Investors Will Get Slammed in Any Grexit

Shah Gilani

Poor, beleaguered Greece hopes to get its next €7.1 billion ($7.5 billion) bailout payment in June, just in time to make roughly €6 billion ($6.5 billion) in payments to creditors in July.

Now, tense negotiations in Valetta, Malta, last month appeared to smooth some stumbling blocks to releasing the latest tranche of the €86 billion ($92 billion) "rescue package," but this deal is not a done deal.

Then again, it's likely Greece will get its next handout… but there's a better than even chance it might be its last.

And that should have investors all over the world, even in booming America, concerned.

You need to know what could happen…

We've Got to Talk Honestly

The "diplomat-ese" coming out of Valetta, spouted for the benefit of mass media consumption, contains all sorts of pleasant, encouraging words, like "breakthrough" and "agreement."

Unfortunately, it's mostly bull. And the public doesn't know it.

There are some serious questions investors need to have answered – and answered frankly – so they can be properly informed.

Questions such as…

Who's really propping up Greece, and why are they doing it?

What happens to the markets if Greece defaults, or, much worse, repudiates its debts?

These are just the biggies. Let me show you what's going on…

How Everyone Got Dragged into This Mess

Since, as always, we're being honest here: Greece lied and cheated its way into the European Union. They had a lot of help from Goldman Sachs.

Under the Maastricht Treaty, the rules that govern the European Union and created the euro, a country that wanted into the Union and the common currency had to have "sound fiscal policies," including debt limited to 60% of GDP and annual deficits not greater than 3% of GDP.

Goldman Sachs created a series of massive currency swaps that essentially masked Greece's true economic condition by burying, temporarily, the extent of Greece's budget deficit.

Whether it was a game that economically strong EU countries knew was being played has never been openly questioned. However, in all likelihood, it was no secret.

The euro was initially a boon to all countries that adopted it, but lately, it's tough to escape the fact that it's serving some countries better than others lately.

Nowhere is that better illustrated than in Greece – the posterchild example of what went right then so terribly wrong, and Germany, where it all went right.

Germany is essentially the backbone of the Union – and the euro. And of course it was a powerhouse even before the EU formally came into being.

But Germany had a growing problem, precisely because it was an economic and export juggernaut with a strong currency, the old deutschmark.

Countries across Europe, especially the so-called "Southern Tier" of Portugal, Spain, Italy, and Greece, who weren't doing as well economically as Germany, had currencies that reflected their tougher economic conditions.

Since their individual escudos, pesetas, lire, and drachmas were weak relative to Germany's deutschemark, Germany's exports were increasingly expensive to buy with their weaker currencies.

A Union with a common currency would eliminate cross-currency differences and make Germany's exports to the rest of the Eurozone appear to be cheaper – or at least not an obstacle in terms of currency differentials.

And since it was easier to borrow in a common currency, interest rates came down and euro loans became readily available in quantity across the continent.

Greece borrowed and spent while Germany exported more and more.

Then of course came the financial crisis of 2008 and the global Great Recession that followed. Southern European countries that had converted to the euro and borrowed heavily were leveraged close to insolvency and had to be bailed out.

The backing for all those bailouts came from none other than the European Central Bank (ECB), the Union's collective central bank.

And we all know how helpful and honest and altruistic central banks are…

In Reality, the ECB Is a Fantasy (and a Scam)

Shah Gilani

About the Author

Browse Shah's articles | View Shah's research services

Shah Gilani boasts a financial pedigree unlike any other. He ran his first hedge fund in 1982 from his seat on the floor of the Chicago Board of Options Exchange. When options on the Standard & Poor's 100 began trading on March 11, 1983, Shah worked in "the pit" as a market maker.

The work he did laid the foundation for what would later become the VIX - to this day one of the most widely used indicators worldwide. After leaving Chicago to run the futures and options division of the British banking giant Lloyd's TSB, Shah moved up to Roosevelt & Cross Inc., an old-line New York boutique firm. There he originated and ran a packaged fixed-income trading desk, and established that company's "listed" and OTC trading desks.

Shah founded a second hedge fund in 1999, which he ran until 2003.

Shah's vast network of contacts includes the biggest players on Wall Street and in international finance. These contacts give him the real story - when others only get what the investment banks want them to see.

Today, as editor of Hyperdrive Portfolio, Shah presents his legion of subscribers with massive profit opportunities that result from paradigm shifts in the way we work, play, and live.

Shah is a frequent guest on CNBC, Forbes, and MarketWatch, and you can catch him every week on Fox Business's Varney & Co.

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