Calling all those interested in financial markets...

[aster]

It's high time we formed a mini think-tank here to pool our thoughts together.

Although we cannot predict what will happen, we can at least form opinions on possible scenarios: "what will happen if..." Heck, even the US gov't prepares "scenario packs" for all sorts of situations and then locks them away safely.

Well, two scenarios worth analysing are:

1. Uncontrolled bankruptcy of Greece/pulling out of the Euro currency

2. Military strike against Iran's installations (possibly conducted by the Israelis)

Any thoughts on which way markets and currencies would go in either scenario?

[BillyB]

Why don't you start!

[JR8]

Nah, I don't serve up opinion for anti-semites.

Plus, your prognostications on the EU are so utterly moonbat-ish that I cannot imagine learning anything of any value about the markets from you.

So a bit of a non-starter then.

[aster]

Kind of funny to see a die-hard supporter of a radical nationalist party accuse someone of being anti-anyone, don't you think? Kind of makes me wonder how much truth there is to your other allegations, like the one about your ex making a punching bag out of you. Seriously, get your act together...

Billy, since scenario #1 doesn't seem to matter much lately as everybody knows Greece is going down the drain and the focus is on other nations, what do you think of scenario #2?

Most probable date from what I've been able to gather is October.

Since this is not an expected scenario, it would allow one to take a position and then make an exit should it not materialise. But if it does happen then it could become a nice money-maker.

What are we looking at here if it does happen? Oil prices up sharply, which could put a dent in the US' chance of recovery (and hit other nations even harder, especially developing ones). What about currencies and stocks though, any thoughts?

[BillyB]

2.) High level; Oil price goes up, growth is reduced, travel and tourism industry affected, couriers affected, agriculture slows, manufacturing across the board is affected. Global panic as Iran is run by a fruit loop. Terrorist activity likely with the US being implicated or accused of collusion. Safe haven - not much - but something generally inversely correlated to commods and universal - ooohhh let me think - the USD!

[aster]

I started thinking about this scenario being possible after reading an interview in the Financial Times ("Lunch with the FT" series) with Ziggy, former National Security Advisor to Jimmy Carter.

At first I thought about comparing it to Iraq (version I or II ) but this would be an entirely different thing, carrying along with it much instability and much more serious repercussions in the long run. Maybe a comparison to September 2001 would be more accurate in terms of market reaction abroad when it comes to some currencies?

A rising USD and higher oil prices would hurt the US, and those two factors would make oil even more expensive for Europe and elsewhere.

I assume the AUD would take a hit. And it would be interesting to see if the CHF would hold it's 1.20 ratio to the Euro if the currency started to appreciate.

[JR8]

Invest it in French banks, I hear that Credit Agricole would be a good choice for starters.

You know as you say, the euro is fundamentally rock-solid and these ratings agencies are just spouting jokes and nonsense right? ACA is on a yield of 9.3%, ooh la la monsieur!, so I expect you just can't wait to get in there eh?

Let us know how you and your convictions get on.

[aster]

Not that long ago we heard the so-called "ratings agencies" spread grave fear amidst warnings of declaring a default if Greece isn't able to pay back its debts in full.

And what is the situation today? No more barking, no more threats, just listening with their mouths shut about how they will be lucky to get back 50% of the debt. And on top of that, they will be told what the roll-over interest will be. Good boys, well-behaved. Finally learned who's in charge.

[Grumpy77]

Forget Greece, that's old news and everyone knows how it will end... The new story is brewing a bit further along Club Med.

=====================

Does Portugal Hold the Key to the European Union
Written by Ambrose Evans Prichard, Daily Telegraph
Saturday, 21 January 2012 08:54

While all eyes are on Greece, Portugal edges closer to default. Yields on Portugal's 10-year bonds climbed to 14.39pc on Thursday. Credit default swaps measuring bond risk have reached 1270 points, pricing a two-thirds chance of default over the next five years. While some of the latest damage reflects forced selling of Portuguese debt after Standard & Poor's cut the country's credit rating to junk status last Friday, there are deeper worries that sharp fiscal cuts by the free-market government of Pedro Passos Coelho may prove self-defeating.

Jurgen Michels, Europe economist at Citigroup, said Portugal's economy will contract by a further 5.8pc this year and by 3.7pc in 2013, a far sharper decline than official forecasts. The peak-to-trough collapse would be 13pc, a full-fledged depression.

"As this gets worse it is going to be extremely difficult to go ahead with more austerity measures: political contagion will start to come through," he said.

Portugal has so far reacted calmly. It has avoided the sorts of riots seen in Greece, but patience is wearing thin. The CGTP labour federation held a protest march in Lisbon this week, vowing to resist "forced labour".

A new study by the Barometer for Democracy shows that confidence in Portugal's democracy has fallen to the lowest since the end of the Salazar dictatorship. Barely more than half retain faith in the system and 15pc pine for "authoritarian" rule.

While Portugal's public debt of 113pc of GDP is lower than Greece's, the private sector has much larger debts and the country's total debt-load is higher at 360pc of GDP - much of it external debt.

"There is huge private sector deleveraging going on and the banking system has big problems. It is unclear how much of this private debt is going to end up on the state's door-step," said Mr Michels.

Without a sizeable haircut to its debt stock, Portugal will not be able to move into a viable fiscal path. We expect a haircut of 35pc at the end of 2012 or in 2013."

The problem is the slow-burn threat of debt-deflation. Interest costs for Portuguese companies are painfully high - if they can roll over loans at all - and the debt burden is rising on a shrinking economic base. Real M1 money deposits contracted at an annual rate near 20pc in the second half of 2011.

Since the country cannot devalue within EMU, it hopes to achieve an "internal devaluation" to restore 30pc in lost competitiveness against Germany. This is a gruelling process, entailing cuts that eat away at tax revenue.

Portugal is a troubling case for EU officials, who insist that Greece is a "one-off" case rather than the first of a string of countries trapped in a deeper North-South structural rift. The official line is that Portugal will pull through because it has grasped the nettle of retrenchment and reform.

Europe's leaders have vowed that there will be no forced "haircuts" for holders of Portuguese bonds. If the country now spirals into a Grecian vortex as well they will have to repudiate that promise or accept that EU taxpayers will have to shoulder the burden of debt restructuring.

While all eyes are on Greece, it is the slower drama in Portugal that will ultimately determine the fate of the eurozone.

[aster]

Well, Greece is a small economy and Portugal happens to be even smaller. I don't think they can add much wood to the small fire that's burning away in the south-eastern corner of the EU.

Ireland might be even smaller, but I'd be worried about them more, even if just for symbolic reasons.

Of course the big one is Italy, but they've put the right people in charge (in contrast to the cruise industry) to steer the country free of trouble.

[aster]

Come on, does anyone believe that Greece won't bow down under pressure to secure more $$$ to bail them out? Of course they will.

Hasn't stopped the media from having a field day though. All this talk of everything hanging on a knife's edge (year right, lol...) and how they won't employ further austerity by cutting minimum wage and holiday benefits. Puhleeeeease...

[JR8]

Come on, does anyone believe that Greece won't bow down under pressure to secure more $$$ to bail them out? Of course they will.

Hasn't stopped the media from having a field day though. All this talk of everything hanging on a knife's edge (year right, lol...) and how they won't employ further austerity by cutting minimum wage and holiday benefits. Puhleeeeease...

Greece know that if they default/withdraw from the euro, they are merely the first domino in a row of PIIGS. So they're milking that paranoia in Brussels. I mean wouldn't it set an awful example to Brussels if Greece exited/devalued and managed to bounce back in a few years time outside of the constraints of the euro (Iceland is a parallel of self-determination and bouncing back). What would the other PIIGS think lol, apart from 'maybe we better leave the euro too'!

The surprise is that Greece are still able to play this brinkmanship, what with an EU Kommisar installed as fuhrer in the EUSSR's province of Greece. The province of Italy was annexed too, 3 days after daring to suggest they probably wouldn't be worse off leaving the euro.

[aster]

If Greece made an exit they would be mega-screwed and stuck with a third-world currency for eternity. And the devaluation would wreck havoc with assets that were not given the "emergency evacuation" treatment which is what is going on with people's monetary savings right now. Pull your money and run!

I think if anything it would scare off the other members of the PIIGS tribe into suddenly feeling that work is a good thing for them.

As for Iceland it's a good example of how the lack of a common currency can hurt you as its sends the local currency's value down the drain and obliterates peoples' savings. Iceland has been considering joining the EU (and this is after their recent hiccup) for the SOLE PURPOSE of joining the Euro currency. Recently they have been looking at backup options as well, and one of them is to officially adopt the Canadian Dollar as their national currency.

So they definitely want to ditch their own currency for something bigger, having seen what happened to them during the last crisis.

[JR8]

‘Would be mega-screwed’? Er, they already are! The question is how best to become unscrewed. Nothing the EU is proposing will change anything, Greece inside the constraints of euro is finished.

Iceland can aspire to join in a currency union with who over, but unless that entails a fully functioning fiscal union (a la UK, or US), it is a fake construct doomed to failure... a la EU and euro in fact!

[aster]

Greece is screwed because of, um, erhmmm... Greece. They've just been languishing away over the years and doing nothing, whilst cheating on their financial data so that they can steal more money and live on someone else's tab for a while longer.

They should have let Greece go at the very start and focused on countries like Italy from day one, which is a country that can pull itself out of trouble.

As for Iceland, they've been through a crisis, they've seen what has happened elsewhere in the world, and now they are determined and convinced to become part of a larger currency. Why don't they want to stick to their own currency?

It would be interesting if they adopt the Canadian Dollar as they would be doing it as a one-sided decision.