Mish's Global Economic Trend Analysis

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• Sudden Stop Thesis: What Are the Odds of Grexit Within Three Weeks?
• Bank Holiday: Greek Banks and Stock Market Shut Until July 7; Capital Controls Imposed
• ECB Cries Uncle, Halts ELA Amid Run on Greek Banks; Capital Controls and Bank Holiday Next?

Sudden Stop Thesis: What Are the Odds of Grexit Within Three Weeks? Posted: 28 Jun 2015 10:22 PM PDT Four years ago I thought odds of an eventual Grexit were nearly certain. Some people still don't believe so, while others are just beginning to understand the obvious. Former Pimco Co-CEO El-Erian Sees 85% Grexit Odds With 'Massive' Contraction Coming. Greece is heading for a "massive economic contraction" and is likely to be forced out of the euro zone, according to Mohamed El-Erian, the former chief executive at Pacific Investment Management Co. "There's an 85 percent probability that Greece will be forced to leave the euro zone" in the next few weeks, El-Erian said in an interview from New York. "What we are seeing here is what economists call the sudden stop, when the payment system stops. The logic of a sudden stop is a massive economic contraction, social unrest and it's going to make continued membership of the euro zone very difficult for Greece." Sudden Stop Thesis While I still think it likely Greece will exit the eurozone, I will take the "over" line on a "few weeks". It is amazing how long these things drag out. There are at least two wildcards in play that could prolong things. At the top of the list is Russia. Second in line is the US. Why? Because the US does not want Greece to form serious ties with Russia. Also, Merkel does not want Grexit on her watch. Russia the Key Meanwhile, and as I have been saying for months, Russia is the Key. Will Russia come to aid Greece with enough money and oil to enable Greece to hang on longer than a few weeks? I suspect the answer is yes. If so, the price may be sanctions. EU rules require unanimous agreement on sanctions. I expect Greece to play that card very well. Greece can and likely will torpedo EU sanctions on Russia by the end of the year. Unless there is an immediate collapse in Greece starting now, look for Russia to keep Greece afloat until sanctions are lifted. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

Bank Holiday: Greek Banks and Stock Market Shut Until July 7; Capital Controls Imposed Posted: 28 Jun 2015 09:26 PM PDT After the ECB shut off ELA, prime minister Alexis Tsipras imposed capital controls while blaming the ECB just as I predicted. Of course, that was an easy prediction. Yet, even at the last moment, many did not believe it would come to this. Let's tune into the Guardian Live Blog for some details. Bank Holiday Speaking on live TV, Alexis Tsipras is saying that the Greek central bank has been forced to recommend a bank holiday and the introduction of capital controls. He blames the ECB, and other institutions, for trying to obstruct the democratic referendum he has called for next Sunday. This is a "insult" that shames European democracy, he says. Tsipras also appeals for calm, and he insists that bank deposits are secure. Capital Controls Officials said the bank closure would last for several days and would be accompanied by limits yet to be announced on bank transfers abroad and withdrawals from cash machines. The cashing of cheques would be halted and fixed term deposits would be locked down. The Athens stock exchange was also set to be closed. Bank Queues All over Athens people have been queuing tonight, but the lines outside the National Bank branches were by some distance the longest, reports Jon Henley. And that's because the National Bank supplies the banknotes, and lots of other Greek banks, by midnight on Sunday, had no more of those. Vacation In honor of the bank and stock market vacation, I offer this musical tribute. Link if video does not play: Connie Francis Vacation. How Can People Be So Stupid? What are bank queues forming now that it's too late? The only answer I can come up with is those who waited are stupid beyond belief.  Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

ECB Cries Uncle, Halts ELA Amid Run on Greek Banks; Capital Controls and Bank Holiday Next? Posted: 28 Jun 2015 07:31 AM PDT I have been wondering when the ECB would finally pull the plug and put a stop to the ELA. Today, amid an accelerating run on Greek banks, the ECB capped the ELA. The Guardian has a Live-Update on the crisis. Here is the key point "No more extra emergency funding to Greece's banks, despite steady outflow of deposits since crisis escalated." Capital Controls, Bank Holiday Coming Economics professor Karl Whelan says Capital Controls Coming Professor Karl Whelan of University College Dublin just launched a blogpost which explains why he thinks some Greek banks won't open tomorrow. The ECB's decision to cap emergency liquidity at its current level means capital controls are now coming, he argues. That's because commercial bank reserves have probably been significantly depleted by the rush to some cash machines this weekend. So, they have little left in cash or reserves at the central bank, leaving them exposed when they open their doors on Monday morning. Professor Whelan explains: In that case, the only way the Greek banks could finance the (presumably very large) demands for withdrawals on Monday would have been to get access to additional funds from the Bank of Greece in the form of additional ELA. That will not be possible now, so most likely the banks will not open on Monday. The statement that "ECB will work closely with Bank of Greece to maintain financial stability" is probably code for "ECB will help Greece to design a programme of capital controls". So it has come to this. No matter how well things go from here (and positive scenarios are hard to imagine) restrictions on Greek banks could be in place for a very long time. It is easy at this point to panic and say it's the end of the world and a new currency must be days away. It's worth remembering, however, the Cyprus coped surprisingly well with its capital controls and ultimately they were lifted this year and the banking system survived. There is probably still a small window of opportunity left to keep Greece in the euro, even if the banks don't open tomorrow. Greece now gets to blame the ECB for bank failures. This move likely seals the deal on the July 5 referendum (See Tsipras Calls July 5 Referendum on Creditors' Demands; Merkel Says No Alternative to Creditor's "Generous" Offer). Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com  Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

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