Tags: Greece | investing | debt | negotiations

Investors Should Play It Safe Until Greece Provides Greater Clarity

Monday, 06 July 2015 07:30 AM Current | Bio | Archive

I don’t know if signs are as important as many of us think they are, but, what’s for sure, things are what they are, and, interestingly this morning in Brussels, one EU flag was missing in front of EU Berlaymont building. In all honesty, I don’t know if this was a sign of things to come. Of course, the missing flag could be nothing more than pure coincidence.

That said, thanks to the Greek referendum that resulted in a resounding and surprising (the polls were wrong again!) “no” vote with 61.3 percent of the Greeks having voted “no”, the question of the moment becomes if the Greece-EU-IMF game of chicken will continue, or, who is going to lose face first; will it be Greece or the EU or, who knows, everybody involved?

To put it very simple and with what we know at this moment, I can’t see any good outcome for Greece and the EU as well.

About Greece, which implies of course what markets could have to face next, it probably will all about what happens the days after tomorrow.

On Tuesday, we’ll have another EU extraordinary crisis meeting that has been called by the German Chancellor Angela Merkel and the French President Francoise Hollande.
Investors should pay attention as Tuesday’s eurozone summit could mean (1) the start of negotiations for a new bailout package for Greece, or (2) the Eurozone policy makers could signal their agreement to the ECB for cutting its Emergency Lending Assistance (ELA) program, which irrevocably would mean Grexit and Greek banks being obliged to bail-in, similar to what happened in Cyprus a couple of years ago, with haircuts on the amounts of deposits above 8.000 euros of 30 percent as the Financial Times informed on Saturday.

Yes, these days in Greece, a euro in the pocket is worth much more than a euro in the bank … No, that doesn't bode well.

On Monday (today) we got Shakespearian language at its best from Greece (Don’t worry in case you, as a serious investor and not as a casino player, think you don’t understand what’s going on in Greece and the EU. Believe me, it’s not only Greek to Greeks!) when Greece’s Minister of Finance Mr. Yanis Varoufakis announced on his personal web page: “… Soon after the announcement of the referendum results, I was made aware of a certain preference by some Eurogroup participants, and assorted ‘partners’, for my… ‘absence’ from its meetings; an idea that the Prime Minister judged to be potentially helpful to him in reaching an agreement. For this reason I am leaving the Ministry of Finance today … And I shall wear the creditors’ loathing with pride…”

Nevertheless we could say: “If Greece gains EU concessions for ditching Varoufakis, then Greece’s Finance Minister’s nearly impossible behavior was a clever “game theory” played by him together as well as by Mr. Tsipras. Of course, winning a battle isn’t synonym of winning a war.

Perhaps the real answer as to what happens next, but that isn’t for sure at all, came from German Finance Minister Wolfgang Schaeuble who was quoted on Saturday by the German tabloid Bild: “Greece is a member of the eurozone. There is no doubt about that. Whether with the euro or temporarily without it: only the Greeks can answer this question. And it is clear that we will not leave the Greek people in the lurch.”

What’s crystal clear for now is markets don’t seem to like the Greek referendum results as we have seen the yield of the 2-year Greek sovereign jumping to 47 percent.

Also, Greece's 10-year yield jumped briefly to above17 percent, which was its highest yield since 2012.

In the meantime, JP Morgan, Goldman Sachs and other important global banks now consider a Grexit as the most probable outcome that awaits Greece. Again, we aren’t there yet.

As an investor I would prefer to play it safe and remain extremely cautious as even a so-called unexpected scenario for what happens next to Greece remains a fully unanswered question.

We’ll see if the eurozone as well as investors will have learned their lessons from the past and do not succumb to the enchanting sounds of the Greek sirens (as was the case in the Greek mythology) that will guide them and shipwreck them on one of those rocky coasts of their country.

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As an investor I would prefer to play it safe and remain extremely cautious as even a so-called unexpected scenario for what happens next to Greece remains a fully unanswered question.
Greece, investing, debt, negotiations
Monday, 06 July 2015 07:30 AM
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