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Graham Summers’ Weekly Market Forecast (All Eyes on Greece Edition)
This week we
won’t be looking at charts, but instead discussing the most important macro issues that will determine the
future trends of all asset classes.
Tomorrow
Greece’s parliament votes on whether or not to implement more “austerity”
measures, also known as cutting social programs and raising taxes. Greek
citizens, enraged that they keep picking up the tab for banks (both domestic
and international) that made poor bets on Greece, will be implementing a series
of strikes and riots.
However, the
facts remain the same. The world is awash in garbage debt. The only reason the
banks and others haven’t taken the “hit” that they NEED to take is because
they’ve bought out the politicians. Put another way, we are seeing clearly that
the two primary principles of the West (capitalism and democracy) have both
become jokes: alleged “capitalists” like the banks don’t ever actually see
losses for mistakes and “democratically elected” leaders are in fact owned
outright by the banks via donations/ bribes.
Greece,
while ultimately a small player in the global debt game, will set the course of
the rest of the financial world this week. If Greece implements more austerity
measures, that the “extend and pretend” game will continue a little longer, the
Euro, stocks and commodities will rise, and the US Dollar will fall.
However, if
Greece doesn’t pass more austerity
measures, indicating that the bailout/ stimulus nonsense has hit a wall, expect
a serious “risk off” move in which stocks, commodities, and the Euro to take a
hit, and investors rush into the US Dollar.
However,
this will not be a simple one-way street. The EU, and now China are both
committed to helping the failed experiment of the Euro continue its death
march.
Yes, you
read that correctly, China has committed to insuring that Eurozone debt holders
don’t take a haircut. It’s even mentioned possibly buying European sovereign
bonds outright.
The reasons
for this a multiple… but ultimately they boil down to:
1) China
wants to flex its “dump the Dollar” political muscles
2) China
wants to support its primary export market.
China’s been
warning about the US Dollar as an investment for years. They’ve lowered their
Treasury holdings for five months straight and have even hinted they might cut
their holdings by 2/3. So China’s move to support the Euro can be seen as a
continuation of this “anti-Dollar trend.”
Regarding
exports, the EU accounts for roughly $400 billion of China’s exports, making it
China’s single largest export market. So if Europe collapses, China’s economy
takes a BIG hit.
And all of
these issues (China’s exports, the bailout madness, European bank debt
holdings, Greece’s sovereign collapse, the future of the Euro, and stocks,
commodities, and the Dollar’s trends) hang on Greece’s shoulders this week.
With that in
mind, the Greece situation needs to be watched very, very carefully as all
investments will trade based on this outcome and the subsequent interventions
by the EU/ China. With that in
mind, stay nimble and don’t over-commit to anyone outcome just yet.
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Good
Investing!
Graham
Summers
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China is making a correct and an incorrect move.
The correct move is that China SHOULD be taking the credit for supposedly propelling the EURO experiment.
Why should China lend money to the US who in turn gives it to the IMF ?
Furthermore......is it not rather rediculous for the US to have any say in the use of Chinese funding ?
The incorrect move is that other than a self fullfilling prophesy of filling the shelves of WalMarts so that Chinese labor has a job....what is right about the EURO ?
Nothing comes to mind. The EURO is a failed academic experiment.
........................
What the US SHOULD do is to bring US labor in sudden equilibration thereby pressing the reset button on manufacturing by mandating that government revenues cannot exceed 10% of consumer prices.
Thereby removing all taxes except for a 10% consumption tax.
....................
Chips fall where they may....
....................
The real test ?
What would be the size of a recovering economy that has a 50% tax take in 10 years versus a tax take of 10% ?
Would Americans appreciate never again paying any individual income taxes ever again ?
Would America rock and roll ?
Or should America be controlled by empty suit politicos ?
......................
real time tv, its game on, cmon people.
1) Euro zone isn't all that much bigger than the US as a trading partner, at least export markets for them.
2) If either the Euro or the USD explodes, China goes straight to hell (the whole world does). As a matter of fact all that crazy internal lending and stimulus is to keep people employed and growth rising. They should be, and behave as if they are, scared as hell of a major global or regional (US or Europe) economic decline which significantly depresses demand (i.e. strong recession/depression).
3) The status quo works fine for China and plays perfectly into their hands. They have an interest in preserving it for now (a massive one) and have a demographic timeclock to where their one-child leverage policy turns into demographic pain. Globally everyone is aligned in wanting as smooth a ride as possible in this no matter what they say. And if things get bad, they will all miraculously get on the same page real quick - just a matter of tolerance for pain.
4) China's competitive advantage is labor arbitrage - that's the big one. For this they need to keep their currency low relative to both trading partners. If the USD stabalizes or moves up, they won't be increasing their relative percentage of Treasury reserves as they don't need to manipulate themselves as they do when it moves down. The Chinese think long-term so while they will certainly flex political muscle, they have no interest in seeing the game change suddenly on them as everyone currently in power wishes to remain in power (not a shocker) so social unrest and revolt is not in the cards (see massive current stimulus 4x the US on GDP basis).
5) Keep in mind that it is relatively easy to replace or harm a low value add manufacturer - they are smart enough to know this, and they can hurt developed nations pretty well too. Plenty of other impoverished countries out there that can provide manufacturing. I'd also say that it's pretty hard to instantly suplant or ignore the significance of say the US Navy (11 carrier groups and more battle tonnage than the next 13 largest navies combined). I know you are short the USD and you believe it's all going to hell but if that comes to pass in a major way, there will be no safe haven and it will be preceded by global anarchy and the strongest USD market in the world with massive negative interest rates as global elite pile into the last safe haven standing. BTW, plenty of wealthy people from super-strong EM countries still coming to USA, despite all the flaws, to establish a base and house major financial capital against an adverse turn of events in their own countries.
It might be worthwhile adding that while US Treasury purchases were down recently, Agency purchases were up significantly to offset. If they really didn't want to own Treasuries for default risk - why the hell would they buy Agencies and arguably take a step down in credit (reality not assumed backing). Simple answer is yield, currency mechanism is identical so they accomplish their goal.
+1
Over 2000 years later, and Greece brings the world to its knees again.
I can only see greek knees right now hitting the tarmac! You are extrapolating the outcome somewhat...
Why is it that just before the world financial system is brought to the brink (of extinction) someone runs to Jamie for 'help'?
June 28...........A Day In History.
The average Greek family is being asked to take about a 3500 dollar tax hit in the austerity program.Give or take.
To bail out a bunch of criminal bankers, cunningly aided and abetted by the legerdemain of those foul criminals at Goldman Sachs, who should and may very well soon be decorating lampposts, in piano wire supports.
Somehow this is counterintuitive, I dont think they are going to do it. I think this 48 Hour General Strike is Bastille stuff. I think a lot of people might show up at those Parliamant Buildings.
There is a fallback plan. From the French, gee i feel better. Oh really, Iceland told them to fuck off. I expect Greece to do similarly, and then the dominoes start to really rock.And its over.
This is a bit florid, but the next 48 hours might be the most important 48 hours in the history of contemporary Civilization, one persons opinion.
serious question, the 48 hour greek general strike is hours away, does anyone know a live tv link, or the best possible way to follow events in real time, thx ladies n gents.
Not sure if they will cover or not, but Al Jazeera usually does a pretty good job. http://english.aljazeera.net/watch_now/
Buying time for EU to get them out of the US HF 'hot money' derivative hook, to cool down the HF fed speculative spiral; all these reasons make EU/China objective allies. If they can kick the can three years on PIGS they will have time to replace the USD by Yuan reserve currency. Then the real war will begin of EU/China/Bric against USD hegemony. But that is 2015 onwards... This is interim 'foot in the door' clutch play, in the overall grand design to kick the USD role as reserve currency to foggy bottom one day. Lets see how "the market", essentially US HF/PDs, will react to this new China Challenge; as they make Greek sovereign debt the new Trojan horse in the three way currency war.
I agree. I think China is hoping to buy some time to get the EU back together. The problem is the US is filling private banks full of cash (QE2) so they won't mind a hit from the Greek collapse.
Another problem is confidence in the Euro is failing daily. Considering the US and the UK both have control over the ratings agencies and are largely in control of the markets it doesn't look good for the Euro.
It looks like Germany tried to conquer Europe again, and it fell on the UK and the US to put a stop to it. Both are acting in their own self interests of course.
The Chinese buying Euro bonds outright is too little too late I think. If Greece attempts to reissue debt at less than parity it will be considered in default. This will mean the ECB can't loan it anymore money and the Euro is dead. As mentioned, if the Euro dies so does China.
This article is spot on. I cant believe the French are extending some bond debt out to freakin 30 years. The bottom line is that this restructuring is Greece finally defaulting on their bonds without using the word default.
So, China is still the linchpin.
I wish the strike-thru function worked so I could have made it "lynchpin".
More appropriate.
I too have noticed the non-functioning strike through.
Annoying. Perhaps the trolls were using too successfully?
Alternatives?
sample:" Linch(lynch?)pin "
"However, if Greece doesn’t pass more austerity measures, indicating that the bailout/ stimulus nonsense has hit a wall, expect a serious “risk off” move in which stocks, commodities, and the Euro to take a hit, and investors rush into the US Dollar."
Are they really going to try that play again? Well, I guess three years is a long time for goldfish.