This past week was filled with geopolitics 24/7 until Friday, when they finally spilled all over the markets. The market action was extremely ominous in my opinion and especially the last hour into the close. Very shortly I believe we will be faced with huge market “gaps” which will be the topic for tomorrow, today let’s discuss how the current geopolitical situation will detonate the leverage.
It’s not as if the geopolitical situation wasn’t already hot enough before the Greek vote, now the world has a polarizing event to deal with. This past week was a sparring match between the Syriza party of Greece and the EU, a line in the sand has now been drawn, Feb. 28. Before looking at all of the sides being chosen and alliances being formed, it is important to understand that “lines in the sand” are a very VERY bad thing indeed …especially when we are talking about “nations”. Drawing a line in the sand and placing a date on it means someone must lose face on one side or the other. Don’t get me wrong, one way or the other Greece will implode financially, it will open the floodgates for other weak southern European nations and ultimately destroy the Eurozone as we know it, but, now there is a hard date for all of this to occur by. A Greek failure or exit will also set off a derivatives chain reaction, this is what I believe Friday’s market action was portending.
The Euro/Greek fracas is not all there is, there is much more including the Russia/China/India meeting and the Russia/Iran allegiance, I will bring them in later, for now, let’s focus on Greece since the Eurozone has now declared them the “firing pin”. Greece is a financial wreck. They have national debt at a rate of 175% of GDP and rising, especially as GDP continues to collapse. They also experienced bank runs by the public over the last several weeks and saw outflows of more than 10% of total deposits. Their stock and bond markets crashed this week as interest rates approached 20%, Greece will mathematically go down one way or the other.
Over the next 25 days, some “philosophical” decisions will need to be made, none of them will be pleasant. In a nutshell, Greece wants its debt balances lowered in a “haircut fashion”, the ECB cannot agree to this as they would then have to admit losses and no longer be able to price Greek debt at the ridiculous price of “par”. The Troika wants to offer 7 billion euros as an extension package to prolong the game, Mr. Tsipras flat out rejected this on Friday (thus the market action) and does not want to accept it, he is steadfast in lowering the amounts owed rather than taking more handouts and increasing the debt balances.
This is a true showdown and one where no matter what happens, no one wins because the losses have already taken place. Greece has already borrowed too much and cannot pay it back so the losses are already in place whether admitted and acknowledged or not. Please understand that Greek bonds act as “collateral” within the derivatives daisy chain. Any write down or write off will be considered a “default trigger” where margin calls are issued to an already illiquid and under capitalized derivatives chain. The financial system is in a position where calling a spade a spade will cause the roof to cave in, not calling it a spade and ignoring the reality is the only thing keeping the game alive to this point!
Enter Mr. Putin and the Russians, they have offered aid to Greece should they turn East. This would be a disaster for Europe herself as the next question would be “who’s next?”. The bottom line is this, as I said “the losses have already taken place”, are they recognized now or later? One last point about Greece, should they lean East, but stay as a member of the Eurozone and NATO, they can now veto any sanctions the U.S. would like to place on Russia …ironic in a very dark way don’t you think? Greece would be a huge win for Russia in so many ways and an even bigger loss for the West in every fashion imaginable.
China, Russia and India will meet on Monday in Beijing, can you imagine what will be discussed? Especially after Mr. Obama just visited India last week? Will it go something like “whatever they offered you is either not best for you …or an outright deception”? Will India be offered a spot at the Eastern monetary table, the future “big” table if you will? Are they being given a heads up on any timing issues or even requested to lower their gold tariffs to put a further squeeze on Western vaults? Interesting stuff!
Switching to the Middle East but again including Russia and by extension China, Iran and Russia seem to be dancing partners! This has very big ramifications when you look at it from the religious/allegiance standpoint. Iran is Shia which means they have a natural allegiance toward Syria, Russia also has reason to back Syria as they do not want to see a pipeline built as competition to their own gas. Just a week back, Russia and Iran signed a military agreement, Russia is also discussing constructing nuclear plants within Iran. Iran has also been invited to join Russia’s new clearing system which will compete (be an alternative to) with the SWIFT system. All BIG news and now coming day after day after day.
Before wrapping up, we should mention that China has ratcheted up her imports of gold. The final two weeks of January were 70 tons and 71 tons. Should this be their new run rate, they will be importing 40% more gold annually than the world produces. Why? Why are they ramping up imports just now? My personal guess is they know something is about to happen and want everything they can get their hands on as fast as they can. To put this in perspective, in just two weeks, China has imported six times more gold than the COMEX even claims to have as deliverable inventory! In my opinion, COMEX will very shortly be relegated into irrelevance as they simply do not have the product available for delivery. A “two tier market” will result and it is very possible to see large down days on the COMEX and huge up days in physical metal as traders begin to understand the true dichotomy between paper gold and physical gold.
We have watched over the last several months as countries jockey for position. Allegiances of trade, military and finance have been created and “sides” are being chosen. The key to understand here is that those announcing deals have nearly ALL been toward the East and away from the West. Clearly, gold is also moving to the East from the West. Once the sides are fully chosen, who do you believe will be making the rules? “Gold” and whomever owns it will have a voice, got gold?
To finish, I believe Friday’s closing action is merely a preview to “gap” openings in all directions one day in the near future. The world has been in the process of choosing sides for several years and it is now coming to a head. Many deals and alliances have been formed and in case you had not noticed, the West, led by the U.S. is losing influence as each new deal is signed. This is because the world wants fairness in trade, they want true and real settlement which has not been the case since 1971. We are moving toward gold being remonetized into the financial system because this is what the world is demanding. Below, and capitalized because it is so very true, is a quote from my mentor which sums up the attitudes of most, if not the entire world excluding Britain and the U.S. Please read this several times and let it sink in thoroughly because this quote will be the basis for what I write tomorrow.
“THEY KNOW MONEY TO BE…..’GOLD’. THIS FUNDAMENTAL DIFFERENCE REVOLVES AROUND WHAT HAS BEEN PROVEN OVER AND OVER AGAIN….THAT BANKER ALCHEMY IN WHAT EVER FORM, QE OR OTHER WISE, IS NOTHING BUT THEFT…. BASED ON A FUNDAMENTAL LIE….NO MATTER WHAT GOD THEY WORSHIP, GOLD IS THEIR ONE AND ONLY BINDING AGENT, BECAUSE; GOLD IS MONEY YOU CAN TRUST”!
Great article, Bill; as always. It never ceases to amaze me how long TPTB can keep the game alive. I don’t know what magic they use (unlimited printing comes to mind), but I remember trading commodities in the 90’s when the rumor of a sheik with a runny nose would send crude prices to the moon. Today we have a well-funded armed insurrection by religious fanatics and it drops by 50%.
In the words of Slim Pickens in “Blazing Saddles”, “I am depressed…”
thanks, Mother Nature is still alive.
The Hustle is over.
Too many countries want to take back control of their own destiny.
Greece will lead the way and they likely will not bow down to pressure.
Everything is out of wack and everything needs to be reset.
Velocity is increasing from day to day and there is no stopping the changes that are coming.
The world will be a different place by the end of the year.
as well they should!
“Greece will lead the way and they likely will not bow down to pressure.”
Hope you are right. Their finance minister’s recent speeches and op-eds are a perfectly calm and rational description of the absurd situation not only of Greece but of the entire Western World.
I expect them to become public enemy #1 in the Western press as a result. When Iceland told the bankers to go to hell I was amazed at the number of everyday citizens who had never been to Iceland who were appalled at Iceland’s “irresponsibility” and the way that they reveled in the thought that Iceland would be reduced to 3rd world rubble in righteous punishment.
The bankers continue to have an odd mental hold over the masses in this regard, especially in “flyover conservative” USA. People there continue to lose everything in a slow grind and yet the elite have them blaming themselves and believing they just have to bootstrap harder.
I guess my point is, as sh*t breaks it may surprise us who is seen by the public to be at fault and who is still seen as the savior in the short term.
I agree, no telling who the public will blame.
Greece finally agreed russian sanctions and have already lower their debt write off expectations.
Tsipras is just a bad joke and why he has been put in the front scene by western oligarchy.
He will retire rich with offshore accounts after having obeyed to his employers : illegal aliens in greece are going to be legalized and so on (he is antilreligious).
I don’t know…I do not empathize one bit for the Greeks, nor do I cheer one bit for the calamitous acts their current politicians (and that is exactly what they are, just a different variety) are doing.
The BBC interviewed the Greeks Finance Minister, and he gave an example about why they won’t (although “they won’t was alluded to, not outright stated) take more money. He said, “What if you own a home and have a mortgage, lost some income, and you find yourself in a tough financial position. Then, someone comes to you and offers you a credit card, and with the credit card, you can pay your mortgage for a couple more months. (all caps for emphasis) IF YOU WERE THAT PERSON’S FRIEND, WOULD YOU TELL THEM TO TAKE THE CREDIT CARD?”
This outright pissed me off.
Are you telling me that Greece’s debts are a result of someone pulling the wool over their eyes? That their inability to service their debt is not their fault? That someone put a gun up their head and they had no choice? Poor fiscal and monetary policy decisions, made by politicians, and those who are appointed by politicians have put Greece in the position they are in right now. No more, no less. If the Greeks want someone to blame, they should blame themselves for voting in the politicians who screwed them over the years (although I’m sure they didn’t complain all those years they weren’t doing work or paying taxes – my friend goes to Greece a couple times a year and tells me how they actually live over there, his family owns land).
Politics aside, the world does have some financial instruments which had worked quite well for a long-time, like bonds. And many government pensions, private pensions, sovereign wealth funds, fund managers, and people have invested in Greek bonds, and when Greece issued those bonds, they agreed to the terms and conditions. THERE ARE NO RENEGE CLAUSES. Their suggestion of a debt haircut, ultimately screws these investors of their life savings (I know fiat currency will fail, but there is a principle of accountability to this), something they did work hard for and are entitled to. So the idea of a “haircut” makes me sick. And people in Greece cheer this….. Yes, let’s cheer making contractual agreements then reneging on them because we can’t pull our own weight.
I do believe the fiat currency system in place now will fail, but I do believe that the FED’s original mandate of full employment and controlled inflation with a GOLD-standard in place wasn’t a bad system, and it was working.
FINALLY, in regards to Greece’s Finance Minister’s example, if I had a friend who couldn’t pay his mortgage because of a loss in income, I would ask him a few things first like (although my answer would be no, of course):
1) Why did you have a loss of income?
2) Were you in over your head when you were buying this house?
3) Are there areas in your budget where you can cut back so you can be more lean and make the payments?
4) Do you have a rainy day fund?
5) Did you prepare a contingency plan for such a situation?
My parents always told me, if you made your bed, then you sleep in it. Just another lesson from the school of hard knocks.
Bill – I agree that markets have already written this debacle off, but until it actually happens, the people’s life savings who will be ruined as a result of the actual default are not aware of it, and will ultimately pay the price (currency failure aside as that is a MUCH MORE macro issue beyond a Greece default).
from a truly macro standpoint, Greece has the ability to take the entire system with them.
Like Chinese/Russian or Comex gold long contracts holders but they will only extend the Greece’s maturity debts.
good analogy.
“The FED’s original mandate of full employment and controlled inflation with a GOLD-standard in place” only worked when the economy could grow. When growth stops, unemployment goes up regardless of what they do. The US hit Peak Oil in 1971 and at the same started offshoring manufacturing to 3rd world sweat shops around that time. It could therefore no longer grow, except by performing the shenanigans it did since then to enforce the dollar as the world’s reserve currency so that it could grow using the rest of the world’s resources.
The system is corrupt and always has been. That corruption has always been hidden behind perpetual growth (the rich get richer via the endemic corruption, but the middle class avoided poverty through further economic growth). Now the world can no longer grow and the system is falling apart as the rest of the world says enough.
This is not really the fault of the average person, Greek or American, although I guess everyone is at fault to some degree. They have all been brainwashed by the bought-and-paid-for media, and do not live in genuine democracies. The politicians are professional liars. The same goes for the rest of the world, not just Greece and USA.
correct Mark, it is a systemic flaw.
Politians are mostly just low to middle level bank employees.
Greece has already reversed AGAIN!
Greece will probably bow to the troika :
http://www.zerohedge.com/news/2015-02-02/greece-changes-strategy-no-longer-demands-debt-write-proposes-debt-exchange-instead
Game over for the end of the debt slavery : it is not enough to wear jeans instead of suit to resist to the western oligarchy.
With this syriza it is same thing Inside and packaging different.
Syriza is already backpedalling.
the fuse of the ticking time-bomb that goes off if and when Greece leaves the eurozone will be very short.
The only thing we know for sure is they the bankers that have created this mess and Governments will look for a scapegoat to blame when this falls apart.
How soon do they silence our voices ….They can only cover this mess up by silencing our voices..
Governments hate the voice that the internet gives us…
http://usawatchdog.com/world-war-iii-has-started-gregory-mannarino/#more-14951
this was a very good interview, I will be on again with Greg Hunter tomorrow, out on Wed.
Its curious that the perilous drop in the global price of oil, is firmly planted on OPEC’s doorstep.
It’s also curious and interesting to note, that the United States exported 401,000 barrels of oil per day in July of 2014! The highest level of exports in 57 years and the second highest monthly export volume since 1920! Why? For what reason? Could this be a back door Wall street ripoff scheme? Or something entirely different?
Beginning as early as August 2014, oil traders have contracted crude tankers to carry Noth Sea, West African and Arab crudes to South Africa’s Saldanha Bay. Which has a large oil storage terminal with a capacity of 45 million barrels, not counting the VLCC’s (very large crude carriers) tankers that are floating oil storage sitting at anchor.
Could it be the oil traders are hoping to repeat their massive fortunes made in the storage asset plays of 2009-2010? Or could this be the US pre-positioning strategic supplies (some of which is highly mobile) before any out break of global conflict? Curiouser and curioser? Is it not?
interesting!
Where did you get that info that the US exported oil? I was under the impression that it was not allowed, although I could be mistaken. Or was this all a covert operation?
we do in fact export some oil and gas.
I was under the impression it was only that which came from somewhere else is exportable, for example some oil from Canada is destined for the gulf ports, that is allowed to export but nothing from the US itself.
Mark
The foreign trade data for oil exports is taken directly from the U.S. Census Bureau.
Latest data release shows 501,766 barrels of oil per day for November 2014 exported. My thoughts stand as per above post.
It does not surprise me, though I would have thought it was distillate rather than raw product.
Below are some key bulletpoints from a paper titled “Adding Gold into the Valuation of the SDR” produced by Chatham House (Royal Institute of International Affairs), the No. 2 globalist think tank (No. 1 outside the USA).
“Possible mitigation of obstacles
– Keep the gold share modest (proposed 5% of SDR value).
– Gold claims could be ‘residual’, i.e. gold could only be claimed when no convertible currency is available through voluntary agreements – this would reduce the strain on the IMF’s gold reserves.
– Use gold only for valuation and not include any right to sell SDR for gold.”
______________________________________________
Any new global plans/solutions will remain the schemes/solution of those same global “elites” who created the original problems.
Any forthcoming implementation of a “fair economic system based on sound money” will be mostly theoretical when it comes to new currencies being truly asset/commodity backed. The global “elite” will not let you take or have ownership in their gold, but they’ll surely offer you their extremely expensive, new currency or currencies wrapped in a pretty golden-colored bow.
Ask yourself this, should I be getting the real thing (physical gold and silver), before their world-saving solutions cost me every dollar I think I’m worth.
they “think” we are idiots!
They also maybe think we are poor so helpless… and they are right, only western powers can kick them out of their thrones.