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Tuesday, May 15

15th May - US Close: GRRR!!

So, Greece could not produce a techno government and now they are heading for new elections. Markets went risk-off, and the Spanish yields are near levels where a margin hike is expected soon. Should this happen, there will be automatic and perhaps even positive feedback-selling, and without quick intervention from the ECB that would pretty much be it for Spain. Probably ECB has to act before LCH hikes the margins, so it will be an interesting Wednesday in Europe. Follow ‘MoreLiver’ on Twitter or Facebook. And read Buiter's piece on Grexit.

Markets – Between The Hedges
The Closer – alphaville / FT
Market Commentary – A View From My Screens
Tyler’s European SummaryZH
  Euro-Dumpfest Continues as LTRO Banks Implode
Tyler’s Market Reaction to GreeceZH
  Risk Off As Greek Chaos Returns
Tyler’s US SummaryZH
  Market Deja Deja Deja... Oh Forget It!
Morning Briefing (Asia) – BNY Mellon

Debt crisis: live – The Telegraph
The Euro Crisis Blog – WSJ
Tracking Europe’s Debt Crisis – NYT
FX Options Analytics – Saxo Bank
European 10yr Yields and Spreads – MTS indices
Great, Germany Looks Good; But Who Are They Selling to?MarketBeat / WSJ
Here are
Germany’s top five export markets: France, the U.S., the U.K., Italy, and the Netherlands. Three of the five are in recession, one has an economy that’s flat-lining, and, well, then there’s the U.S.

Thunder God Sends Message to EuropeMarketBeat / WSJ
A giant metaphor struck the French president’s plane. You can’t make this stuff up.

How a Radical Greek Rescue Plan Fell ShortWSJ
Two years after
Europe bailed Greece out to protect the euro, the rescue has become a debacle that threatens to unravel the common currency.

Is Spain In Danger Of An Imminent LCH Margin Hike?ZH
Portugal and Ireland got it around these levels. When the margins are hiked, selling becomes self-reinforcing.

The no-growth zoneFree exchange / The Economist
Given the present outlook, one wonders when the euro zone will finally catch back up to 2008; not this year, certainly. In 2013? Ever? Growth could deliver the euro zone from its crisis, but it has been a long time since the euro zone has been able to deliver growth.

Lombard Street’s Dumas Says Euro Must Be DevaluedBB (mp3)

The foreign-law distinction, encorealphaville / FT
So it’s worth checking in again on how the foreign-law premium might work in other sovereigns. Portugal’s the obvious one here. Though these comments from Rabobank analysts last week are among the first we’ve seen to take a systematic view of foreign-law bonds in Spain:

Member states and MEPs agree battle lines on bank ruleseuobserver

For Europe's Banks, Pinch of Debt Crisis IntensifiesDealBook / NYT

Greece, Versailles, and the Future of EMUMarc to Market
There is plenty of room for compromises and there is a great deal of posturing, which is part of the brinkmanship tactics. New EIB funds, structural funds are available (and already earmarked for Greece) can be deployed. There is some flexibility with the timing of budget goals. It is preferable to the alternative of Greece leaving.

Greece is headed for another election, Eurozone exit now consensusASA
Nomura’s foreign exchange strategy said that basically Greece eurozone exit is no longer being viewed by the consensus as a small probability event. In fact, Grexit has become the consensus in the market.

A Surprising Conversation With AthensBruce Krasting
Bruce’s source thinks the next elections could go well – and Germany and France could decide to erase interest payments on Greece’s debt.

Exiting The EuroAlhambra
Kicking Greece out is impossible with current treaties, but Greece might decide to leave. The hardships would be huge.

Greek Debt Maturing within 10 YearsTF Market Advisors.
Having the EFSF pick up the losses, which I believe is a consideration, is not a good idea, as it will eliminate any shred of doubt that the whole system in Europe is now a ponzi scheme.

What Happens If Greece Leaves?The Big Picture
…almost one-third of Greek bank deposits have left the country.  This will surely accelerate as the risk of these euro deposits becoming Drachmas increases…Spanish bank deposits have only recently begun to decrease.  Italian bank deposits are holding steady.

Paul Krugman is right about Greek exportsPragcap
But is he also right about the potential collapse of the Euro?  If Greece leaves and begins to see economic improvement I think rumors will shortly begin about the other periphery countries also leaving.  First Portugal, then Ireland, then Spain, then Italy.

Your handy one-table guide to the cost of Grexitalphaville / FT
French state 66.4bn, German state 89.8bn. 50% lower value of bonds, losses for French banks 19.8bn, German banks 4.5bn.

Art Cashin On The Way To The European EgressZH
…the Greeks don’t want to leave the building, but an accidental slip on the wrong path could find them suddenly outside with the door locked behind them.

Greece: when the lights go outalphaville / FT
…speed the day that Civil Servants and suppliers are paid in IOU’s or “New Drachma” in the absence of any funding from the EU/IMF…

Greek coalition talks fail and everybody hits the deckalphaville / FT
Chart roundup of the reaction to the Greek news of the day.

Greek Exit. What do YOU think?Macro Man

Investec’s Cadman Says Greek Exit Increasingly ProbableBB (mp3)

Here’s the Good News…The Reformed Broker
List of things that are good for the market

Do not trust the FRA-OIS spread!alphaville / FT
If you’ve looked at the eurozone FRA-OIS spread recently and wondered why it is so weirdly stable given that Grexit fears are hitting new extremes, there may be a very clear and technical explanation. One that could, as it turns out, be masking weightier problems in the money markets.

Falling daily trading volumes: not so mysterious?alphaville / FT
…could just be a correction to the churning frenzy that took place during the crisis, not necessarily a signal that volumes are destined to keep falling perpetually.

Pimco: Don’t Bet Against the GreenbackMarketBeat / WSJ

Complete April And YTD Hedge Fund Performance SummaryZH

FX Forecast Update May 2012: Summer headwind against the euroDanske (pdf)

Yield Forecast Update - European blues continue to dominateDanske (pdf)

Flash Comment - US: A good start to Q2 private spendingDanske (pdf)