Guest post by Peter Tchir of TF Market Advisors.
What a week. Just over a week ago we had a disappointing non-farm payroll report (why don’t farmers count?) that sparked a sell-off that accelerated throughout the day as the market got nervous about the elections.
The market was right to be nervous about the elections. The Greek elections resulted in some groups adamantly opposed to the Euro and the existing bailout plan with significant power. That, coupled with a solid victory for Hollande in France gave the markets a real fright that left us staring at some bright red screens on Monday morning.
But in the end, the markets tolerated the results and the ongoing uncertainty about who will govern Greece remarkably well. Spain was truly manic with the Spanish market swinging wildly all weak as fear of bank problems switched to excitement over recapitalization plans back to questions about the future.
I continue to believe that the Axis of Weeble, will do just that for now. They will wobble but not fall down – just yet.
Greece will get some concessions from the Troika. It is in no one’s interest to rush their exist. Depending on how big the concessions are this could buy Greece anywhere from a few months to a year or more of time to make a final decision on the Euro. The concessions can be big if the ECB plays nice with its portfolio of bonds and does something along the lines of what we recommended. I think we will see enough progress in Greece early this week that it will be supportive of the market. I continue to like the post PSI bonds, even though they were down last week, as I don’t think the problem comes to a head just yet, and at 21% of par a lot of bad outcomes are already priced in.
News have been dominated by JPM and some Greek “stuff” over the weekend. Here are some JPM news wort reading with the Sunday wine.
The radical left’s Tsipras has picked up all the (bad) habits of a politician trying to take advantage of a country in full blown economic and social chaos. The Grexit procedure seems underway. Don’t forget pulling out those drachmas,
Latest out of Greece via Ekathimerini.
Coalition of the Radical Left (SYRIZA) leader Alexis Tsipras has challenged New Democracy and PASOK to form a government but has insisted he would not be “complicit in their crimes”.
Tsipras appeared to close the door on any lingering hope that SYRIZA could take part in a unity government following talks with the other party leaders and President Karolos Papoulias on Sunday.
“They are not just asking SYRIZA to agree, they are asking it to be complicit in crimes and we will not do that,” he said. Tsipras said he had asked Papoulias to publish the minutes of the meeting so “citizens can draw their own conclusions.”
Let’s not forget what a conversion to the Drachma would mean for the rest of the Eurozone:
By Hudson. Headlines around the world greeted the election results in Greece and France as a rejection of austerity programs by the electors of those countries. Well, what can Americans learn from the results of these elections and from the crisis in the eurozone?
The same thing is happening in Europe that’s happening here. Left-wing parties, socialist parties, labor parties all say that they’re going to preserve the social contract, and as soon as they get into power, they sell out to their financial backers, they doublecross labor. The socialist party in Greece fell from 44 percent to 14 percent because the last party simply [incompr.] the most vicious anti-labor measures in Europe. Same thing in France now. Hollande of the French socialists, before the election, said he was going to beg, ask Europe, will you please not insist that we roll back our social programs. And just this morning he said, well, I asked and they said no. I’m afraid that in order to preserve Europe, in order to preserve the idea of a political harmony, we’re going to have to go ahead and impose more austerity on the people. I’m terribly sorry. But if you don’t like it, you can vote for another party in four years. But there’s going to be austerity, and we’re going to have to lower wages here, and there’s nothing to do. If you don’t lose our campaign contributors, the banks could lose, and we couldn’t have that, because if the banks lose, they say that that’s intolerable to them.
Video below and full transcripts here.