Greece Sparks Most Volatile Trading Day in Four Years

The Greek situation just hit its boiling point…

Last week, we told you that Greece was ready to erupt. It owes lenders €240 billion ($260 billion) that it can never repay.

Greece defaulted yesterday when it missed a €1.6 billion ($1.72 billion) payment to the International Monetary Fund (IMF). Greece had met with its creditors over the weekend to try work out a deal, but the two sides couldn’t reach an agreement.

The next important date to watch is July 5. That’s when Greek citizens will vote on whether to accept an emergency loan from Greece’s creditors. Accepting the loan would require Greece to raise taxes, cut entitlements, and reform its pension program. If the Greeks vote “no,” Greece might leave the eurozone.

The European Union (EU) was established in its current form in 1993. Greece would be the first country to withdraw.

Greek citizens are scared that the banks will collapse and destroy their savings…

That’s why they’ve pulled €34 billion out of Greek banks since November 2014. That’s one-fifth of the nation’s deposits.

In response, the Greek government just declared a bank “holiday.”

This isn’t your typical holiday. It’s not like Christmas. A bank holiday means all the nation’s banks are closed.

The Greek government declared this holiday to prevent a bank run. That’s when banks fail because everyone tries to pull money out at once. Governments usually declare these surprise bank holidays during financial crises. Keep from having your currency confiscated and turn it into GOLD today
Nick Giambruno, editor of International Man explains why a bank holiday is nothing to celebrate:

Once the banks are closed – or on “holiday,” as the government puts it – the politicians are free to help themselves to as much of the customer deposits (including yours) as they want. It’s like an all-you-can-steal buffet.

A bank holiday usually dovetails with capital controls, which are restrictions on the free flow of money out of the country. Capital controls make it hard for the country’s remaining wealth to dodge a future mugging.

Bank holidays and capital controls are all about the government maximizing the amount of money available for them to confiscate during a crisis. Pen up the sheep, and they’re easier to shear.

It’s a common pattern… 1) country in financial trouble, 2) government denials, 3) surprise bank holiday, 4) wealth confiscation, and 5) capital controls.

Greek banks are closed until at least July 6. And Greeks can only withdraw €60 ($67) per day from ATMs.

Greek people are waiting in long lines at ATMs. They want to withdraw what they can from the banking system. But fewer than half of Greece’s ATMs actually held cash on Monday.

The Greek stock market is also closed for the week.

European stocks fell 3% when the market learned that Greece and its creditors couldn’t reach an agreement…

Europe’s weaker economies were hit hardest. The Spanish stock market dropped 4.6% on Monday. The Italian and Portuguese stock markets each sank more than 5%.

The crisis even reached across the Atlantic. The S&P 500 lost 2.1%… its worst day of the year. Bloomberg reports that global equities lost $1.5 trillion of value on Monday.

The VIX, a measure of investor fear, surged 34% on Monday. A rising VIX means traders expect higher volatility in the next month. It was the biggest jump in the VIX since August 2011, when the US federal government came within an hour of shutting down.

If Greece doesn’t cut a deal with its creditors this weekend, it will likely exit the European Union…

A “Grexit,” as the financial media is calling it, would have far-reaching consequences.

Greece by itself doesn’t matter much. It accounts for less than 2% of the EU’s economic output. Its economy is smaller than the Miami metropolitan area. Its entire stock market is the size of Yahoo! (YHOO).

Investors care about a Grexit because it could decide the fate of the European Union and euro.

Greece’s departure would put other highly indebted European nations at risk. That’s why bond and stock markets in Spain, Portugal, and Italy sold off big tim

The EU desperately wants to keep Greece in the union. That doesn’t mean it will succeed…

Mohamed El-Erian thinks there is an 85% chance Greece will leave the eurozone. El-Erian is the former CEO of Pacific Investment Management, Co. (PIMCO), the second largest bond mutual fund on the planet. He also ran Harvard’s endowment fund, the largest academic endowment in the country, for two years.

Bank holidays and capital controls rely on the element of surprise…

Capital controls don’t work if everyone knows they’re coming. If people expect a bank holiday, they’ll take their money out of banks.

That’s why governments typically announce bank holidays on the weekend. That’s what the Greek government did. It issued no warning. Instead, it denied the possibility of capital controls right up until it instituted them.

This why everyone should develop a Plan B long before trouble appears. Doug Casey explains how government sneak attacks on your wealth can happen:

The diminution of personal and financial freedom looks like a hyperbolic curve, at first with an almost unnoticeable slope, then one that gets steeper and steeper, at an accelerating rate.

Investors can take several steps to safeguard their wealth…

At the very least, investors should store physical gold in a foreign safety deposit box.

Gold is the ultimate asset to own during a crisis. It’s the only currency that isn’t someone else’s liability. Gold isn’t an IOU like bonds or paper currency. Its value doesn’t depend on someone keeping a promise to you.

Doug also encourages spreading your savings across the globe. Opening a foreign bank account is a great way to get started. Doug also recommends owning productive farmland outside of your home country. Food will never go out of style.

There are many ways investors can prepare for a financial crisis. But the key is to start early. It’s better to be a couple years early than a day late.

By: Casey Research, LLC