Tuesday, June 23, 2015

On Greece,, Investors Counting Their Chickens Before They are Hatched

     The equity futures are up again today and you wonder at this point the market is getting ahead of itself. The driver is apparently the belief that Greece is going to come to agreement with the EU. 

      The latest is that the Greeks and EU are going to have an agreement by tomorrow night which will be announced Thursday. If history is any guide though, this hope will be disappointed. It's' not like we haven't seen this movie dozens of times. There's always a pending deal until there's not. 

     There was supposed to be a deal on Monday until there wasn't. Now it's Thursday. On Thursday morning when will D-Day be postponed till then?

      Some argue the market is much to sanguine about Greece. There is a theory that now that the ECB is doing QE Greece isn't so important anymore. 

      "This was the claim of Citgroup's Steven Englander this morning, though I disagree:"

     "Greece can expect its European creditors to play hard ball in negotiations over its bailout for a simple reason: the prospect of a Grexit just doesn't instill as much fear as it once did, Citigroup's Steven Englander said Monday."

    "It's undesirable, but it's not a catastrophe as it would have been in 2011, 2012," the head of Citi Global's G10 FX strategy told CNBC's"Squawk Box." "So I think that they're going to play somewhat hardball and try and get some of these reforms they actually want."

    "Greece has a very bad hand right now," he said.

      Here's the problem though. If the Eu can take or leave Greece why are the markets so ecstatic because of their assumption a deal is going to happen Thursday? What will happen to the market if this assumption proves to be wrong?

    And this celebrating is at least premature. Even IMF head Christine Lagarde herself said that Greek default is a real possibility.

   The claim that Greece leaving the EU won't be too bad doesn't take into account the politics and optics of such a move. Yes, Greece has a small economy and there is QE now but if Greece leaves the euro and lives to tell us about it this sets a terrible precedent that others may follow and could be the beginning of the end of the euro.

    Then there's the issue of Germany. CNBC's Dennis Gartman has made the point that Greece would be better off if it did leave, it's really Germany that needs it to stay-no matter what the German people might think. 

    The question begs then why Germany won't compromise to keep Greece in then-besides politics; they would get killed at home for doing this. 

   "The Greek debt crisis is not just about Greece, said Chovanec, but setting a precedent for other countries with similar problems that also want debt relief, such as Spain, Portugal and Italy. Because Greece has a relatively small economy, it would be "no big deal" to bail out the country, he added, but that wouldn't solve the imbalances within the euro zone economy between countries like Germany and France and the more fiscally troubled nations on the continent's periphery."


    So Greece can't be bailed out because other countries would want to be too. However, the idea that there are imbalances to be solved ignores the point that Greece is not a parasite on Germany but the reverse. Thanks to Greece tanking the euro Germany' s exporters make off like bandits.

   P.S. I should add that while Gartman thinks Greece would be better off leaving, they won't, basically to please Germany!

  It's like what Zizek says about Lacanian psychoanalysis. It's all about the desire of the Other. Like you go to see the Psychoanalyst because he/she wants you to.



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