Greece: Evidence of “Plunge Protection Team” Response + What Happens Next

TND Exclusive:  Eric Dubin |

A majority of Greek voters turned in a “no” vote on further austerity in exchange for ongoing “vendor financing” from the European Central Bank (ECB) and the International Monetary Fund (IMF).  On Monday, German Chancellor Angela Merkel was reported as saying, “time is running out” to reach a last minute agreement.  She will be meeting with French President Francois Hollande along with other Euro-region finance ministers on Tuesday.  Holland said their position “will depend on Greek proposals.”

How many times must we slog through reports like this?  Last minute?  We’ve only heard that 10 times this year.  Here’s the deal.  The respective positions of each side has been consistent and this basic fact goes a long way towards explaining why the talks failed – and will continue to fail.   A portion of Greece’s debt must be forgiven.  There’s no other solution and recently leaked IMF documents prove that the IMF has been well aware of this fact.  Even if Greece were to agree to all tax and spending reforms demanded by the troika, Greece would still have a debt to GDP ratio of 118% by 2030 according to the IMF.

IMF Managing Director Christine Lagarde has been well aware of this reality.  Last month on Silver Doctors Weekly Metals & Markets I pointed out her highly unusual and little reported comments acknowledging the necessity for the troika to embrace partial debt forgiveness.  This represented a break from troika talking points, but it was a fleeting moment.  The Eurozone leadership is terrified of giving Spain and Italy any bright ideas about possible debt forgiveness.  Lagarde’s comment was memory-holed.

Without any formal negotiating talking point on partial debt reduction, Greece was unwilling to budge on what the troika wanted to see, other than minor shifts to tax reforms and discussion about qualifying age for pensions and token pension cuts further out into the future.  Nevertheless, the greater blame must be placed at the hands of the troika.  The troika didn’t give an inch on debt restructuring, claiming that it would not discuss the subject until Greece placed hard and deep concessions on the table.  All parties understood that debt restructuring and partial forgiveness is necessary, but justified paranoia about Spain and Italy demanding redress ultimately paralyzed the troika from negotiating in good faith.

On the June 20th Silver Doctors Weekly Metals & Markets (click here) show I outlined how the talks would fail going into July, and how events would unfold in the short- and intermediate-term.  Thus far, near-term events are unfolding as I expected, including the lack of any major market reaction.  Listen to the show and the June 28th show for more context.

Crisis?  What Crisis?  Enter The “Plunge Protection Team”

To the best of my knowledge, no one has pointed out the highly unusual euro/dollar trade that occurred last Monday, June 29.  Over that weekend, it was clear that there was no more “crying wolf.”  Talks had failed in toto and futures and the opening of markets worldwide early Monday morning reflected this reality.  It was this reality that ultimately pushed Alexis Tsipras, Prime Minister of Greece, to call for a referendum.

But a funny thing happened during early Monday morning trading on June 29.  Counter to all “normal” market logic, the euro shot higher against the dollar.

I’m sorry, but only a retarded amoeba would expect the euro to rise in this context.  The red line is the EUFN European financial sector ETF and the green line is the GLD gold trust.  As you can see, immediately following an initial drop in the euro, the currency started an astounding counter-intuitive climb against the dollar even as European financials began a trip down the toilet bowl.  This market action is anecdotal but nonetheless strongly suggests the Federal Reserve initiated swap line liquidity to the ECB, which put a bid under the euro and helped to stabilize stock and credit markets within 24 hours.  Again, to the best of my knowledge no one has outed this highly unusual market trading action, and I doubt you will ever hear anything about this in the mainstream media.

But all these market support machinations are going to ultimately fail.  Cracks continue to develop.  For example, oil was down nearly 8% today, a very large move for a single day.  While I’m not in the “fast” “doomer” camp that expects global markets to crash in the near-term, this unwinding is nonetheless going to happen over the coming months and into the first quarter of 2016, and Grexit will likely happen no later than early 2016.  Listen to the SD Weekly Metals & Markets broadcasts cited above for more on this subject.