Bonds, Currencies, Emerging Markets, Stocks

Greece Threatened With Pain As New Hedge Fund Trade Emerges

As press reports emerge that Yanis Varoufakis was encouraged to resign his post as Greek finance minister due to his statement saying a “parallel currency was an option,” bank reports paint a picture of pain ahead for Greece. But amid the fury a potential replacement for the often outspoken Greek finance leader could be emerging: Argentine Prime Minister Christina Kirchner.

Trouble ahead concept, Businessman with umbrella standing in the

Argentina’s Kirchner excited at Greek act of rebellion against the force

In a “tweet storm” this morning, Kirchner let loose with a passionate release that looked like it might be accompanied by a moan.  The Argentine’s Latin American fury stated “The Greek people have said NO to the impossible and humiliating conditions.” Kirchner, as you know if you follow the inside story, has been involved in “humiliating conditions” herself. In fact, her presidential jet being held in a foreign country on a refueling stop when a gang of hedge fund mercenaries commandeered the property as repayment for Argentina’s sovereign debt – while Kirchner was aboard the plane – might be the most humiliating experience in sovereign debt collection history. (See a related article where ValueWalk where analogies were first drawn between Greece and Argentina.)

But Kirchner and humiliation aside, many top bank analysts are out today with a tale that more humiliation might be ahead for Greece if it doesn’t realize they don’t have the control.

Greece Capital Controls

Banks point to pain that comes from disobeying the power structure

Several points of correlation of bank thought center around the concept that even with a “no” vote the power to decide the fate of Greece lies within traditionally powerful hands. In fact, leaving the euro can look somewhat like a secret fraternity with ritualistic rites of passage.

In a July 3 Credit Suisse Group AG (ADR) (NYSE:CS) presentation, the slides of which were reviewed by ValueWalk, their team noted that “You don’t leave the euro; it leaves you.” This sentiment might seem familiar if one is familiar with “Skull and Bones”-style fraternity rituals or has devoted attention to “The Godfather” movie trilogy.

When and if Greece leaves the euro, the experience can be nasty, particularly if those pulling the levers of power deem cruelty has an intended impact on sending an important message to other rebellious regions under their control, namely Spain, Italy and Portugal. If Greece leaves on disagreeable terms, Credit Suisse Co-Head of Global Economics and Strategy Neville Hill and Head of European Credit Strategy William Porter point out the tangled web that has been weaved won’t be untangled so easily. Difficulties of exiting the euro and leaving in its wake a non-functioning Greek banking system littered with landmines is in the Greek future. With no immediate method to transfer funds and “mass default likely,” which means economic activity as they know it can grind to a hault.  (We will address the “D” default word as it relates to Greek derivatives in a forthcoming article.)

Greece Bank Deposits

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About ETFalpha

Chief ETF Strategist & Co-Founder at EMerging Equity


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