Key question #1
Will the ECB, and the rest of the major central banks (led by the Fed) step again with another massive dose of cash to stave off the contagion threat?
Alternatively, would they decide to stop throwing money at a lost cause?
To answer that question, let us lay out a few points.
f they choose to provide more aid, its terms are likely irrelevant.
The conditions attached are probably also as irrelevant as the Greek election results.
The reason is that Greece won’t pay because it simply can’t.
The money is for preventing a collapse in Spain and Italy, and saving the EU and the global economy.
This game cannot go on forever, because the moral hazard created would eventually mean decades of cash giveaways to the rest of the GIIPS, printing mountains of cash and debased currencies.
Key question #2
To answer #1, we need to ask a second, more fundamental question:
Have EU and global leaders completed preparations to prevent the feared contagion and economic crises likely to follow from any GIIPS nation default?
If so, Greece would be left to face its eventual default in the coming weeks, because the only reason for providing the handouts of the past no longer applies.
If not, then the same contagion risks apply, and we can expect the game to continue: more bailouts, money printing, tough conditions attached and repeat.
Are the EU, Fed, et. al ready for a Greek default without contagion?
The answer: probably not.
We have seen little evidence of progress towards the capacity for quick and decisive action needed to keep a Greek default’s effects largely limited to Greece.
Specifically, we are wondering whether there’s a single body that can guarantee the liquidity and ultimate solvency Spanish and Italian banks, as well as Spanish and Italian sovereign debt on which these banks have bet their existence.
The huge caveat to this conclusion is that if they’ve made such provisions they’re likely to come as a surprise, announced as part of the remedy to the shocker announcement that there will be no more aid and so Greece is effectively insolvent.
The surprise element is needed to drive market collapses, prevent bank runs and other symptoms of market panic.
Market and bank holidays may also be on the menu, along with capital controls, short selling bans and more, which leads us to further questions…
Key question #3
Even if the Troika and related parties (like major central banks) have a plan ready to implement, Will there be any advanced warning?
The answer: probably, if you know where to look.
While the most sophisticated players may be able to hide their advanced knowledge in “dark pools� of capital outside of publicly monitored and regulated markets, the big money movements should appear soon enough in public risk asset markets.
Well this is all for now, hope this helps in making good decisions on your binary investments trades.
Happy Trading and enjoy….