Markets Remain on a Knife's Edge, by Mike Larson, June 22, 2015 [Money and Markets]...
With the clock rapidly ticking down to zero, Greek officials
lobbed a Hail Mary today. Specifically, they proposed additional tax increases
and spending reductions to secure urgently needed aid from their European
creditors. The new plan would modify pensions and value-added taxes in such a
way that would mollify Europe, but also not provoke a backlash in Prime
Minister Alexis Tsipras’ own Syriza party.
Euro-zone finance ministers didn’t sign off on the proposals
at their emergency meeting today. It broke up without a concrete deal. But the
head of Europe’s finance group, Jeroen Dijsselbloem, took a much more
optimistic tone in post-meeting comments – suggesting a deal may be reached
before the week is out. Greece’s Syriza party has submitted a proposal to
creditors in an effort to prevent a collapse of the country’s finances.
Markets were clearly happy at the renewed signs of progress.
Stocks jumped around the world, while credit markets calmed down, too. But the
flood of money out of the Greek banking system showed no sign of letting up.
Withdrawals were so heavy in the last two business days that
the European Central Bank had to raise its Emergency Liquidity Assistance limit
again by roughly 2 billion euros. That was the third such hike in less than a
week. Official capital controls haven’t been implemented … yet. But banks are
“unofficially” limiting withdrawals to 3,000 euros, according to some reports.
Bottom line: Markets remain on a knife’s edge. We can easily
swing 100, 200, or more points, depending on the latest batch of headlines
coming out of Europe. Frankly, I’m sure you’re as sick of this as I am – and
would rather get resolution one way or the other ASAP. The good news is, that
appears to be forthcoming over the next couple of days.
“Markets remain on a knife’s edge.”
So what do you think will happen? Is this latest proposal the
breakthrough Europe needs to move on? Or are we going to be right back in the
soup again soon? Do you think other countries besides Greece are going to run
into the very same debt problems? Or is this going to be the end of the
European debt crisis? I’m very interested in hearing your thoughts over at the
website.
Our Readers Speak
Meanwhile, in response to the pre-weekend wrangling over in
Europe, many of you weighed in already.
Reader Fred1 said: “The situation in Greece is very bad, and
their Socialist leader behaves like OUR Socialist leader: More spending and
more borrowing when the larder is empty.
“Well, the end of the road appears nigh for Greece now and
it looks like it will be time to pay the piper. No man, no country and/or no
entity can continually spend significantly more money than it makes, and these
bank runs will be just the first of many bad things coming for Greece.”
Reader Alinn picked up on that theme as well, saying: “The
Greek government has its head in the sand about their financial crisis. From my
experience with Greeks, they are very arrogant and believe they are entitled to
get what they want.”
Reader Jim said it’s important to view the crisis with an
eye to geopolitics. His take: “For over one hundred years, the Europeans have
used Greece as a barrier against expansion from the East. First the Ottoman
Empire, then the Communists. The possibility of the Russians or Chinese
occupying Greek naval bases is unthinkable for them. This isn’t about
economics, but geopolitics. They will deny reality and figure out a way to kick
the can further down the road.”
Reader Tom said he’s not all that concerned, even if Greece
does default. Why? “American markets
have already priced in a Greek default. It’s old news. The question is, if Greece
does NOT default, how will it affect the markets? The Fed?
“Greece is a fairly small country (11 million people or so)
and has little impact on most companies. It seems to me that the pressure now
is all on Germany to make a deal. In most scenarios, the U.S. stock market will
be largely unaffected by what happens to Greece. Buy the dips.”
Thanks for your input. If you haven’t had the chance to
contribute yet, I urge you to do so at the website.
Market RoundupDow+103.83 to 18,119.78S&P+12.86 to 2,122.85NASDAQ+36.97
to 5,153.9710-YR Yield+0.093 to 2.36%Gold-$16.60 to $1,185.20Oil+$0.07 to
$59.68
Source: Mike Larson, money and markets.com
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