Greece as a Ponzi
Why do the Greeks want to stay in the Euro? It doesn’t make sense, but on the other hand, by staying in the Euro, they will receive money, they won’t be able to pay back. By Biderman.
I remain long term bearish on European stocks and as well as the big US banks. Why?
Greek public opinion is that they want to stay in the Euro but they want easier terms. At first blush it does not make sense to me why they would want to stay in the Euro? The Greek economy is a disaster and getting worse, so why would they not want to go in another direction? The only answer I can come up with is they like being able to borrow money to pay their bills and, even better, never having to pay the loans back. That makes sense.
If Germany is willing to keep lending to Greece even if most goes to repay older loans, Greece keeps getting some new cash. If Greece left the Euro, even that modest amount of fresh cash would disappear. How horrible! Greeks would actually have to go out and do stuff. They might have to work for a living and pay some taxes for government services. Video below.
A Brief Primer on the European Crisis
Some reflections on the Greek elections and the market going forward after this “long” weekend, as we await Benny to take on the show tomorrow. Don’t be surprised when they start hitting metals tomorrow, as this has been the trend lately. By Hussman of Hussman Funds.
With Greek elections resulting in a fairly benign outcome that promises to hold the euro together in the near-term, the market may enjoy some amount of relief. The extent and duration of that relief will be informative. Based on broader factors, we don’t expect that relief to survive very long, but we are willing to respond more constructively if our own return/risk measures become more favorable.
Our estimate of the prospective return/risk tradeoff in the stock market remains in the most negative 0.5% of historical instances. That said – and this is important – if market internals improve meaningfully over the next few weeks (measured across individual stocks, industries, sectors and security types), our estimate of the market’s prospective return/risk profile would improve, despite what we view as rich valuations and a new recession. Very roughly speaking, this would require a solid rebound in market internals over a period of 2 or 3 weeks. That sort of outcome might accompany a Fed easing or other event, but our focus is on the measurable condition of market internals, not on Fed policy or other news per se. A positive shift in our measures of market action would likely be enough to ease back from our tightly hedged investment stance to a slightly constructive position. For now, we don’t have the evidence to take anything but a very defensive stance, but we’ll take changes in the evidence as they arrive.
It’s fair to say that we don’t foresee any development that would encourage us to remove a major portion of our hedges at present, and my personal expectation is that conditions are likely to deteriorate sharply rather than improve, but as always, I want shareholders to know where my attention is focused. Our measures of market action – and any meaningful improvement over the next few weeks – will be important in determining the whether we maintain a tightly defensive stance or shift to a slightly constructive one.
The Day After
Some charts of the troubled Europen markets.
News That Matters
Ft.com
The election victory for pro-austerity parties in Greece failed to assuage fears over the eurozone’s future, as investors ratcheted up the pressure on policymakers by sending Spain’s benchmark borrowing costs to a new euro-era high. Markets initially rallied on news that New Democracy and Pasok, two mainstream parties that support the austerity conditions of the eurozone’s bailout, gained enough seats to form a parliamentary majority in Athens. But the optimism was swiftly deflated by dismal bad bank loan figures in Spain that underlined the country’s woes. http://www.ft.com/intl/cms/s/0/440d6138-b964-11e1-b4d6-00144feabdc0.html#axzz1yD9nH3Nh
Russia is setting aside up to $40bn for this year and next to shore up the economy in case the crisis in the eurozone escalates and spreads, and is dusting off a plan that would allow the government to recapitalise the country’s banking system. In his first interview with a foreign newspaper since his appointment as finance minister last year, Anton Siluanov said the government had agreed to create a reserve mechanism worth Rbs500bn ($15.4bn) for next year “for the direct financing of anti-crisis measures”. http://www.ft.com/intl/cms/s/0/1eea8e10-b94d-11e1-9bfd-00144feabdc0.html#axzz1yD9nH3Nh
The Brics nations announced late on Monday that they would begin a process to build a financial safety net, creating a joint pool of reserves to be used if any country faces sudden capital flight. Based on the Chiang Mai initiative between Asian countries, the proposal between Brazil, Russia, India, China and South Africa, would go far beyond existing agreements between the five emerging economies. High quality global journalism requires investment. Please share this article with others using the link below, do not cut & paste the article. Work on the initiative has already begun with the aim of an agreement at the 2013 Brics summit and demonstrates the concern among strong emerging economies that they will feel the cold winds of contagion from a deepening eurozone crisis. The size of the proposed safety net is expected to be announced on Tuesday. Guido Mantega, Brazil’s finance minister, said the Brics nations were strengthening their financial integration to underscore the faith investors should have in their economies and the move should also improve global confidence. “By creating financial solidarity among us, we will be even safer and stronger than we already are,” Mr Mantega said.http://www.ft.com/intl/cms/s/0/bfd6adfe-b9bb-11e1-a470-00144feabdc0.html#axzz1yD9nH3Nh
Welcome to “Nothing is fixed”
With the Greek ” (no) fix” investors will start focusing on the true elephants of Europe, with Spain in pole position for the moment. Market reflections by Peter Tchir.
The “Nothing is Fixed” rally continues to annoy most people. Just like last week, the refrains that nothing is fixed and nothing can be done are ringing out loud and clear, and once again markets have faded from overnight highs.
While the “Nothing is Fixed” rally is only possible because of government intervention and the fact that the “Everything is Broken” sell-off took the markets too low.
Much of the bad news that caused the “Everything is Broken” sell-off that took S&P from 1,402 on May 1st to 1,278 on June 1st have started to be addressed. The economic data globally continues to be weak. That is dangerous. A near term Greek Exit looks less likely, the problems at JPM seems isolated, contained, and largely over.
The “right” price for the market remains elusive and volatility will continue until the markets determine the extent of government and central bank intervention. A few good things have happened, and in general the tone has indicated a willingness to do more. Without more programs and details on existing programs, the markets will fade, but for at least a few days, a steep sell-off is unlikely until the policy makers provide a strong sense of their ability to do anything more.
If EU policy makers have learned the lessons of Sisyphus and the Fed decides to act rather than trying to catch a falling knife then look for another strong end to the week. In the meantime be concerned about the weakness, but don’t overreact as it seems that “fading the rally” and saying “nothing is fixed” has replaced much of the cheerleading the market is usually exposed to.
What to do about Spanish Bond Yields
News That Matters
Ft.com
Greece’s centre-right New Democracy party scrapped its way to victory over Syriza, its radical leftist opponents, on Sunday in an election pivotal to the efforts of European leaders to hold the eurozone together. According to interior ministry projections, with 97 per cent of votes counted, New Democracy was set to take 29.7 per cent of the vote and 129 seats in the 300-member parliament, compared with 26.9 per cent and 71 seats for Syriza. http://www.ft.com/intl/cms/s/0/333c9448-b845-11e1-a2d6-00144feabdc0.html#axzz1y7J4LjIF
The global recovery has stalled again as confidence in policy makers’ ability to provide conditions for growth has slipped away, according to the latest FT/Brookings Institution Tiger index of world economic conditions. Professor Eswar Prasad of Brookings said: “The global economic recovery is being held hostage by political brinksmanship that has created policy paralysis, undermined confidence and stymied the effectiveness of macroeconomic policy tools”. http://www.ft.com/intl/cms/s/0/fb7b2ab8-b882-11e1-a2d6-00144feabdc0.html#axzz1y7J5y2wM
The head of Denmark’s central bank has warned that the Danish krone is coming under intense pressure from investors seeking a haven in Europe and betting that the currency’s peg to the euro could be cracked by the crisis. Nils Bernstein, the governor of the Danish central bank, said that the upward pressure on the krone was the most severe he had seen in his seven years as governor, and warned that negative interest rates could be on the cards if the problem continues. http://www.ft.com/intl/cms/s/0/06836ec2-b6c9-11e1-8c96-00144feabdc0.html#axzz1y7J5y2wM
The Bank of England committee charged with ensuring the stability of Britain’s banks is split over George Osborne’s plan to oblige it to support the government’s new growth agenda. In a little-noticed section of his Mansion House speech last Thursday, the chancellor said the BoE’s Financial Policy Committee should no longer focus narrowly on safeguarding the banking sector. The FPC should not be creating “the stability of a graveyard”, he said, and in future would have a “secondary objective to support the economic policy of the government”. http://www.ft.com/intl/cms/s/0/2196b248-b884-11e1-82c8-00144feabdc0.html#axzz1y7J5y2wM
Greece for Dummies
Quick guide for those unfamiliar with the Greek history.
Bloomberg uncovers what you need to know about Greece, the figures, the history, the economy and how it got into this mess.
Video below
Will Tsipras Blow Up Europe?
Tic, tac, tic, tac. The Greek election day is here. While we await the results, we present you some thoughts by Azizonomics.
The world’s eyes are on the Greek election, and whether or not Greeks will elect New Democracy’s Samaris (widely-assumed to be pro-bailout, pro-status quo), or SYRIZA’s Tsipras (widely-assumed to be anti-bailout, anti-status quo).
The Eurocrats have very sternly warned Greece against voting against austerity. Merkel said:
It is extremely important for Greeks to elect lawmakers who would respect the terms of the bailout.
In recent days, opinion has swung back toward the status quo, with Intrade rating New Democracy’s chances of winning the largest number of seats at 65%, and SYRIZA at just 33%.
While I cannot rule out New Democracy winning, I think that I’d flip those odds. Greece widely reviles German-imposed austerity, but fears the consequences of leaving the Euro — 85% of Greeks want to stay in. A vote for New Democracy would reflect fear of Drachmatization. Meanwhile, a vote for SYRIZA would seem to reflect the idea that through brinkmanship and the threat of Euro collapse, Greece can negotiate their way to a much more favourable bailout position.
So why do I think SYRIZA are the likelier winner? The election is on a knife-edge, so I think the difference might be football.
Exploding the myth of the feckless, lazy Greeks
We have all heard of lazy Greeks, all living of government sponsored pensions. Things are somewhat different. Some important facts wort reconsidering prior to the election weekend coming up in Greece. Via Sturdyblog.
Stereotypes and untruths are everywhere, but this economic crisis is not the self-inflicted result of a mythical Mediterranean work ethic.
[This article was originally published in the New Statesman on 18th May 2012]
Maria was born in Paros in 1942. The country was under Nazi occupation. She experienced real fear, real poverty, starvation, bomb raids and executions. She survived the war and went to a Catholic girls’ school. Maria was good at sport and an excellent singer. She left school top of her class, got married, started working for the Archaeological Museum in Mykonos, from where she retired 44 years later at the age of 64 – one year before she was officially supposed to – in order to look after her husband who was dying of pancreatic cancer.
Maria worked two jobs most of her life – times were often hard. She was on PAYE all her life. She contributed to her pension and saved. She raised three children. She sat at her sewing machine many an evening, altering her skirts; so that they wouldn’t look so 50s in the 60s; so that they wouldn’t look so 60s in the 70s.
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