- Greece goes on financial lockdown
- Why Jim Rickards still expects Greeks and Germans to kiss and make up
- Puerto Rico governor stamps his bills “not payable”
- Past the deadline: Watching Iran nuclear talks, and Iranian oil tankers
- The allure of Syrian wine… cautionary tales of fiat currency… reader upbraids The 5 for “insulting” subscribers… and more!
“If you didn’t see the headlines, you’d think it was a typical Monday morning,” writes Greg Guenthner of our trading desk.
True enough. As we write this morning…
- The major U.S. stock indexes are in the red, but not appreciably. The Nasdaq is the big loser, down 1% on the nose
- Treasury prices are rallying, sending yields down; at last check, the 10-year yield was 2.39%
- Gold popped a bit overnight but has given up most of that gain. The bid is $1,176
- Crude is off nearly a buck at $58.79.
No, if you want evidence of distress, you need to look elsewhere…
Tokyo’s Nikkei index closed down nearly 3%. The Shanghai Composite, more than 3%. Germany’s DAX closed down nearly 3.5%. France’s CAC 40 slumped nearly 4%.
The Greek stock market? It’s closed all week… but GREK, a Greek ETF, is down 16%.
“My mother-in-law queued up for over an hour at the cash point just to be able to withdraw a small amount of money,” Athens resident Ilia Iatrou tells the BBC.
If you can find a functioning ATM in Greece, the most you can take out today is 60 euros — about $66. The banks are closed all week.
Last Friday night, Greece’s prime minister called for an instant referendum on the terms of a new bailout deal with the “troika” — the European Commission, the European Central Bank and the International Monetary Fund.
The vote will take place next Sunday. Well, that’s assuming the Greek government has the funds to open the polling places and pay the poll workers; there’s some doubt about that in the European press — heh.
Greece owes the IMF 1.6 billion euros, payable before the close of business tomorrow. For the moment, the IMF appears unwilling to bend that deadline.
In addition to the stingy ATMs, capital controls are now in effect. Money can’t exit Greece’s borders.
“Those controls hardly ever work,” says our friend Chuck Butler, managing director at EverBank Global Markets. “Dozens of countries like Mexico, Iceland and Thailand have imposed capital controls since WWI, and the IMF’s studies show that only a few countries with strong, sound economies succeeded in slowing funds leaving the country.”
Greece does not have a “strong, sound” economy, to be sure.
But the euro itself? It’s just fine — contrary to any hand-wringing you see in the elite media.
A typical entry is this morning’s New York Times: “Capital controls that limit people’s ability to withdraw and move money out of the country are, it is safe to say, not a sign of a healthy currency union,” writes columnist Neil Irwin. “It would be hard to call the dollar the national currency of the United States if laws prevented me from taking Maryland dollars and depositing them in a Virginia bank.”
A laudable attempt at analogy, but it’s based on a flawed assumption — that the euro is an economic project. As our Jim Rickards has long reminded us, it’s a political project.
“American analysts in particular have been negative on the euro for years,” says Jim. “From 2011-14, analysts were convinced that the euro would collapse; Greece would be ejected from the eurozone; Spain and Portugal would quit for their own good; and Germany and Netherlands would withdraw into a new ‘Northern Tier Euro,’ leaving the periphery in the dust.
“In 2011, I said that this negative forecast was nonsense and that the euro was strong and getting stronger. I also said no members would quit or be pushed out and new members would join. Since that time, eurozone membership increased from 16 countries to 19 countries and no countries left the euro.”
Nothing that’s happened in the last 72 hours has altered Jim’s analysis. “This looks like a German miscalculation to me,” he said on Bloomberg TV this morning. “Germany miscalculated, they pushed Greece a little too far, Greece overreacted.”
Jim figures the two sides will come to terms. “They’re not that far apart,” he says, after reading the proposals from both sides. Besides, as he pointed out earlier this month, European leaders can work off a template from two years ago.
And the euro is showing its resilience even this morning. It got whacked about 2% against the dollar overnight, but then it recovered. As we check our screens, lo and behold, it’s up slightly, at $1.118.
Jim still sees the euro strengthening toward $1.20 in the weeks and months ahead. “A weak euro means a strong dollar, and that is killing the U.S. economy.”
As Jim is fond of saying, central banks have to take turns weakening their currencies — they can’t all do it at once. It’s still the dollar’s turn to take a breather after its big run-up late last year and early this.
Still, it’s no fun to be in Greece right now. Ilia Iatrou, the aforementioned Athens resident, calls the situation “unbearable.”
“I haven’t tried to go to the cash machine myself, as we don’t have much money left. My neighbors and I have now resorted to a sort of barter system among ourselves because we have no money left.”
On the international news channels we monitor, we see there’s been a run on gasoline. Many stations are now closed. The ones still open are limiting purchases to 20 euros, or $22.
The grocery stores? No better…
Maybe you can’t shake the nagging thought that something like this might be coming much closer to home.
And sooner, rather than later.
It’s a thought that’s consumed Agora Inc. founder Bill Bonner these last several months. “At this very moment,” he says, “the highest levels of our government and banking system are locked in a desperate last stand against a disturbing shock… and it looks like they’re about to lose the fight.”
What could follow? “One by one, every service you’ve come to depend on, from your bank to your grocery store to our federal government… will shut down.”
But you don’t have to be helpless. Bill has developed a comprehensive action plan to help you not just survive, but thrive.
No time like the present to give it look. Click here to begin.
And then there’s Puerto Rico… where the governor says the commonwealth’s public debt is “not payable.”
“There is no other option,” says Gov. Alejandro Garcia Padilla. “I would love to have an easier option. This is not politics, this is math.”
Puerto Rico has piled up more municipal bond debt per capita than any U.S. state. But unlike U.S. states, or cities, Puerto Rico doesn’t have the legal authority to file for Chapter 9 bankruptcy protection. There’s no “Detroit option.”
So Garcia Padilla and his team will go into extensive talks with the island’s creditors, hoping to defer some payments and stretch out the timetable on others.
In March, our income specialist Zach Scheidt urged his Lifetime Income Report readers to close out positions in municipal bond funds because they’re sensitive to interest rates, which are rising of late. Good call: Many of those funds are down about 4% since.
As long as we have blown deadlines on the brain, we should mention the Iran nuclear talks.
They will indeed spill past the latest deadline of tomorrow — as we suggested they would three weeks ago after Secretary of State Kerry broke his leg.
The “real” deadline might well be 10 days from now — July 9. The following day, Congress returns to session.
“As part of an agreement with the U.S. Congress,” says The Associated Press, “lawmakers then have 30 days to review the deal before suspending congressional sanctions. But postponement beyond that would double the congressional review period to 60 days, giving both Iranian and U.S. critics more time to work on undermining an agreement.”
It’s worth reminding you of a heads-up we got from Byron King earlier this month: Assuming a deal can be reached, look for sanctions to ease and up to 50 million barrels of oil stored on tankers to hit the market. That would suppress oil prices, at least for a while.
In setting out to find the daily dose of financial “quirk” you typically see before we get to our mailbag, we sought out comic relief in light of today’s mostly depressing content.
Alas, all we could find was “the world’s most dangerous wine,” as described by the London Telegraph.
Chateau Bargylus was on exhibition this month at the Vinexpo wine fair in Bordeaux, the first such wine to hail from… Syria.
A year ago, two stray mortars hit the Domaine de Bargylus vineyards. Fifteen chardonnay plants fell as casualties.
“We don’t know where they came from but probably from a village around three kilometers away controlled by ISIS kind of people,” says Karim Saade, a Syrian-Lebanese man who runs the wine estate with his brother Sandro. “The situation is not great we have to admit, but we have no choice but to continue.”
The vineyard opened for business in 2003 — years before Syria’s civil war broke out. These days, the brothers stay in Beirut, Lebanon. They have about 35 local workers — whom they pay in dollars, because the work is dangerous and, well, no one wants the Syrian pound these days…
“My old, German grandmother gave me my first lesson in fiat currency,” a reader writes as our Iraqi dinar discussion slides onto another tangent.
“While I was still in early elementary school, she presented me with a 500,000 mark note for a plaything. By asking questions about the value the bill and of a mark, I found out that ‘old marks’ had no value but ‘new marks’ were worth about a quarter at that time, and of course, my toy was old marks.
“I’m sure I still have that bill somewhere — probably in the same drawer with the $5 silver certificate on which the U.S. dishonored its promise to redeem in silver. I keep that to remind me that I could buy a new $5 FRN for the silver value of the dime and quarter that my mother used to give me in junior high each day to buy lunch in the school cafeteria. But we don’t have an inflation problem in the U.S.: 2% inflation is ‘healthy.’
“P.S. I’ll sell the 500K mark note for $10,000 in FRN notes to the first dinar speculator who calls, and I’ll throw in a Z$100 trillion note as a bonus.”
“In your Saturday edition,” another writes, “Brian Maher referenced what is currently on the currency: ‘This note is legal tender for all debts, public and private.’
“Actually, that is not even true anymore unless a lot of people are breaking the law. You cannot pay cash in a lot of places anymore. Ever try to pay for a drink on a plane with cash?
“When I was in graduate school in 1970, the university agent that collected money for parking tickets kept getting robbed, so they decided to not take cash anymore. They said checks only. Someone challenged their right to do that because of what it said on the currency, and it was upheld and they were forced to start taking cash again. But apparently, that rule has changed, or maybe no one is challenging it anymore.”
The 5: Good point. Cash is, indeed, unwelcome in many situations.
On the other hand, we’re heartened by the number of gas stations that have resumed offering cash discounts. If only they didn’t insist on prepaying…
“I agree with the reader on Friday,” writes an individual who objects to lengthy sales pitches, “and think your response was not only insulting to your subscribers (he was a sucker that bought one of the sales pitches) but a very inadequate answer.
“I’m trying to figure out what I really get for my money other than a link that you have to watch for 30 minutes or more that never gives you an answer — just a pitch to put more money in. Sorry, but I’m getting a bit Agora-phobic.”
The 5: What do you get for your money? That’s an important question. We think about it every day.
Our records show you subscribed to Jim Rickards’ Strategic Intelligence six weeks ago. We hope you got your copy of Jim’s book The Big Drop. By now, you should have gotten two of your monthly issues as well. You should also be getting Jim’s weekly wrap-up, featuring links to articles that flesh out the themes he writes about. You should also have had the chance to listen in to one of Jim’s live briefings, in which he answers reader questions. If you’ve missed out on any of these things, please alert our customer service team.
As part of your subscription, you also get this daily missive. It’s a window to all of the ideas our editors are working on here at Agora Financial — Chris Mayer’s search for 100-baggers, Byron King’s encyclopedic knowledge of the natural resource sector, the high-tech and biotech insights of Ray Blanco and Stephen Petranek, Zach Scheidt’s income-generating ideas and so on.
The 5 is designed so you’ll learn something new and interesting even if you don’t click on any of the links. If you do click on the links, you’ll see we take our editors’ best ideas, package them in the most alluring way we can and see whether you and other readers respond with your wallets.
That’s how we earn our bread and butter. It’s a lot more honest, we think, than producing print or Web or TV twaddle that’s geared toward pleasing advertisers on Wall Street instead of readers.
Sucker? No, you’re a valued customer. As are all the people who’ve paid us in hopes we can deliver ideas to better their lives. We know we must continue to deliver those ideas long after the sale. If we do anything that falls short, please let us know.
The 5 Min. Forecast
P.S. “I don’t understand all the hullabaloo about the term ‘crony capitalism,'” writes one more reader carrying on a topic from last week. “Personally, I prefer Bill Bonner’s ‘zombies.’
“The image of the undead feasting on my brains gets the image across so much better. Also, it’s a chance to shamelessly plug his fantastic Hormegeddon.”
“Zombies” is, indeed, a terrific metaphor. And Hormegeddon is a terrific book. If you don’t have it, you can get a FREE electronic copy along with a comprehensive lineup of special reports Bill and his team have assembled to help you prepare for the day the ATMs stop functioning the way they should. Access here.