meeting’ and that the proposal would be expected to be the platform for discussions. The report was quickly downplayed however with Reuters reporting that there is no such plan from the EC’s Juncker at this stage although ‘very intense contacts are going on between the President, Prime Minister Tsipras and other players’. The same article also quoted the EC’s Moscovici as saying that ‘they know the program is our reference and framework and we have to see what kind of solutions we can decide inside this framework’. Meanwhile the Guardian reported that Greek finance minister Varoufakis could pledge to implement around 70% of the existing bailout package and negotiate the remaining 30% around new measures.

It was comments towards the end of day however that have caught our attention. Appearing to take a much tougher stance than his European counterparts, German finance minister Schaeuble commented at the G20 that ‘it’s over’ for Greece should they refuse the final tranche of the current aid package and that Greece’s creditors ‘can’t negotiate about something new’ according to Bloomberg. In the same article the Bundesbank’s Weidmann meanwhile noted that any sort of bridge facility must be built by fiscal policy given that it’s forbidden for monetary policy to finance states. Specifically Weidman said that ‘the question of a bridge loan via T-bills has a precondition, in my view, that it’s not a bridge to nowhere’. Finally, late last night we also learned that Greece’s new government had received a vote of confidence ahead of today’s meeting. In a similarly defiant speech to Sunday, Tsipras continued his adamant stance, saying that he is optimistic the EU will accept Greek proposals and that the Greek government will not ask for a bailout extension. He was quoted in Reuters specifically as saying that ‘we are not negotiating the bailout; it was cancelled by its own failure’. Attention now turns to today’s Eurogroup meeting which is due to kick off at 4.30pm GMT and where we should hear something in the evening.

In terms of the early reaction in Asia this morning, markets are mixed with the Hang Seng (-0.79%) and ASX (-0.54%) lower whilst the Shanghai Composite (+0.14%) is firmer – although the latter perhaps still buoyed by hopes that the yesterday’s weak inflation print will help fuel stimulus measures. Gold (+0.38%) is also firmer this morning. The Euro is more or less unchanged at $1.132.

As well as Greece, focus today will also be on the Russia talks where hope is resting on a ceasefire agreement being announced in a meeting today between Ukrainian PM Poroshenko, German Chancellor Merkel, French President Hollande and Russian President Putin. A Russian ETF rallied late last night in the US session after news that Obama had spoken to Putin yesterday urging him to seize the opportunity this week to seek some sort of diplomatic resolution. US Treasury Secretary Lew was also noted yesterday as saying ‘its critically important that the international package comes together quickly’ and that encouragingly ‘there’s been progress in the last few days’.

Back to markets, in the US the S&P 500 (+1.07%) finished more or less at its highs for the day to take the index back into positive territory YTD. Energy stocks (-0.19%) were weaker as oil markets reversed some of the recent gains whilst Halliburton reported that it’s looking to cut as much as 8% of its workforce, following in the footsteps of recent energy company announcements. WTI (-5.37%) and Brent (-3.27%) dropped after reports out of the IEA that US production will still remain at high levels over the next five years. Yesterday’s results out of Coca-Cola also appeared to support the better sentiment. In fact earnings season on the whole has been supportive for equity markets, with Bloomberg reporting that of the two-thirds of S&P 500 companies to have reported so far, 77% have beaten profit estimates and 56% have beaten sales forecasts. Amazingly, Apple yesterday also became the first company to close with a market valuation greater than $700bn. At $711bn, Apple’s market cap is now over $300bn more than the next most valuable US company Exxon Mobil.

Treasuries closed wider yesterday with the 10y benchmark yield finishing +1.9bps at 1.997% following further encouraging employment data. The JOLTS job openings report for December showed the US creating 5.03m jobs, up from 4.85m previously and ahead of expectations (4.98m). The print was in fact the highest since January 2001. Bolstering the case for a June rate hike, the San Francisco Fed President Williams (FT) said that the time for the Fed to start raising rates is getting ‘closer and closer’ whilst elsewhere the Fed’s Lacker said that ‘at this point, I think June looks like the attractive option’. Wrapping up the data, wholesale inventories (+0.1% mom vs. +0.2% expected) and sales (-0.4% mom vs. -0.3% expected) for December printed more or less in line, although there were softer than expected readings out of the NFIB small business optimism survey for January (97.9 vs. 101 expected) and IBD/TIPP economic optimism survey (47.5 vs. 51.9) for February.

With markets hopeful of a more favorable outcome today following yesterday’s earlier headlines, risk assets in Europe firmed with the Stoxx 600 finishing +0.64 and the DAX closing +0.85% better. Crossover too finished 9bps tighter. The Euro meanwhile swung around with the various headlines, only to end the day more or less unchanged at $1.132. With the better tone generally, government bond markets in Europe finished weaker. 10y yields in Germany (+1.5bps), Spain (+4.9bps) and Italy (1.4bps) all weakened. It was a quiet day data wise. France posted a better than expected industrial (-0.1% yoy vs. -1.3% expected) and manufacturing production (+0.3% vs. -0.8% expected) print whilst in the UK, industrial production was in line at +0.5% yoy and manufacturing production came in above consensus (+2.4% yoy vs. +2.0% expected).

Away from the Eurogroup meeting and Russian talks it’s a quiet macro calendar today in Europe with just inflation data due out of Portugal although the ECB’s Coeure is due to speak. It’s a similar picture in the US with just the monthly budget statement due up. Fedpseak continues with Fisher due to speak in New York this afternoon.

end

The big meeting of the Eurogroup is now underway.  Here are some comments from the Finance Ministers.  Do not expect anything today.  Tomorrow will be the big day:

(courtesy zero hedge)

And so it begins… the beginning of the end… or the end of the beginning?

France:

• *MOSCOVICI SAYS THERE IS NO COMMISSION PROPOSAL ON GREECE
• *MOSCOVICI SAYS THERE IS ‘ROOM TO MANEUVER’ WITHIN PROGRAM

Slovenia:

• *SLOVENIA’S CERAR SEES `INTENSIVE DISCUSSION’ ON GREECE TOMORROW
• *CERAR SAYS FLEXIBLE SOLUTION SHOULD BE SOUGHT FOR GREECE

Germany:

• *SCHAEUBLE SAYS IT’S NOT ABOUT DEFINING RED LINES ON GREECE
• *SCHAEUBLE SAYS DON’T EXPECT ANY RESULT ON GREECE TODAY
• *SCHAEUBLE SAYS UP TO GREECE TO STAY IN PROGRAM OR NOT

IMF:

• *LAGARDE SAYS HAD “GOOD MEETING” WITH VAROUFAKIS

The Timeline (as we know it):

• -11 February: Meeting of Finance Ministers for occasional discussions about the Greek program
• -12 February: EU leaders summit in Brussels
• -16 February: New meeting of the Eurogroup on the situation in Greece
• -28 February: End of the current program
• -First Quarter 2015: End of March financial needs of Greece reach 4.3 billion. EUR
• -19 To 20 March: Meeting of EU leaders

end

Already today we witness Greek contagion spreading to the periphery.  Bond risks are rising

and Greek bank shares are falling:

(courtesy zero hedge)

Europe’s Greek Contagion Update: Peripheral Bonds Risk Surges

While US equities suggest all is well and Greece is contained, the less mainstream-news indicators of European stress are starting to flash orangey/red as the surge in spreads across European peripheral bonds since the Greek election suggests Q€ is being over-run. Italian, Spanish, and Portuguese bond spreads are all wider on the year now and up 25-30bps from ther Greek Election (fastest rise in months). Greek bank bonds and stocks remain near record lows and even broad European stock indices are struggling to hold gains post-election.

Greek bank stocks have fallen and can’t get up..

and Greek bank bonds are at record lows…

And the contagion is clearly spreading…

Charts: Bloomberg

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wow!! in two days the Greek Prime Minister Tsipras is being courted by both China and Russia. Who do you think has the upper hand now?

Why on earth would Greece endure more austerity when they cannot join up with Russia and China and help build pipelines through Greece and receive money plus port fees as well as supply food to Russia.  it will be a win win relationship for Greece:

http://sputniknews.com/europe/20150211/1018128914.html

(courtesy Russia’s Sputnik news)

http://sputniknews.com/europe/20150211/1018128914.html#ixzz3RSv9m4s0

The news comes a day after a minister of the Greek new government said the country may turn to China if the European Union refuses to cooperate with the country to overhaul the bailout commitments.

http://sputniknews.com/europe/20150211/1018128914.html#ixzz3RSvcXBMs

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Zero hedge comments on the above Sputnik story:

(courtesy zero hedge)

If Not Russia, Then China? Tsipras Invited To Visit Premier Li Keqiang In Beijing

First there was The BRIC nations; then South Africa was rolled in and the group became BRICS; but with news today (following yesterday’s Russian invitations for Greece’s new leader to meet with Vladimir Putin) thatGreece’s new Prime Minister Alexis Tsipras has been invited to visit Chinese Premier Li Keqiang, we wonder if the growing non-dollar partnership will be expanded to BRICSH as The Hellenic Republic prepares to walk away from its European overlords ‘partners’.

As ekathimerini reports,

Greece’s new Prime Minister Alexis Tsipras has been invited to visit Chinese Premier Li Keqiang, a government source said Wednesday.

 

Li Keqiang called Tsipras to congratulate him on his electoral victory and say “he would work to deepen and widen the historic ties between the two countries”, the source said.

*  *  *

It seems shunned “isolated” Greece… (as The Telegraph reports)

“We want a deal. But if there is no deal, and if we see that Germany remains rigid and wants to blow Europe apart, then we will have to go to Plan B,” said Panos Kammenos, the defence minister and head of the Independent Greeks party in the ruling coalition.

 

“We have other ways of finding money. It could be the United States at best, it could be Russia, it could be China or other countries,” he told Greek television. Mr Kammenos said Greece would prefer to leave the euro if membership means submitting to what he calls a “Europe under German domination.”

… also has a few new friends.

end

A terrific commentary on what to expect if we get a GREXIT:

(courtesy the WealthWatchMan/Silverdoctors/and special thanks to Robert H for sending this to us)

End of an Era

Folks, as the hours go by, it’s becoming painfully obvious to anyone paying attention, that no matter what path Greece takes in the days ahead, what’s happening right now spells the end of “business as usual” in Europe.   The leaders of Syriza have managed to doggedly stand firm in their main pledge(at least to date): to force Brussels and Germany to reduce the debt burden upon the Greek people.

The new Greek Prime Minister, Tsipras, has gunned down any banker hopes that this EU ultimatum(to either accept further bailout debt, or to leave the EU) is going to be successful in bringing them to heel.  Varoufakis, the new Finance Minister, has now reiterated Syriza’s position, so that no one can possibly mistake their intentions.

Amazingly, Brussels has(for now) still chosen to pull up a chair at the poker table, and play tough with Greece.

E.U. leadership is still insisting that the debt isn’t negotiable.

They’re still insisting in hardliner fashion, that the bailout terms are somehow…sacrosanct.

They’re still, hilariously, maintaining that debts must always be repaid(when we know that debts are defaulted upon all the time)!

The E.U. has played a dangerous hand here with Greece, because I believe they’re acting under 2 disastrous assumptions:

1)They’re assuming that they hold all the ace cards in this scenario, and

2)They’re assuming that the Greek government stands to lose everything, should they be expelled from the Euro.

But are those assumptions really true?  Does Brussels really hold the hand that they think they do? Let’s examine this together.

What Cards do They Hold?

First, It seems that everyone who has dealt with the Greek government has been saying the same thing. They all seem to believe that somehow leaving the EU would simply be too painful for any ruling party in Greece to go through with. The Troika keeps mentioning the horrible bank runs that Greece would be hit with, or that all public and private lending would instantly dry up.

“Greece can’t leave the E.U., because she would be almost certainly rendered a ‘failed state’”, that’s the line that’s repeated, over and over again.

Personally though, whatever else that Syriza believes, I think we can all agree with them that extending further bailout funding is the opposite of “constructive” for the Greek people.  Greece is an insolvent debtor, and austerity is a non-solution for any insolvent debtor.

Remember that bailouts are monetary heroin!  They are a debilitating drug which ensnares any insolvent institution which tries them(be they banks or sovereigns).  Bailouts have led Greece to a spiraling path of economic disintegration and depression.  This is important, because Brussels has been shocked to learn that so many in Greece wouldn’t want their financial “assistance”.

Brussels has failed to understand, that what they view as this:

Greece looks upon as this:

Greece has experienced an extraordinary depression for the last 3 years, all to save large European banks.  Their islands, their shipping industries, everything they really own has come under the chopping block at auctions.  Unemployment among the youth there has regularly been upwards of 60%!  General unemployment has stayed well above 20%.  There has been so little cash to even pay for day to day expenses, that Greek neighborhoods and communities have had to resort to complex bartering for goods and services.  Suicide has become rampant, and crime has skyrocketed.

To the average Greek, the Euro has been nothing but trouble, representing oppressive government by German banks.  Many in Greece have wished that they’ never joined the Euro.  The Greeks have abandoned hope, during this bailout arrangement.  They know where it leads, and they’re ready to look anywhere else for another option.

The Unseen Factor

Enter Russia and the Eurasian Economic Union, onto the scene.

Remember, several weeks ago, I wrote about the real unseen danger of this whole Greek situation: that if Greece left the EU, that Russia would be all too happy to pick up the pieces, and establish a sovereign, Orthodox foothold to trade with, right on the European mainland.  With that in mind, there’s an obvious question, that I can’t seem to shake in all this:

What if the Greek government isn’t just “talking tough”?   What if Brussels has completely misread their opponents? What if Syriza’s confidence springs, not from obstinate brinksmanship, but from the knowledge of what they stand to gain with their new burgeoning, geo-political partnerships?

Brussels keeps asking the question, “How will Greece cope with what they’ll lose, if they leave the Eurozone”?

The question that Brussels should be asking though(but dares not) is:

What does Greece stand to gain by seeking a completely new financial arrangement elsewhere?

It seems that Brussels is working under the assumption that it is the only game in town, but indeed it is not.  As we’ve been seeing, Putin and Russia have been establishing ties with Syriza and with the Greek government for years now.  That is plainly obvious to anyone paying attention, as these relationships aren’t forged overnight.

The biggest danger during this whole process for Brussels is that they’re not playing poker under equal terms with the Greek government.  The Greek Finance Minister, Varoufakis, knows quite well what terms and “help” that the Troika could offer.  Greece knows its opponents cards!

Whereas, Brussels does not have a clue as to what cards Greece holds right now!

They do not know what Tsipras was recently offered in Moscow  during his visit.

They don’t know what terms and transit agreements may have been signed between Greece and Moscow, concerning the new “Turk Stream” pipeline, which you can see beneath.

Does anyone else remember what Bulgaria’s South Stream transit income was going to be each year?  It was estimated to be at least half a billion dollars, and perhaps as much as $600 million dollars per year!

Do ya think that maybe tiny Greece would welcome a new revenue stream of 600 million dollars per annum…indefinitely?

Me too.

Let me ask you this: do you think that Greece is keen at the thought of all that new money being funneled directly into E.U. bankster coffers, instead of the Greek economy?

Do you see what I mean?

I think it’s highly likely that Moscow(with fewer options now that South Stream is no more) has offered an even sweeter deal to Greece, compared to previous offers to other countries.  Like, say, what if Greece has been offered insanely cheap natural gas rates for the forseeable future, atop an already generous transit royalty?

Furthermore, Brussels doesn’t know what emergency, financial assistance that Russia(or China) may have offered to Greece.  After all, their government has already publicly stated that they’d be willing to seek emergency financial assistance in those very countries.

Furthermore, there’s a high degree of probability that Greece would also grant something else to the Kremlin that Russia has wanted for years: a military base, right off the coast of mainland Europe! 

This isn’t just pie in the sky conjecture either, as there are signs that the Greek Defense Minister has always been speaking to Russia about this very thing!  We also know now that Cyprus has just offered Moscow the very same thing.

As can be plainly seen, if Greece chooses Brussels, they get things like more austerity, more monetary heroin(bailout cash), more loss of sovereignty, and more shame.

Whereas, if they pivot to Eurasia, they undoubtedly get things like a new gas transit income, likely cheaper gas, a lifting of Russian food sanctions, and perhaps even income from leasing space for a new Russian military base.

Conclusion

Even if Europe decides to play ball, and successfully brokers a reduction in debt for Greece, this entire process has caused an enormous loss of trust, prestige, and face for Brussels, in the eyes of the Greek people.

While we have seen that EU leadership believes it holds all the winning cards here, it is actually holding a pair of deuces!

The Troika is acting under the assumption that Greece has no other options, other than to continually accept unconditional surrender to new bailout terms, but they are gravely mistaken.

Russia has already begun to pivot to Greece, and vice versa, just as I said they might 2 weeks ago. Tsipras and Putin have been making hay for awhile now, and no one knows(including Brussels) the terms, agreements, or even treaties that Syriza has been cordially drawing up with the Russian Federation.

No matter whether there’s an eventual Grexit, or whether they reach a deal or not, there are no good options for the E.U. here. 

If I’m right, and the ECB and Brussels have played this dangerous hand under several mistaken beliefs, then they stand to lose much, much more than just Greece over time.  Either way:

Their fragile banking system will lose hundreds of billions in loans to the rest of Europe…

The Euro could be taken well under parity to the dollar…

They’ll lose bargaining power with several other(larger) insolvent countries.

They’ll lose the final battle in this fight against “Turk Stream”.

And lastly, the risk that I mentioned before anyone else….

They’d slowly lose the entire Balkan region to the East, as the Orthodox world is irrevocably pulled into the gravitational nexis of Russia and Greater Eurasia.

The EU and Athens are playing on unequal footing right here.

Remember, Greece knows what Brussels has to offer, but Brussels has no idea what Greece has to gain by seeking other partners.

In classic, technocratic fashion, Brussels has issued an ultimatum to Greece.  But let me ask you this:

How did their ultimatums to Syria’s Assad government work out?

How did the ultimatums to Putin work out?

Greece has been humiliated long enough.  Europe cannot go around issuing ultimatums, willy nilly.  With the Eurasian Economic Union becoming more of a competing reality every day, they’re going to have to face the fact that they’re not the only game in town!  They’re going to have to start negotiating with E.U. member states, instead of insisting that it’s their way or the highway.

It’s still possible that Syriza will fold, and that the banksters will go on raping and pillaging entire nations in the “straight-jacket of austerity”….but whatever the final, short-lived outcome, the E.U. should’ve played  “good cop”.

Germany, France, and Brussels made the mistake of getting into a sanction war with Russia, while issuing ultimatums to that country.  It has backfired in a spectacular way!

Now, amazingly, those same countries are taking this same failed strategy again with Greece. European elites haven’t been kind to Greece.  They’ve made the mistaken assumption that there are no other “fish in the sea”, but they’re soon likely to discover that Greece, like a spurned lover, has found a new main squeeze, one which offers them things that Europe never did.

When that happens, Europe’s elites will find themselves on the outside, looking wistfully in…

And they’ll have no one to blame but themselves.

end

Then late in the day after markets closed we get these rumours:

Futures, EUR Surge On Report Greek Agreement “Reached In Principle”

And so it begins… 1am local time and we get ‘unidentified sources’ stating that:

• *GREECE AGREEMENT `IN PRINCIPLE’ REACHED, CNBC REPORTS
• *GREECE WILL STAY IN EU BAILOUT PROGRAM, CNBC REPORTS
• *DETAILS OF GREECE DEAL UNCLEAR, CNBC REPORTS

Stocks futures and EURUSD are surging on it but we suspect – given the timing – that there is no detail yet and this is nothing but a blanket statement of effort for compromise.

end

which was immediately crushed by Greece et al:

(courtesy zero hedge)

Deal Rumor Crushed As Eurogroup Says No Deal, Greece Adds Will Not Accept Extension Of Current Bailout

UPDATE: From Reuters: NO DEAL YET ON GREECE

• EUROGROUP SOURCE TELLS REUTERS NO “DEAL” YET WITH GREECE, MAY BE AN AGREEMENT TO EXPLORE POSSIBILITY OF EXTENDING BAILOUT PROGRAMME
• SECOND EUROGROUP SOURCE SAYS GREECE AGREES IN PRINCIPLE TO MEET ITS FINANCIAL OBLIGATIONS IN DRAFT COMMON STATEMENT
• GREEK GOVT OFFICIAL SAYS NO AGREEMENT IN EUROGROUP, GREECE WILL NOT ACCEPT AN EXTENSION OF CURRENT BAILOUT

Stocks futures and EURUSD are surging on it but we suspect – given the timing – that there is no detail yet and this is nothing but a blanket statement of effort for compromise to calm Greek bank stocks for the week as they reach ELA limits.

• *GREECE, EUROPE SAID TO MOVE TOWARD BAILOUT EXTENSION
• *GREECE, EURO AREA DISCUSSING LANGUAGE ON BAILOUT EXTENSION

The kneejerk reaction…

We can’t help but suspect this is about rallying Greek banks for the next few days to avoid being forced into a rapid decision ahead of the final statement next Monday:

• *FINAL DETAILS OF GREEK DEAL WILL BE KNOWN MONDAY, CNBC REPORTS

We shall see…

end

and then this!!  (with all of this nonsense, they were trying to prevent a collapse in the Greek bank shares tomorrow)

NO DEAL!!!

end

And now the nonsense explained:

in plain English: there is no deal and there never was one.

Greece will never sign onto an extension…period!!!

(courtesy zero hedge)

Eurogroup “Deal Or No Deal” Press Conference Begins – Live Feed

EU President Jeroen Dijsselbloem is about to explain how there is an agreement in principle (if Greece folds, follows the program it’s been given and behaves itself – which they have since confirmed they won’t) and that discussions are ongoing (haven’t changed on bit all day)…

Press Conference Live Feed:

http://europa.eu/!xJ97xU

* * *

As The Telegrpah reports,

As the meeting went on into the night,conflciting accounts began to emerge that indicated the two sides had been unable to find common ground.

 

Two official sources told Reuters that, while there was no deal had been struck, a joint statement was being drafted that could leave it open for Greece to extend its current bail-out deal.

 

However, a Greek official said that Athens would not sign up to an arrangement that would see the bail-out’s term being extended.
Reports seemed to indicate that the wording of any agreement was key to progress, with the Greeks wanting an accord to show their voters that they secured an end to the current deal but had reached an arrangement that woudl prevent financial chaos.

From the man who provided the HSBC lists of the wealthy who were evading taxes.  Sarkozy knew of Papandreou;s mother who had a secret 500 million euro HSBC account.  He was extorted to allow the Troika into Greece and ravage the nation.  This is unbelievable…

(courtesy  TO BMHA) and special thanks to Robert H for sending this to us:

Falciani: “Sarkozy blackmailed Papandreou into accepting the troika”

Former Greek PM’s mother allegedly held an account with 500 million euros – Papandreou denies allegations

http://www.tovima.gr/en/article/?aid=675982

The former HSBC bank analyst Hervé Falciani, who helped bring the illustrious ‘Lagarde List’ to light, has claimed in his upcoming book that Giorgos Papandreou was forced to bring the troika to Greece, because his mother Margarita Papandreou allegedly had a secret HSBC account with 500 million euros.

The revelation was made by the Italian Corrierre della Sera newspaper, which has published some extracts from Mr. Falciani’s book entitled La cassaforte degli evasore[“The safe of the tax evader”]. Mr. Falciani claims that the list of golden depositors was used to enforce the austerity policies in Greece.

According to the former bank executive, the French President at the time, Nicolas Sarkozy, was assigned to lead the negotiations with the troika for rescuing Greece. The former French president, Falciani estimates, was aware of the list and as such was in the position to pressure the Greek Premier at the time.

The French-Italian former bank officer is currently wanted by Swiss authorities after he extracted a list of 106,000 of HSBC’s clients from 200 countries who held over 300,000 bank accounts. In December 2008 Falciani handed over these lists to the French authorities, who then passed on the relevant information to other governments, including Greece.

Meanwhile, the Movement of Democrats Socialists issued a statement denouncing Mr. Falciani’s allegations and argued that the investigation carried out by the Economic and Financial Crime Unit (SDOE) in Greece in Mrs. Papandreou’s finances proved her innocence. Mr. Papandreou’s party added that charges would be pressed.

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wow!! this is quite a comment.  Goldman Sachs states that the markets are quite complacent with respect to a possible GREXIT.  They explain why.  However if there is GREXIT: “all bets are off”!!

Goldman: Markets Ignore Grexit Threat Due To ECB QE, But If There Is A Grexit Then All Bets Are Off

Earlier this week, the largest Swiss bank UBS, not only suggested to anyone following the latest Greek crisis that “now may be a time to panic” (not in so many words) when it laid out its latest asset reallocation, slashing its equity exposure…

… and explaining that the stock market is far too nonchalant about the risk of a Greek contagion, which as it also showed, would spread like wildfire if push comes to shoving Greece right out of the Eurozone.

And just to be extra useful, UBS also summarized the process of the Grexit in the following handy flowchart:

But why are markets so nonchalant about the risk of a Grexit? Here is Goldman wiuth its explanation for why there has been none of the typical drama that accompanied either the first Greek crisis-bailout in 2010, or the second one, from 2012. The basis of Goldman’s thesis: Q€ of course.

From Goldman, first, the good news:

EMU Peripheral Yields Have Decoupled from Greece in Levels …

 

Greek sovereign bond yields have been going up since last September and, since January, the term structure has become inverted. Explaining the divergence with the rest of EMU have been a number of factors including: the approaching end of the ‘troika’ funding program; increasing popular protests against austerity measures; and growing political pressure on the centre-right coalition government, culminating in the election of more radical parties.

 

Meanwhile, sovereign yields in Italy and Portugal – the two Euro area countries with the highest public debt-to-GDP ratio after Greece – have continued to decline in the wake of their German counterparts,responding to the ECB’s increasing monetary expansion and, progressively, the anticipation of sovereign QE. The spreads of Italian and Portuguese bonds to Germany are now at levels seen in 2010, and overall funding levels are substantially lower.

… But Their Correlation to Shifts in Greek Risk Remain Positive

 

A closer empirical analysis (using a dynamic conditional correlation approach) based on data spanning the beginning of 2012 to today reveals that:

• In Greece, the daily volatility of intermediate maturity bonds is now back at levels seen in the first half of 2012 (even though yields are lower), while that of intermediate Italian and Portuguese yields is around half of where it was in the first half of 2012.
• The correlation between Greek and German yields has been negative on average throughout the past two years, as Greek credit risk has remained elevated while risk-free rates have rallied. By contrast, the co-movement of daily changes in Italian and German yields has moved from negative (-40%) in 2012 to slightly positive currently (+20%). The same holds for Portuguese yields.
• The daily correlation between government bond yields in Greece and those of Italy/Portugal has been stable at positive levels over the entire period in question (40% for Italy and around 50% for Portugal) since 2012.

Summarizing this evidence, the credit risk embedded in Italian and Portuguese government bonds has gradually diminished, a development reinforced by the inclusion of these countries in the ECB’s purchase program. Returns on these securities are now mostly influenced by shifts in risk-free rates. Both sovereigns, however, remain exposed to fluctuations in Greek credit risk.

Then some more good news:

Why Is Contagion from Greece Contained?

 

So far we have described through statistics the behaviour of asset prices. As to the economic rationale behind a departure between Greece and the rest of the EMU periphery, we would note that:

• The new Greek government has been elected on a policy agenda set to relax the fiscal stance and further restructure public debt, but not to take the country out of EMU. The central scenario of most of our clients (and ours) is one in which a compromise with Greece’s official sector creditors will ultimately be found.
• Since the overwhelming majority of Greece’s public debt is either in the form of loans from the EFSF, the IMF or other EMU countries, the international private sector exposure to Greece is limited. The EUR40bn worth (at face value) of Greek government bonds traded in the secondary markets is generally marked-to-market. The activation of the ECB’s emergency liquidity facility has channeled more funding to the Greek banks from the official sector, reducing direct private exposures further.
• The ECB’s sovereign QE, to start next month, is estimated to remove as much as 50% of the gross issuance of sovereign bonds in the likes of Italy, Spain and Portugal. This will reduce debt roll-over risk, which should translate into an even lower probability of default in coming years.

Based on these considerations, it looks reasonable that investors would not ask for an additional compensation for a source of risk that has limited direct economic bearing for other asset classes.

And now the bad news, and when the above idyllic scenario would promptly collapse:

Such a conclusion would cease to hold, in our view, if Greece were to leave the common currency. Indeed, ‘Grexit’ would constitute a non-diversifiable event, affecting all financial assets. This is because, upon the departure of one of its members, EMU would likely be seen as a fixed exchange rate arrangement between countries which can elect to adhere or leave. Convertibility risk would resurface, exposing the possibility of a collapse of the entire project.

 

To be sure, the ECB would not stand idle in the face of such a course of events. But the severity and persistence of the ‘shock’ from Grexit would depend on several factors, which include:

• What has led to the departure of Greece (metaphorically, was the country pushed or did it jump?).
• What institutional arrangements the remaining countries put in place to signal their commitment to stay together (presumably in the form of greater sovereignty sharing).
• How does Greece perform outside of the single currency?

So what Goldman is saying is that with its intervention in all markets, the ECB has made discounting of risk virtually impossible. In fact, unlike on previous occasions when the market at least swooned ahead of the Grexit D-Day (and flash crashed in May 2010 when scenes of rioting in Athens led to a cascading HFT sell program) it may have prevented the Grexit itself by giving a glimpse of the devastation that would ensue if the Eurozone were to fall apart – which by now is clear to all is merely a political entity, preserving “political capital” – this time it is the central banks’ pervasive domination of all risk levels across the board, that has made negotiation a non-starter, since Europe is essentially convinced it can let Greece go. After all, just look at the DAX at all time highs – surely the ECB has everything under control.

Everything, that is, unless Greece exits, when as even the former employer of the ECB’s Mario Draghi admits, it would be time to panic.

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Russia warns the USA that if it supplies the Ukraine then this event will have a dramatic outcome:

(courtesy zero hedge)

Russia Warns US, Supplying Arms To Ukraine “Will Have A Dramatic Outcome

Well that didn’t take long. Just an hour or so after Merkel, Hollande, Poroshenko, and Putin got together to drink tea in Minsk, they have a ‘deal’:

• *RUSSIA, UKRAINE, GERMANY, FRANCE LEADERS READY DECLARATION: IFX
• *FOUR-COUNTRY DECLARATION TO REAFFIRM MINSK CEASE-FIRE DEAL: IFX
• *JOINT DECLARATION IN SUPPORT OF UKRAINE’S TERRITORIAL SOVEREIGNTY

So – to summarize – they agree to a cease-fire (which saw 1000s killed and shelling continue last time) and to support Ukraine’s territorial sovereignty (except of course Eastern Ukraine?) Face-saving headline-maker comes to mind.

Stocks don’t care though – they are buying it.

As Interfax notes,

Joint 4-nation declaration to affirm commitment to cease-fire agreements reached in Minsk in Sept., Interfax reports, citing unidentified person close to talks in Belarus capital.

*  *  *

*  *  *

Now what will president Obama do?

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The Baltic Dry Index continues to plummet suggesting the global economy continues to be crushed!!  The index is now down to 553:

(courtesy zero hedge)

Baltic Dry Index Hits New Record Low

“It’s like a tax-cut for the world’s freight shippers…” oh wait…

New Record Low at 553…

Consequences:

• Bankruptcies…
• “Catastrophic” Accidents…

Not unequivocally good

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Oil related stories:

Oil falls this morning as inventories rise by a huge factor.  The lowering of the number of rigs is having no effect on oil production:

(courtesy zero hedge)

We previously noted the extreme spike in S&P Energy sector stock valuations (and the fact that energy sector earnings will have to surge by 70% in order for this exuberant to be ‘discounted’ correctly). Now Deutsche Bank has run the numbers and warns that in order for S&P Energy to now be trading at what we would consider a fair ~15x normalized EPS, $70/bbl oil must return and be sustained by 2H15.

Energy Valuation

Near and longer-term oil prices are very uncertain. Such uncertainties are best evaluated relative to what stocks price in.

We recognize that firms are quickly moving to lower their cost structure, but in order for S&P Energy to now be trading at what we would consider a fair ~15x normalized EPS (vs. 20+ 2015E EPS), $70/bbl oil must return and be sustained by 2H15.

Future oil prices and corresponding profits are debatable, but the sector’s PE on normal EPS is unlikely to exceed 15 given the recent reminder of the industry’s commoditized and highly competitive nature.

We expect $100-150bn of asset write-downs by Energy in 2015 (~$10 of S&P EPS).

Writedowns are excluded from non-GAAP EPS, and reduce future depreciation costs to help EPS, but such charges weigh on PEs as they signify the difficulty in earning strong returns through cycles.

Source: Deutsche Bank