It is time to go “cold turkey,” in the words of Greece’s colorful new finance minister.
And with that, a phenomenon our executive publisher Addison Wiggin labeled “the most boring financial crisis in history” three years ago is becoming interesting, nay, maybe even exciting. Grab some popcorn…
First, meet Yanis Varoufakis.
Varoufakis speaking in Zagreb, Croatia, at an event titled “The Utopia of Democracy.”
Hmmm… [photo by Wikimedia Commons user Robert Crc]
Until a week ago, he was an econ professor at the University of Athens… with a side gig at the University of Texas. He holds dual citizenship in Greece and Australia.
Describing his outlook to an Australian interviewer last week, he called himself a “libertarian communist, or a libertarian Marxist.” He acknowledged a wee bit of contradiction there. He said he was influenced by Mises and Hayek… while he called Keynes and Marx great men.
Told you the crisis is no longer boring.
Mr. Varoufakis belongs to the new government swept into power during Greek parliamentary elections eight days ago. The leader of the winning coalition is a far-left party called Syriza. Syriza campaigned against “austerity” measures — tax increases and spending cuts — that were a condition of the bailouts from the “troika” made up of the European Commission, European Central Bank and the International Monetary Fund.
It’s tempting to write off Syriza as a bunch of deadbeats — eager to take bailout cash, but unwilling to make the “tough choices” of cutting back on the massive Greek welfare state.
The reality is more nuanced… and more interesting.
“Think of Greece as one of your hapless neighbors,” Addison explained in our virtual pages during mid-2011 — “maxed out on five credit cards, taking on a second part-time job, holding yard sales and applying for a sixth card just to keep up minimum payments on the other five.”
Yesterday, Mr. Varoufakis said Greece would no longer apply for more cards.
“It’s not that we don’t need the money,” he said. “We’re desperate because of certain commitments and liabilities that we have.”
Then came the “but”…
“We have resembled drug addicts craving the next dose. What this government is all about is ending the addiction.”
Varoufakis just called BS on the illusion that you can solve a debt problem by taking on more debt.
The guy might be an idiot… but he’s no fool.
No wonder the Financial Times frets this morning about “bailout brinksmanship” on the part of the Greeks.
But here’s something else that’s different about the Greek mess now: German and French banks no longer have the exposure to Greek government debt that they did in 2011-12.
Indeed, 80% of Greece’s debt is now held by other governments or official bodies like the IMF. A Greek default or Greek departure from the eurozone would no longer take down the European banking system and — given the interconnectedness of global finance — perhaps the U.S. banking system too.
Whew!
It’ll be something else that blows up the system instead, some other snowflake that triggers the avalanche.
That said, one big loser from a Greek default would be Greek banks. They do hold a lot of Greek government debt.
Last summer, our Chris Mayer suggested the four Greek banks still standing were an appealing speculation. In no way did they meet his usual rigorous standards in Capital & Crisis… but as an ex-banker who specialized in buying assets on the cheap, he could see the value.
With the election results in, they’re now down 60-70% from last summer. “I still maintain they are good speculations,” he says.
“The banks are really cheap now — at about a third or so of (understated) book values as the market anticipates sizable write-downs.”
National Bank of Greece (NBG) trades on the NYSE. The others trade over the counter — Piraeus Bank (BPIRY), Alpha Bank (ALBKY) and Eurobank (EGFEY).
“The upside is 2-4 times when/if things normalize,” says Chris. “But they are high risk and it will take time (at least a couple of more years).”
Major U.S. stock indexes are regaining their footing after a thumping on Friday. At last check, the S&P 500 was up five points and had recovered the 2,000 level — barely.
It being the first business day of the month, traders are chewing on manufacturing numbers from around the globe. Numbers above 50 indicate growth; below 50, contraction…
- Eurozone: 51.0, up slightly from the month before. But it’s not as if a weak euro is doing gangbusters for European exports
- China: The official government number slipped to 49.8. A separate measure from HSBC shows two straight months of contraction at 49.7
- United States: The ISM Manufacturing Survey rang in at 53.5. After several months of crazy-high readings in late 2014, this number is slowing down big-time. With the slowdown in the rest of the world, exports are proving a drag.
Gold is losing ground, now $1,272.
Crude is holding onto Friday’s big gains for the moment. As we write, a barrel of West Texas Intermediate fetches $48.16.
Friday’s 7% gain coincided with word the number of U.S. oil and gas rigs fell 7% last week — the biggest one-week drop ever. The rig count now stands at January 2012 levels.
That said, U.S. production is still rising — reaching a 31-year high last week. Inventories are growing too.
Americans didn’t go crazy on holiday spending, at least not relative to their incomes. Or so we conclude from this morning’s “income and spend” report from the Commerce Department.
Personal incomes grew 0.3% in December… while consumer spending fell 0.3%. Except for November, the figures show nine straight months of relative prudence in Americans’ personal finances.
This report also includes “core PCE” — the Federal Reserve’s favorite measure of inflation. It’s up 1.3% year over year… slipping further and further away from the Fed’s 2% inflation target.
“Right now, defense sure beats the heck out of many other sectors of the market,” says our Byron King, donning his military-tech hat this morning.
“Companies in the Military-Tech Alert portfolio are doing great work, delivering products, getting paid and making money. Share prices are strong. There’s plenty of positive news.”
A six-month chart of ITA, the big defense and aerospace ETF, bears that out…
And more positive news for the sector is coming from the president’s budget proposal, delivered to Congress this morning.
Defense gets $534 billion — a record total, and $35 billion higher than the caps required under the “sequestration” deal the White House and Congress made in 2011. Nor does that count $51 billion for fighting the Taliban in Afghanistan and Islamic State in Iraq and Syria.
By the time a Republican Congress gets done, the totals might well be even higher.
For access to Byron’s Military-Tech Alert, look here.
Hoping to bump up the selling price of your home? Try getting a Starbucks to move into the neighborhood.
The real estate website Zillow has crunched some unlikely numbers and found home prices rise at double the typical rate if a Starbucks is nearby.
That is, in a non-Starbucks neighborhood, an average home worth $102,000 in 1997 was worth $168,000 last year — a 65% increase.
But in a Starbucks neighborhood, an average home was worth $137,000 in 1997… and $269,000 by 2014. That’s a 96% increase.
Hmmm… Just for giggles, we went to check out median household income over that same span. No adjustments for inflation, since Zillow didn’t do that either. Median household income in 1997 was $37,005. In 2013 — the most recent figure available — it was $51,939. That’s a 40% increase.
The 5’s takeaway: Even after the swoon in home prices coinciding with the “Great Recession,” incomes still aren’t keeping pace with home prices. And it doesn’t matter whether there’s a Seattle-based purveyor of overpriced, overburned coffee in your neighborhood or not.
“Next they’ll be recording my license plate when I go to Dick’s Sporting Goods or Cabela’s,” a reader writes after we surveyed the latest tactics of the police state on Friday.
And on the subject of “highwaymen in uniform,” another reader writes: “Canadian media are warning Canadians about not taking more than $200 and doing everything on credit cards when in the States.
“I know a few people who will not go to the States for a vacation anymore because of this. They hop over the States and go to Mexico. There, a cop only wants $5-10 — not everything!”
“Visit Russia before Russia visits you!” reads the subject line of an email as we take more slings and arrows on the subject of Russia and Ukraine.
“Did Bush (I & II) and Clinton ‘force’ those ex-Warsaw bloc countries to join NATO after the fall of the USSR? Or perhaps like any prisoner they couldn’t wait to get their freedom & get away from the grips of USSR (Russia). Perhaps all these Eastern Bloc countries were just sick & tired, and are still sick & tired, of USSR (Russia).
“Like that old Wall Street phrase — ‘Money (& people) go where they are treated best’ — millions of Russians (&, indeed, Eastern Europeans) voted with their feet over the last 100 years & fled to the USA, Canada, Australia &, indeed, ‘Londongrad.’ There certainly was not an influx of Westerners to Russia. Why?
“Ask any Finn, Polish, Latvian, Estonian, Czech, Hungarian, etc., whether they want to live in the EU or USSR (Russia) and you will get predominantly — EU, please!! Just look at the vast swathes of Russian (&, indeed, Ukrainian) mail-order brides who look to the West for a better life.
“As Mark Twain said, ‘History does not repeat, but it certainly rhymes.’ When President Putin uses brutal force in Europe 70 years after the end of WWII & gets away with it — where will it end?
“To rephrase that Braveheart quote — ‘The problem with Russia is that it is full of Russians.'”
The 5: Wow… So Putin’s dead-set on recreating Prague 1968 and Budapest 1956 now?
Even if that were the case, why is it up to the American taxpayer to foot the bill for the defense of people in Central Europe? Heck, as we noted last week, the plucky Estonians have a freer economy than the United States. But they spend less than 2% of GDP on defense, while Americans spend 4.4%.
“You did not mention,” a reader chides us, presumably after we noted Russia’s growing gold stash, “that China has more gold than any other nation. That includes the USA, with all of 10 ounces in Fort Knox.”
The 5: The official U.S. stash is still 8,134 metric tons. It’s who owns it now that’s open to question… heh.
China? Who knows how much gold China has by now? The last time the People’s Bank of China made an official disclosure was April 2009 — 1,054 metric tons.
Our Jim Rickards estimates it’s now something north of 2,500 metric tons.
The next official disclosure will come at a time of Beijing’s choosing….
Best regards,
Dave Gonigam
The 5 Min. Forecast
P.S. As we’ve said for months now, China coming clean about its gold stash could prove to be the “snowflake” that sets off a global financial avalanche.
Then again, it might be something else.
No matter what it is, will you be ready?
