With the Dow closing below 17,600 and bonds surged, today one of the greats in the business sent King World News a fantastic piece warning this is only the beginning of a massive global crisis and full-blown panic, plus a remarkable bonus Q&A that includes everything from the chaos in Greece to gold, silver, what investors should be doing with their money and more.
Turning to Greece, as I noted, the referendum basically comes down to two bad choices. Boiling this down to the most simplistic terms, if the people vote no, as Greek Prime Minister Tsipras has advised, then basically Greece is out of the euro (though he thinks they can stay). If they vote yes (on a deal that no longer exists, by the way), they are going to need a new government, and that will be an even bigger mess, given how long that will take. While the Greeks have maintained a preference for the euro, they don't want any part of more austerity.
They have tried to have it both ways: pursue insane policies, but have a real currency. That jig is now up. My guess right now would be that the Greeks will vote no, because much of the disruption that would in theory occur for them if they headed out of the euro — i.e., bank closures and currency controls — have already happened. So much of the chaos for the average person has been seen (though it has only just begun). If Greece does leave it would force its creditors to take haircuts, bring about a new currency, and runaway inflation, but that sequence of events has occurred many times in the past.
Having said all that, as I have maintained all along, the situation will remain fluid. I suppose it is possible that if the Greeks vote yes, the EU, ECB, and the Germans would find a way to put some sort of a crazy deal together, but I'm not sure the genie will go back in the bottle. Here is why: both sides are trapped, as European leaders think Greece has been "ring fenced," and Tsipras thinks that a "Grexit" will cause so much damage that Europe won't let it happen. However, there is no way the EU leaders can give in to Greece because Portugal, Italy, and Spain will all want less austerity as well.
As I thought about all of this over the weekend, the markets I most wanted to pay attention to as far as ferreting out information about where this is headed were European debt markets, especially Portugal, Italy, and Spain. As one might imagine, those markets all declined today, though not all that violently, as rates rose 25 to 35 basis points, more or less, on 2%-ish handles. For what it's worth, Greek debt jumped 350-ish bps to 14%-plus.
Obviously, the ECB has been buying European government debt, which has helped drive the price to the ridiculously low yields they are now where no credit risk has been priced in. Not to make too much out of just one day's action, but I think the biggest development in terms of exposing the fallibility of central banks, which bulls worldwide have come to conclude are infallible, will be if weaker European government debt trades lower.
The rapid change in the status quo in Greece just shows how, when you play these games of who will blink first, which the ECB and Greece are playing with each other, an outcome like a Greek default can go from impossible to inevitable in the blink of an eye (as I have tried to point out on many occasions). That sort of dislocation continues to be what I think is in store for U.S. stocks. Remember, there are huge expectations for earnings in the second half that I don't think will be met. Add in all the new macro problems and potential chaos in Europe and why anyone would want to bet that stocks are going higher is beyond me.
The deteriorating situation in Greece—including long lines and a 60 euro ($67) limit at ATMs—could get much worse if voters there refuse to accept creditor-imposed reforms in a referendum this coming Sunday, said billionaire Wilbur Ross, who has a large interest in the country.
"Once there's social unrest, which there will be before too long if this thing continues, no tourist is going to want to go to [Greece]," Ross told CNBC's "Squawk Box" on Monday. "If the Greek people understand how limited those concessions that are requested are, and contemplate going into the abyss on other side, they're never going to pick the abyss."
Last year, the chairman and CEO of WL Ross & Co. and other international financiers invested $1.8 billion in Eurobank—becoming the biggest shareholder of Greece's third-largest bank. He said Monday he made the bet thinking the current government would not be in power.
Ross said there are lines at Eurobank branches, but surprisingly they're "not totally out of control yet."
Debt talks between Greece and its creditors collapsed late Friday, after Greek Prime Minister Alexis Tsipras announced a national vote for his people to decide on whether they're willing to accept reforms in exchange for more bailout aid. Sunday's referendum may effectively turn out to be a vote on whether Greece stays in the common currency.
"I don't see how Mr. Tsipras and the [leftist] Syriza party survives this. They promised people right along that they could get no problems, go back to the way it was, the EU would fold. The EU didn't fold and I don't think they will fold," Ross said.
Tsipras actually negotiated a lot of concessions from the European Union and should have stopped and declared victory, he argued, though acknowledged the leader's party would have never approved.
The European Central Bank, which refused to raise emergency funding for Greek banks, wants the people of Greece to understand that if the creditor-imposed program is voted down, "they're not going to get any more money and they're not going to be part of the euro," said the vice chairman of international consultancy Kissinger Associates, adding most Greeks don't want to exit the common currency.
For years we have mocked Venezuela's economy (if not its long-suffering population): it got so bad, we even did a visual summary of selected Venezuela headline posts we wrote over the years.
Most of these were expected, and in line with the transformation of any normal nation to a socialist utopia. None were more poignant than the images of supermarkets and grocery stores that have been ransacked empty as a result of the collapsing currency, devastated supply chains and soaring inflation (supermarkets which have since imposed fingerprint scanners in what is no longer capital but food controls).
We are sad to announce that what was once a Venezuela trademark has now transitioned to a country that until recently was among the most developed nations in the west: Greece.
As we noted yesterday, in clear rejection of Tsipras' plea for calm, the Greek population stormed (now empty) ATMs, grocery stores and gas stations as they scrambled to obtain, or convert, paper currency into tangible products.
This morning, the NYT picked up on the realization that for Greece ATM runs were last week's story. Now, it's all about the "Supermarket Sweep"... and hoarding. To wit:
Beside the lines at A.T.M.s, people were also lining up at gas stations and in grocery stories. In the small town of Spata, outside Athens, residents had stripped grocery shelves bare by Saturday night. The local Shell station had run out of regular unleaded and had only premium gasoline to sell. “Doom,” the gas attendant responded, when asked to describe the mood.The frenzy at gas stations across the country prompted Greece’s largest refiner to issue a statement assuring that there would be enough supply...
And this is how Athens is slowly starting to look like Caracas.
Having told the citizens of Greece that the European leaders will not kick them out of Europe because "the cost of throwing them out is too high, enormous," it appears Greek PM Tspiras has another plan to ensure - no matter what the outcome of the forthcoming referendum - that there is no actual Grexit. As The Telegraph reports, Greece has threatened to seek a court injunction against the EU institutions, saying "we are taking advice and will certainly consider an injunction at the European Court of Justice. The EU treaties make no provision for euro exit and we refuse to accept it. Our membership is not negotiable."
Greece has threatened to seek a court injunction against the EU institutions, both to block the country's expulsion from the euro and to halt asphyxiation of the banking system.
“The Greek government will make use of all our legal rights,” said the finance minister, Yanis Varoufakis.
“We are taking advice and will certainly consider an injunction at the European Court of Justice. The EU treaties make no provision for euro exit and we refuse to accept it. Our membership is not negotiable,“ he told the Telegraph.
The defiant stand came as Europe’s major powers warned in the bluntest terms that Greece will be forced out of monetary union if voters reject austerity demands in a shock referendum on Sunday.
Any request for an injunction against EU bodies at the European Court would be an unprecedented development, further complicating the crisis.
With JC Juncker lies and propaganda this morning, Tsipras main goal now is to keep anarchy from breaking out before the potential vote on Sunday.
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