The European Union has finally moved to embrace the inevitable and forge a default for Greece. Austerity measures across the rest of the area are beginning to show some bite. In Syria, a civil war is taking hold. In China, Apple stores are being stormed and State manufacturing companies are facing strikes. China Steel the latest example. The US continues to lean on excessive monetary accommodation while these deep structural adjustments occur elsewhere.
Greece now seems poised to become the test case for sovereign CDS event. US and German financing terms have benefited from the rolling chaos elsewhere. Talk of another round of LSAP and pushing real yields negative out to the bond circulates daily. Treasury bonds and ETFs are capital appreciation notes (CANs ?) The ISM data points and the Employment report highlight the domestic situation as Fed promises have capital markets priced for perfection.
We believe a shock is coming and that it is not Greece. The breakout in disaster capitalism is the antithesis of government stability goals. Markets finally, after a long fight, have embraced deflationary outcomes. The long history of disaster capitalism has inflation on its side.