- No, Greece won’t wreck the financial world
- And neither will China
- But we’re still on alert
- Fair game for bail-ins: Deposits over $8,800
- What’s up with oil falling 5%?
- Pennsylvania liquor insanity… labor force participation reconsidered…. the Canadian omission… and more!
“UGH!” was the pithy assessment this morning of our friend Chuck Butler, managing director at EverBank Global Markets.
“There are other things going on in the world with the currencies and metals,” he writes in his Daily Pfennig. “It just seems like it’s all about this Greek stuff.”
Our own Jim Rickards, tweeting from London, is in broad agreement…
Alas, your editor realizes that’s probably not good enough for you, dear reader. After all, you’re inundated with Greece on the hourly AM radio news, on Drudge, wherever it is you turn for a headline fix. And then you turn to The 5 for perspective. We’d be falling down on the job if we merely said, “Move along, nothing to see here” — even if there’s nothing to see here.
And so we press on…
“So now the ugly starts,” Chuck Butler says of relations between the Greek government and its European creditors.
As we mentioned earlier this year, the current act of the Greek drama differs from the 2011-12 act in one major way — the German and French banks no longer hold much Greek government debt.
But Greek banks do. And they’re in a world of hurt. They count on emergency loan assistance — ELA — from the European Central Bank. “I would have to think that this ‘no’ vote is a nail in the coffin for ELA continuance,” says Chuck.
Thus the Greek bank holiday that started last Monday won’t end tomorrow as first planned. And talk of a Cyprus-style “bail-in” is underway.
Indeed, the talk this time is much more drastic. When Cyprus blew up in 2013, the only bank deposits that got a “haircut” were those over the deposit insurance limit of 100,000 euros. Bad news for Russian oligarchs hiding their money in Cyprus, but not the end of the world for everyday Cypriots.
Not so much in Greece, if rumors passed along by the Financial Times over the weekend prove true. Deposits over 8,000 euros — about $8,800 — would be subject to a 30% confiscation. Prudent Greeks who’ve saved up three-six months of living expenses for an emergency and keep those savings in a bank would suddenly have only two-four months. Ouch.
And we complain about “the punishment of savers” here in the United States…
“The next day that will loom large for Greece is July 20,” says Chuck Butler. Two weeks from today.
That’s the day we told you way back in April is really worth watching. On that day, the Greek government is due to pay 3.5 billion euros to the European Central Bank — a much tougher creditor than the International Monetary Fund, which got stiffed by Greece last week.
“I still think there will be an olive branch here,” Chuck tells us, “and a negotiation with an agreement in the next couple of days.”
That dovetails with Jim Rickards’ longtime assessment: The euro is more a political than economic project. So European leaders are highly motivated to keep Greece in the fold — using as much chewing gum and baling wire as it takes.
“Both sides still have the same interest in a negotiated solution because both sides have far more to fear from failure than from a few more concessions,” Jim writes in an original essay for today’s Daily Reckoning.
“The surprise resignation of the Greek finance minister, Yanis Varoufakis, will relieve some of the personal animosity and make resumed negotiations easier.”
Oh Yanis, we hardly knew ye. The man brought much-needed excitement to what our executive publisher Addison Wiggin calls “the longest, most boring financial crisis in history.”
Varoufakis: It was fun while it lasted…
When Varoufakis took office five months ago, he swore Greece was done taking on new debt to retire old debt: “We have resembled drug addicts craving the next dose. What this government is all about is ending the addiction.”
So much for that. With Varoufakis gone, the rest of the Greek government can stumble back to the negotiating table in search of the next hit.
The adjective the mainstream media uniformly applied to Varoufakis this morning was “combative.” Now the self-described “libertarian Marxist” will presumably return to his post at the University of Athens, not to mention his side gig at the University of Texas.
If he writes a memoir, it promises to be loads more entertaining than the bilge Ben Bernanke will dump on us this fall…
And then there’s China — where the government is stepping in to arrest a 25% slide in the Shanghai Composite Index.
In the Chinese zodiac, this is the Year of the Sheep… but since mid-June, it’s been the month of the bear…
This morning’s Wall Street Journal describes “weekend meetings by regulators and officials including Premier Li Keqiang.” The upshot: China’s central bank will make it possible for Chinese investors to borrow more money to buy more stock.
Here’s how it will work. The People’s Bank of China will furnish “liquidity assistance” to China Securities Finance Corp., a firm controlled by the government’s securities regulator. The firm will lend that money to brokerages… which could then lend it to its customers so they can buy stocks on margin.
As Dave Barry would say, no, we are not making this up.
“The exact amount to come from the central bank hasn’t been disclosed,” the Journal goes on. “The people with direct knowledge of the plan said no upper limit had been set.”
“The system is fragile, and these crises are urgent,” says Jim Rickards, surveying both China and Greece. “But they are also amenable to government responses.
“Individual bank and broker failures may proliferate. But the center should hold — for now.
“Some investors in Chinese stocks were wiped out, but the market is already rebounding thanks to government intervention. Some investors in Greek bonds may be pleasantly surprised as well. The headlines will continue for the remainder of the summer, but markets will eventually digest the news and move on.”
But “the makings of a massive global meltdown are still in place,” Jim says, zooming out to his wider outlook.
As you know, Jim anticipates a financial “avalanche.” It’s just that Greece and China won’t be the snowflakes that set it off. It will be something else. “The event that causes the crackup will come like a thief in the night. Yet it will come.”
And the global elites are preparing for that day — perhaps as soon as October, he suggests. “Years from now, historians will look back at this date as the day the rules of international finance were completely rewritten.
“If you’re a senior and rely on the government for income, you’ll be badly hurt. If you have any portion of your savings wrapped up in stocks… or if you hold any of your savings in U.S. dollars… you could instantly become poorer when this deal gets inked.”
Most ominously, savings accounts could be frozen — just as in Greece.
We urge you to pay heed to Jim’s newest warning. You’ll find it at this link — no long video to watch, we promise.
To the numbers: The Shanghai Composite rallied nearly 2.5% on news of the Chinese government’s measures. The major European indexes are taking the Greek referendum results in stride — more or less. Germany’s DAX closed down 1.5%, France’s CAC 40 down 2%.
Meanwhile, stateside…
- The major indexes opened down big, but have recovered much of those losses. As we write, the biggest loser is the Nasdaq, down only a third of a percent, at 4,993. The S&P 500 sits at 2,071
- Treasuries are rallying, sending the yield on a 10-year note down to 2.33%
- Gold is nearly flat at $1,167
- The euro has weakened, but not much — $1.107 as we write. That’s sent the dollar index up a skootch, at 96.2.
The biggest mover today is crude — down 5% at last check, clinging to the $54 level.
The financial media are flailing for explanations — China, Greece, the Ben Affleck-Jennifer Garner divorce. The most credible one from where we sit is the Iran nuclear negotiations. Word from Vienna is there was a “breakthrough” on Saturday, possibly clearing the way for a deal this week.
As you’ll recall, our Byron King heard a few weeks ago that Iran has 34 supertankers of oil — 50 million barrels worth — ready to hit the market whenever sanctions are lifted. The market might be catching on…
Competition is bad for consumers — or so Gov. Tom Wolf of Pennsylvania would have us believe.
Last week, the governor vetoed a bill that would have allowed private businesses to sell wine and liquor — long the monopoly of state-owned liquor stores.
“During consideration of this legislation,” he said, “it became abundantly clear that this plan would result in higher prices for consumers.”
As opposed to the high prices charged by the Pennsylvania Liquor Control Board (PLCB)? Reason writer Jacob Sullum recently comparison-shopped a state liquor store with a private establishment just across the state line in New Jersey.
“You’ll find,” he wrote, “that customers generally pay more for liquor in Pennsylvania: for example, just picking three products I often buy, $30 versus $25 for Bulleit rye whiskey, $52 versus $44 for 10-year-old Ardbeg Scotch and $44 versus $37 for Herradura reposado tequila (all in 750-milliliter bottles).”
Better selection, too — he found 354 varieties of Scotch in Jersey, fewer than 100 at the PLCB.
Defenders of Pennsylvania’s state liquor stores cite the revenue they raise. As if that’s any justification: “Imagine how much money could be raised,” writes Sullum, “if Pennsylvanians had to buy toilet paper from state-owned outlets.”
“Looking at the labor force participation rate chart made me wonder how it is calculated,” a reader writes after Friday’s episode.
“Seems in the early ’60s, the rate was only about 59%. Might that have anything to do with stay-at-home mothers being counted as nonparticipating? If so, isn’t this another example of how our society (government mostly) skews results to suit their own agendas? I.e., now more mothers working and fewer able-bodied men working to increase the participation rate?”
“You keep showing this chart,” writes another. “However, it is open to spurious arguments to defend it/Yellen et al.
“What you should be showing is this graph with the entrants coming into the market each year.
Then this graph would have some meaning and not be subject to frivolous interpretation by the experts.”
The 5: Hmmm….
New research from the Federal Reserve Bank of St. Louis surveyed the participation rates in the United States and eight other countries. It concludes “the U.S. is the only country in our sample experiencing a recent decline in the aggregate labor force participation rate. This is explained mostly by a larger-than-average drop in the labor force participation of prime-age males, a decrease in the participation of prime-age women and a lower-than-average increase in the participation of pre-retirement-age workers in the U.S. economy.”
These findings affirm a point we’ve made before: Contra the Pollyanna pundits, the declining participation rate is not all about baby boomers heading into retirement. The 55-and-over workforce has grown by 25% since the start of the “Great Recession” in late 2007… while the workforce age 25-54 has barely recovered that pre-recession level.
“Why isn’t Canada on the NATO defense spending chart?” a reader writes after Friday’s episode.
“Canada was a charter member of NATO,” writes another. “But your table of military moochers suggests that they no longer have a military. Although this is close to the truth, it hasn’t quite reached that (yet).”
“It is interesting,” writes a third, “that there are 28 members of NATO but you itemize the funding of only 27. Again, as usual, you Yankees forget that you have a neighbor to your north.”
The 5: Nostra culpa. Canada is very low on the list, spending about 1% of GDP on defense, comparable to the Czechs and Italians.
Best regards,
Dave Gonigam
The 5 Min. Forecast
P.S. We were shocked by the response we got from this controversial message.
It’s a new investigation into the Kennedy assassination that may reveal exactly who’s responsible… and why.
We’re shocked because we always thought that was something people wanted to know.
But judging by the backlash we’ve received, it seems the opposite.
We suggest you click here and judge for yourself.
