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Forget Nero. It’s the modern European heads of state who are fiddling while markets burn!
Instead of the fabled Roman emperor, we had German Chancellor Angela Merkel and Finance Minister Wolfgang Schauble … Dutch Finance Minister Jeroen Dijsselbloem … Greek Prime Minister Alexis Tsipras … and the rest of them playing a tune while investors fled overnight and this morning.
Too harsh? I don’t think so. At a key, last-ditch summit today in Brussels, Greece’s new finance minister didn’t even have a written plan to share with his European counterparts. He reportedly said something along the lines of: “Not to worry, we’ll get back at ya’ tomorrow!”
Meanwhile, Schauble and Merkel stuck to Germany’s line that the whole mess was in Greece’s court, saying there’s “no basis for negotiations” yet. Representatives from Finland and Slovakia said they were neither willing to write off Greek debt, nor confident a deal could be reached.
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| Nero – Something in common with European leaders? |
Still others in the European brain trust couldn’t even agree whether the crisis will come to a head! Some said a day or two, when Greek banks will run out of money. Others said it could drag on until the 20th of the month, when Greece owes 3.5 billion euros to the European Central Bank.
Trained to expect this kind of last-minute nonsense, investors were largely sanguine up until a couple of days ago. But that calm started to turn into something worse the louder the fiddling sounds got.
In early trading, the S&P 500Â knifed through its 200-day moving average for the first time since October. The Dow Transports dropped to a fresh nine-month low. Select foreign ETFs and shares, as well as commodity-linked equities, got hit even harder amid China fears layered on top of the European mess.
Then just as things looked the bleakest, the market went from burning to churning – rallying sharply off the lows. At one point, it was the biggest reversal in the Dow in almost four years.
So what am I doing in light of this chaos? Continuing the process of raising more cash, which I started a few weeks ago. I’m also pivoting even more strongly toward investments that offer yield protection and/or that are ridiculously dirt-cheap already.
Those steps seem prudent to me in light of rising market risks and volatility, and I recommend you do something similar in your own portfolio. Then stay tuned.
If the fiddling in Europe gets even worse, and the yellow warning flags I’m seeing start flapping more aggressively, I may recommend even more radical action. That could include strategies I haven’t really used in years, because the steady market uptrend and countless policymaker interventions made them ineffective.
| “The calm started to turn into something worse the louder the fiddling sounds got.” |
Now, let me know what you’re thinking. Are the modern-day Neros in Europe going to screw this process up even worse? Or do you think we really will get some kind of last-minute deal?
What are your thoughts on the state of the markets here? Are we finally staring a bigger decline in the face? Or is this just the latest minor speed bump, one we’ll get over quickly?
Here’s the link to the Money and Markets website. Let me hear what you have to say, before the volatility gets even worse.
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Greece. China. The Women’s World Cup. Lots of global developments and events are grabbing your attention, and for good reason.
Reader Billy cited many of the problems overseas, suggesting they point to very turbulent times dead ahead. His views: “It looks like the perfect storm is about to get going as we see major problems with Greece and by extension, the European sovereign debt crisis, the Ukraine crisis, the massive Chinese real estate bubble and now a major correction in their capital markets.
“That’s not to mention the South Seas geopolitical crisis, the Middle East etc., etc., etc. All roads point to a massive debt bubble (AKA Bond Bubble) that seems ready to burst as well.”
Reader Donald L. pointed out that Greece’s mess is just the latest in a long line of crises brought about by foolish government policies. His take:
“I thought after the Argentina crisis fifteen years ago, the 25-year ongoing crisis in Zimbabwe, the near-death experience in Iceland, and now Greece, that Keynes would finally be buried and the world would learn a lesson about income, expenditure and fiat currency. But always, ‘This time it’s different.’ What again was Einstein’s definition of insanity?”
And Reader Thomas offered this view of Greece’s referendum: “We need to ask if the ‘No’ vote was an expression of defiance, or an illustration of stupidity? Perhaps both! Most Greeks did not really even know what exactly they were voting for.
“Brussels will teach the social construct called the EU and eurozone countries that ‘The man with the gold makes the rules.’ That law is still as valid today as it was from the beginning of commerce.”
Meanwhile, on a happier note, Reader Dave G. weighed in from Canada with this message on the soccer final:
“I’m here on Vancouver Island, not far from where the Women’s World Cup was played at BC Place. I just want to say that the USA team was fantastic! I watched most of the games in the tournament, and was very happy with the level of play throughout. But the level of refereeing needs some serious work. Wish FIFA would adopt/upgrade rules to permit some video review!”
Thanks for weighing in. We are definitely seeing more signs of turbulence around the world, Billy, and that could presage some difficult times ahead. We’ll have to see if markets hold or fold around these critical levels, then adjust as necessary for the back half of 2015.
With regards to Europe, Germany is playing a dangerous game by betting that contagion can be “well contained” even if Greece gets the boot from the euro currency. That was the gambit by Bernanke & Co. almost a decade ago in the U.S. mortgage market – and the economy crashed because he got it wrong. Stay tuned!
Any ground we didn’t cover here on Greece? China? Other global hotspots? Then hit up the website and add your thoughts.
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Everyone is focused on Europe these days, and for good reason given the ongoing Greek drama. But make sure you also keep an eye on what’s going on in China. The benchmark averages there have shed a stunning $3 trillion in value in less than a month, and more than 200 companies now aren’t even trading because their shares have been halted.
What’s eating commodity prices? Not U.S. market action, or even the turmoil in Greece. It’s the trading in China that appears to have producers of everything from crude oil to copper in a foul mood.
As the Wall Street Journal noted overnight: “Commodity traders fear that China’s tumbling stocks reflect broader economic weakness.” Stabilization there is what investors will be looking for, even as I could easily make a case these stocks are so ridiculously cheap now it won’t take much to get them going again.
Fox scored a significant ratings victory on Sunday, with the Women’s World Cup game between the U.S. and Japan drawing 25.4 million viewers. That was the most for any soccer game in the U.S. ever, and even more viewers than television networks roped in for the most recent NBA and MLB championship series.
Like your potato chips in flavors other than sea salt and vinegar or barbecue? Well get ready, because Lay’s is going to release its latest “Do Us a Flavor” tastes soon. The contest has been running since 2012, with last year’s finalists as diverse as cappuccino and bacon mac & cheese. Yum!
Are you watching the action in China and if so, what do you think about it? Was the Women’s World Cup final a sign that Americans are finally embracing soccer on a wide scale? What flavor chip would you like to see? Tell me over at the website when you get a chance.
Until next time,
Mike Larson
Mike Larson graduated from Boston University with a B.S. degree in Journalism and a B.A. degree in English in 1998, and went to work for Bankrate.com. There, he learned the mortgage and interest rates markets inside and out. Mike then joined Weiss Research in 2001. He is the editor of Safe Money Report. He is often quoted by the Washington Post, Reuters, Dow Jones Newswires, Orlando Sentinel, Palm Beach Post and Sun-Sentinel, and he has appeared on CNN, Bloomberg Television and CNBC.
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I expect that the Euroland leaders will throw Greece another lifeline while continuing the tough talk. One more instance of kicking the can down the road. It will not end well, but there will be a short-term rally as the crisis is postponed.
Well they must come to a decision quickly Greek banks can.t stay shut much longer.
My instinct is for a fudge but if I am wrong then the can kicking has reached a dead end.
A temporary reprieve say 6 months comes to mind.
The Greek people rejected the proposal on Sunday. Let them figure theirown way out.
They agreed with the govt. policy throwing money around, They can stew in theirown kettle of fish.
stop the world! i want to get off
The eurocrats biggest fear is that Greece goes back to Drachmers and turns the economy around. That will be a wakeup call for Italy, Spain, Portugal and Ireland.
“The one size fits all” EURO will eventually be doomed!
You know that many of the Chinese Elite have their money / assets in a cave back up in the mountains. They bring it out for New Years then return it for another year.
Looks like they are heading back into the cave with their wealth — Lets hope that is not the case.
The unforseen ccccccccccccccan bring about the most devastating affects.
Hang on — this ride could be r r r r ough.
if you look at the bible and what it has to say…its pretty clear what the end game will be…all the countries that were part of the old Roman empire will once again become it again and that is happening…with all the bickering among nations…the end game has been coming for a long time…and Greece will stay put, as it was part of the old Roman empire…when everything is said and done…no matter what happens in during the process…the end game will still be the final result…so, even though power and greed carry this market…the downfall will the end result…countries will falter, currencies will die away and Rome will rise from the ashes and become stronger than ever!
Getting into this MUP late, I’ve unfortunately noticed that the FXI has fallen about 15% in the last 10 days. I read someplace that the Chinese govt is pulling all stops to kick start their stock market. Besides pumping in large amounts of funny money (borrowed in one way or another), they’ve even allowed investors to use their homes as collateral. Perhaps that is just adding fuel to the fire under the housing bubble – or maybe a fuse – but it sure sounds dangerous to me. And China and its money is quite involved in the US economy/debt; we may see greater repercussions from that quarter than from the EU.
The problem isn’t Greece, the problem is China.
“The drive for the Euro has been motivated by politics not economics. The aim has been to link Germany and France so closely as to make a future European war impossible, and to set the stage for a federal United States of Europe. I believe that adoption of the Euro would have the opposite effect. It would exacerbate political tensions by converting divergent shocks that could have been readily accommodated by exchange rate changes into divisive political issues. Political unity can pave the way for monetary unity. Monetary unity imposed under unfavorable conditions will prove a barrier to the achievement of political unity.”
—-Milton Friedman, August 28, 1997.
1. Greece only solution is to default on all its foreign loans, leave the Euro and produce a lot of Drachmas, AND reduce even further the standard of living of a large proportion of the pensioners, especially those who are under 60 (maybe it will entice then to look for work again. With the printed Drachmas finance (as much as possible via the private sector) increase of production, employment and exports.
2. Based on the behavior of the current Greek government in the last few months and especially in the last 10 days, I believe that it wants to take Greece out of the Euro; it does not state it because polls seem to suggest that 80% of the population still want to use the Euro and be part of the E.U. The Greek government wants that it will appear as if the Europeans push Greece out.
3. If the Greek government has not already printed a lot of Drachmas, Whether Greece will be pushed out of the Euro and E.U. or not, it behaves in an INCOMPETENT, STUPID and almost CRIMINAL way (and should be pushed to resign). The government should (have) be(en) ready TODAY with Drachmas to provide EMERGENCY help the Greek people. It should certainly do that by Thursday i.e. in 2 days, NO MATTER WHAT HAPPENS by then. The current situation in which people and companies lack CASH to buy goods and services, is a travesty. The Drachmas SHOULD be used to allow the Greek banks to open and dispense them to customers who want to withdraw money from their accounts. The customers will get the Drachmas instead of the Euros in their account; the initial exchange rate can be set at any rate, for example, at 2 drachmas for every Euro that the customers own. The Euros themselves will be nationalized. If eventually Greece stays in the Euro zone, the Drachmas will be converted back to Euros at the same exchange rate, 2 Drachmas for 1 Euro. If Greece will leave the Euro zone, the above measure will be permanent rather than temporary.
Greece crisis: Calling this current debacle a “crisis” points up the fact that to some degree we’ve all bought into this craziness of governments borrowing money out of control and looking for a positive result. That land in Florida is still for sale for any that would even dare think Greece could ever repay regardless of austerity programs, revenue enhancements, bailout money, etc. The only consequence of the “no” vote is to shorten the timetable of default. Just as with the US, Japan and others, the real “crisis” began at a point of “no return” many years ago.
The politicians have screwed it up over years like all previous failed empires and now their excessive spending and running up debt far above their means has come home to roost just like here in the USA and a bunch of states.. Don’t throw good taxpayer money at them and think they will change stripes. They had a good thing going at others expense and will try to keep it going but its time to cut them loose. They will of course repudiate the debt. That might sink some insurance companies but Greece wont care about that. Will it start the domino effect? Probably. It has to happen. Doing it now means a bit less pain for the Greeks.
As I grew up I learned the “Story of the Man who cried Wolf”. Back then this was a common lesson to teach telling the truth from the beginning. Or at least not crying wolf falsely more than once. Today this story is lost.
European leaders have been crying wolf for about 5 times, in Greece’s case if my count is correct. Now the terminology is “Whatever it takes” but in my mind their credibility and that of all political leaders and those of central bankers is already gone. What they say doesn’t matter!
Do not watch kickball (soccer). It is for children to play in elementary school. Give me good old American football. A game with variety & strategy. Curling is more exciting than soccer!
what the hell does this have to do with the subject at hand?
I would much rather talk about sports than hear one more word about the stupid, selfish Greeks! Screw Em!
American football is boring, because 95% of the game there is literally nothing happening. It is like watching paint dry as it has no flow.
Eleven men standing in a circle isn’t very exciting either. You want action and excitement, watch lacrosse.
Ray, I’m with you. I tried real hard to root on the American girls, but could only come to the conclusion I was not being entertained but bored to tears. Anyone that’s honest would have to come to the same conclusion. Its a poorly designed game. Jim
I couldn’t disagree more. Sure, yours is the safer, more disciplined approach. And I applaud you for it. But in my opinion any dips are HUGE buying opportunities…….yes, still after this never-ending 6 year bull run!! Greece was just another scapegoat for the market “gloom” fanatics, but it has nothing to do with our economy whatsoever. Earnings are coming up and I’m preparing for another rally towards mid to high 18000s by end of year. I’m personally still long till next year before elections
I’m here mike telling anyone that will listen buy buy it’s cheap buy on the cheap Greeks will cut a deal. Then it’s all gone back up.buy buy buy
Given the chaos in Europe and China, this seems like a great time to empty all foreign investments, and buy domestic equities and bonds. Money from China and Europe will probably come in a heavy wave within a few weeks, unless there is an unforeseeable
change, and raise them.
The Shanghai index ASHR, and its Hong Kong equivalent FXI are both down about 50% from where they were about a year ago, arguing that they should be near a turnaround, but the several gaps down, and the speed of the correction might indicate more like a 2/3 correction. I understand Chinese markets have already lost about $3 Trillion. Anything more could be a collapse of those markets, worse than 1929 in this country. Wait for it.
Correction: down about 50% of their gain from about a year ago.
Aloha friends! Americans will never embrace Soccer…to the Point they Do FOOTBALL..BASKETBALL..BASEBALL nor Hockey..Why…Too much Empty Field Space Down Time (low excitement) and VERY LOW Scoring..! The TV audience was so Large because it was a Holiday weekend..people Needed Entertainment….US Citizens needed to feel GOOD@Something..and only Baseball and perhaps Nascar..was around…what better that to See lots of Buff cute American girls run around in Shorts with a great chance@being World Champs!! lol aloha
Chicken flavored chips. They’re very popular in New Zealand so why not here?
Until the FED changed the laws of economics by creating paper money out of thin air it was assumed that there was a finite mount of “money” in the world. It is (or was) an accepted principle that when money flowed out of one market it must go some place else. The money could flow into another investment like real estate, gold, the mattress or another market.
With endless wars in the Middle East, financial upheaval in Europe and uncertainty in China the US market could benefit. The USA certainly has its own share of problems but compared to others it is a safe haven.
No one ever said that the ‘Market’ is rational. As for me, I’ll continue to bet on US equities but watchfully so.
Regarding the EU, I was skeptical since the notion was first floated that a group of countries with a 1000 year history of waring on each other could form any kind of workable lasting union. That is still my opinion today.
Tom
With every passing day, the clouds get a little lower and darker. I think we are getting near a point where no matter what kind of trick the central banks come up with, the markets will correct. I am amazed how the market can continue to shrug off all the issues at hand. Earning season is fast approaching, and we will probablly see lower year over year earnings again. Let’s not forget it has been four yrs since we corrected more than 10%. Stay tuned.
As Myron Rabalais said in the quote on top of mine, ” I am amazed how the markets can continue to shrug off all the issues at hand.” I agree 100% and I had that horrible gut feeling you get sometimes and decided it was time to take a break. I decided to go to cash 100% about 3 weeks ago. Sold everything, bonds, income stocks, along with physical gold etc. I know the Weiss Group probably would not agree with me, but I am sleeping much better at night now and I’m just going to wait and see how this theater show ends. I may lose some income during this time, but the ultimate risk right now, is just too rich for my blood and comfort level.
When Greece had the opportunity to tighten it’s belt and instead flipped the bird to the investment and banking community I lost what little sympathy I had for them. I understand medicines are running short already and for that I do feel bad. After living the good life for so long on other peoples money there are no further credit cards to transfer the balance to. Does Greece have any natural resources? I don’t think they have any industry worth mentioning. It appears to come down to tourism, olives and yogurt. That’s not much to base an economy on. So far as Woman’s Soccer is concerned I would just as soon see a Little League Championship game. I’ll stick with my Red Sox, Patriots or the joke they now call NASCAR. Frito-Lay cheddar and bacon chips sounds fantastic. I’m sure my cardiologist would say Verboten!!!!
EU will have to reduce debt on Greece, this according to the expect.
yes John,reduce or write off, but if I were Spain or Italy I would be saying Im next,whats good for the goose is good for the gander.What a mess.
Membership in the Eurozone was supposed to result in financial and economic benefits for countries in the group. Stable cross nation pricing for importers/exporters, the elimination of currency transaction costs (and time lost there also, especially when you think about good bought and sold on account and the headaches that can be), lower bond interest rates paid (more stable currency) and more were all supposed to help make stronger national economies for Eurozone members. And for most countries in the EU monetary zone it’s worked, especially for Germany who’s been happy to step in and supply the rest of Europe under these new easier to do and lower cost terms.
But it didn’t work for Greece whose found itself in worse financial shape than before (although their past may be seen through rose colored glasses today). But no matter how you look at it they have not received the economic boost the Eurozone concept was based on – and so there is no reason to remain in the Eurozone. Of course one major reason for their failure has been their inability to control gov’t spending, collect taxes, use their Euro-advantage to stimulate economic growth – and more. It also seems as though Greece’s gov’t owns a lot of what would be private companies in most democratic nations – which as we know is a receipt for underperformance.
And all of these things are their own fault – starting with the voting public who has unrealistic expectations of their gov’t doing more for them than it really can – or should. But no matter what the reasons or who’s at fault it all adds up to one thing – it hasn’t worked for Greece so it’s time for them to get out of the Eurozone.
Ironically it will probably be beneficial for Greece to try life without credit as they’ve been living beyond their means as a nation, and funding it with excessive borrowing. The loss of credit upcoming will force them to think about spending differently and that can only be a good thing for Greece. Of course they’ll print money in the meantime to make ends meet, the drachma will fall in value imposing higher costs on all imports forcing absolutely uniform spending cuts among the populace. But it will NOT impose higher costs on domestic production which will actually put people back to work providing what they can’t afford to import (and that’s something they need – with almost 26% unemployment, which I think is pushing 50% for youth under age 30). When it comes to inflation they will either figure out sooner or later – or they won’t. But it won’t be a financial drag on the rest of the EU nations – especially those smaller and more vulnerable ones like in Eastern Europe.
But I am fairly sure that when Greece leaves the Eurozone that the question of what part of – if any of – their debt to the EU lenders will be repaid, and how. The biggest single thing Greece can do to change the balance of their economy is stop payments in debt and since they’ve essentially been borrowing the money needed to make EU payments (talk about a bad financial practice, like paying off one credit card by drawing from another) ending their credit is almost certain to end debt repayment. But if they do repay anything I’m sure they’ll want to do it in deflated drachma, rather than in Euro’s (which will become foreign denominated currency for them) robbing a lot of the value of the principal from lenders. (but Greek debt will skyrocket in Euro terms when their own currency inflates – and they can’t pay it now at 1:1 – what do you think they’ll do when it’s 1:2 or 1:3? )
But given the “you did this to us†mood in Greece, I think it’s going to be hard for the EU lenders to get their money back. They’ve gone deep in the hole to “help†Greece – but just giving them money wasn’t really the kind of “help†Greece needed. All it did is give them more rope to hang themselves with – which the Greek people (through the politicians they put in office) have done to themselves.
More than likely the EU will have to face writing off the majority of, of not all of Greece’s debt – and best they do so and get on with life.
Reply to ian from John (but not the one above; there are a lot of us : ) )
Yes it is trouble – and Spain is clearly waiting in the wings here. I don’t know how close Italy or even Portugal is to following Greece’s suit on the Euro but I do think it’s realistic to believe a movement in Spain to exit the Euro will surface in Spain. Whether that will gain enough steam for them to do it – I don’t know. It could be that the mess that happens in Greece will deter the Spanish from leaving the Eurozone as they see it unfolding.
As long as the Greek’s persist in the narcissistic view that they are just “to big” to fail, there is little hope that the rest of Europe will continue to subsidize their largess.
Is there a deliberate attempt to keep the $ 76 billion black hole in the Puerto Rico economy
out of the news? Puerto Rico is expecting to be released from debt payments on this large
amount despite a weak economy and poor prospects and yet nobody is discussing the implications, the cost to the creditors or the strong possibility of a bail out by the U.S. Treasury. Why the cover-up?
Unfortunately in a country like Greece, where collecting taxes is very difficult, the only way, that they have to effectively tax all of their residents, is buy printing money. Printing money creates inflation, devaluing the currency and therefore effectively taking money out of the pockets of every Greek citizen, especially those with large cash savings.
Before the EURO, Greece could just keep devaluating their currency, to collect taxes and make their products cheaper to the outside world. Greece can not survive with the EURO.
Larry Edelson has been saying for over a year the war cycles were all set to converge: When this global collapse happens, there will be war in every corner–not necessarily a big war with 2 or 3 sides, but little wars, regional wars, civil wars, that touch every nation.