Perhaps the most curious aspect of this, third, Greece “”exit crisis, is just how completely unnoticed it has gone by the capital “markets”, or rather non-Greek capital markets. Which, considering the changed dynamics of the negotiations, was to be expected. As explained again earlier, this time around it is imperative on the central planning regime to keep stocks and bonds as stable as possible heading into tomorrow’s negotiations with Greece, because should global risk not bat an eyelid, it will mean that Greek leverage is non-existent as the “market” (which courtesy of central banks no longer really exists) does not anticipate any contagion, and is why the S&P has actually been surging in the past week.
There are two problems with this, as UBS laid out yesterday: 1) (lack of) risk no longer reflecting reality doesn’t make sense and 2) “Breaking the deadlock” in negotiations voluntarily may not be easy, “hence, outside pressure—in the form of financial and market dislocations—seems necessary to focus minds.” However, as we noted yesterday, point 2 is only relevant for Europe: Syriza, and largely Greece, no longer cares what the stock market does: only the Eurozone does (and as long as the ECB is there to backstop it in any case, the European “market” isn’t going anywhere). If anything, the only concern of the Greeks is what happens to bank deposits, although by this point anyone who would have pulled their money from the bank already has.
Which means that once again, thanks to central bank intervention, the discounting process is broken, and has been skewed to reach a specific political outcome. However, in the worst case scenario – one in which Greece does exit the Eurozone – it will simply mean that the moment of reality has been at best postponed. And the moment when the can kicking ends and reality can no longer be avoided is the millisecond after Greece announces it has quit the Eurozone. What happens then is why UBS has dedicated an entire section to the contagion risk which is now being thoroughly masked by central bank intervention, and which will only emerge, and with a vengeance, if the worst case does indeed transpire. Needless to say, when it emerges it will be fast. More