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Bear Week Begins
If you’re just waking up, chances are you’re waking up to the news that you’ve lost money.
The Greece crisis is being likened to an economic Sarajevo. The markets are sinking faster than I can type. Asian stocks began tanking hours ago. (Last I checked, the Shanghai Composite Index was down 3.7%; the Nikkei 225 down 2.4%; Hang Seng down 2.7%; Sydney’s S&P ASX-200 down 2.3%; Seoul’s Kospi … well, you get the drift. By the time I hit “publish” these numbers are sure to be down further.) The European markets opened a few hours ago and … wow. Stampede city.
Yesterday, Puerto Rico — well, I’m sure you heard:
The governor of Puerto Rico has decided that the island cannot pay back more than $70 billion in debt, setting up an unprecedented financial crisis that could rock the municipal bond market and lead to higher borrowing costs for governments across the United States.
Puerto Rico’s move could roil financial markets already dealing with the turmoil of the renewed debt crisis in Greece. It also raises questions about the once-staid municipal bond market, which states and cities count on to pay upfront costs for public improvements such as roads, parks and hospitals.
For many years, those bonds were considered safe investments — but those assumptions have been shifting in recent years as a small but steady string of U.S. municipalities, including Detroit, as well as Stockton and Vallejo in California, have tumbled into bankruptcy.
Now, seems to me the world has exhausted its monetary ammunition, so what next? How bad is this going to get?
The sinking euro means I just got a raise, in effect; but this is clearly a short-term blessing. Not that I’m not counting my blessings. Believe me, I am. But obviously this personal rising tide won’t be enough to lift all boats — including mine, ultimately — so I’m not celebrating.
So, Ricochet, how’s the day going for you, financially?
Published in Economics, General
Personally not that bad actually. I’ve been on the sidelines for several years, and therefore missed a good chunk of the bubble we have had. Things like this
have made me feel the whole thing has a bit of unreality to it. I hope no one takes too big a hit in the coming days, after all as we have been repeatedly told the Greek economy is too small to matter.
We have? I’ve been exposed to different media influences here in the Eurozone, obviously, but I don’t remember hearing this. On good days, I hear, “This won’t necessarily entail an economic apocalypse.” That’s as cheery as it gets.
Yeah, lots of reports that the Greek economy is too small to matter, and the Eurozone has put a “fence” around it, and the market has already priced in Grexit. Then again the entire Balkans weren’t worth the bones of a single Pomeranian grenadier…
Greece will likely exit the Euro, which will be bad for Greece near-term but good longer term. When that happens, the Euro will probably strengthen and hold back the European recovery.
Puerto Rico not a big problem, relatively small amount of money.
The bigger risks are political. Greece may move further left or join the Putin sphere. And now that we are no longer looking at Greece, how are things going Portugal, Italy, Spain? Will others exit the Euro? That would cause periphery markets to fall significantly as bond spreads widen again.
Germany needs the Euro because it is weaker than the Mark would be. Exports are half of GDP for Germany, compared to only 30% for France, Italy, and 15% for the US.
Man, not what I’ve been hearing …
What makes this especially — interesting, shall we say? — is that really, no one knows to what degree these anti-contagion measures have truly been implemented. I guess we’ll find out.
Every lender will take a haircut, say get 40 cents on the dollar, and we will move on.
This chart is also interesting. There are going to be some angry folks in Estonia and Slovakia
A little dated but I think still applies…
How long will it take to re-institute the drachma? Six months? A year? At the end of that period, they will be ready to issue a brand new currency backed by the full faith and credit of a hard Left government with no natural resources to speak of.
Stop laughing.
Based on all that, they will then be able to pay off existing debt or, more likely, assume new debt to revitalize their economy with a stimulus package.
I mean it about the laughing. You are not helping at all.
Not laughing, here. Every time I hear a European leader assure me that the risk of contagion is low as he emerges ashen-faced from an emergency meeting (and they’ve all been in emergency meetings, all morning), I have less and less confidence. I can easily see the markets spiralling into panic.
“This is not going to be a contagious effect.” – someone on TV as markets swoon. Jean-Claude Juncker (President of the EC) speaking live now. He sounds like he’s losing it: “You shouldn’t commit suicide because you’re afraid of death.”
Oh, man.
Not available for free on the Internet regrettably (fellow Ricochetti, prove me wrong, please).
If you can find it though, read C M Kornbluth’s short story Dominos that describes a similar market swoon.
Brilliant punditry abounds:
Gotta put that one on my Greatest Hits of the Dismal Science list.
Q. A Greek, a Portuguese and a Spaniard meet in a bar. Who picks up the tab?
A. The German.
I had promised myself a week off of news after last week but I can clearly see that my memo to the world to take a break has been completely ignored.
the dirty Nazi…..
Claire, you need to change the title, the “Bear Week” thing’s been taken.
It may be easier to ignore this news Stateside, but I’d pretty much have to put in earplugs and hide under my bed to avoid it here. CRISE CRISE CRISE EN DIRECT EN DIRECT EN DIRECT everywhere. (Crisis, crisis, crisis, live, live, live … )
Greek crisis has not affected my holdings:
Canned goods–no change
Ammo–no change
Canned water–no change
Gold–same weight
Although, I am considering some upgrades to the bunker. A whole new look could be, as Justice Anthony ‘Zeitgeist Tony” Kennedy might say, FABULOUS.
Hasn’t been going to good for you guys lately.
Go Pack Go.
Well, we got important stuff going on over here in the States, you know? Bruce Jenner’s gonna take a film crew to his first shopping spree as Caitlyn.
This week in debt will be like last week in SCOTUS. I reckon it’s just a time zone issue — I got hit first, but you’ll be hearing about it nonstop soon enough, I bet.
You know, I spent a couple of years writing a book about this, but that sums it up way better. And it’s free, too. In all honesty, I have to say you can save yourself time and money and just listen to that. Dead on.
If the Greek economy is too small to directly affect the US or Germany, that doesn’t mean we will ultimately be unaffected. What other small national economies are invested in Greece? What other struggling economies are invested in Greece? What mid-size economies are invested in those nations? The investments don’t need to be large — just enough to be the straw that breaks the camel’s back.
I haven’t followed this topic for many months and won’t venture a prediction. But the domino effect does not require members of equal size. The political and cultural effects (such as the rise of a dictator) might be greater than each dilemma merits. And markets are not driven by cold and objective reasoning, so the effect on American investors might be similarly exaggerated.
It’s better to get this over with. Greece should have been cut loose when the problem first emerged. There’s going to be a pull back in the markets, but, in the end, I believe it will be modest and temporary.
Two interesting articles from last week:
http://www.dcclothesline.com/2015/06/23/its-time-to-hide-cash-under-the-mattress-bond-manager-warns-of-system-wide-collapse/
http://alt-market.com/articles/2626-the-us-and-eu-will-collapse-regardless-of-economic-contagion
I have learned that things can happen overnight (like 2008) when we were within days of a major meltdown and emergency measures had to be implemented within 3 days….. Entire economies can collapse fast (first person stories from people who experienced it in small countries where suddenly it was lights out) and the people in charge won’t tell you until it has happened. If you are reading these headlines, maybe get extra cash out now, stock up on essentials (Claire-cat food!!), just makes good sense in general. The stock market has been propped up for so long, and everyone I know is just trying to make ends meet. So the ones getting rich can’t be average citizens.
As it happens, I order the stuff in vast quantities. Huge savings if you order a thousand cans at a time, so my apartment is (literally) packed to the rafters with it, and yes, I do literally have rafters; I’m on the top floor of an old building. If the worst happens, there’s enough cat food here for us all to survive at least a month.
That’s no fun. Survivalism is no fun. Better to have fun and die earlier.
Us? I hope you at least bought the Fancy Feast….