Tags: Art Cashin | Bob Pisani | Grexit | Greece

Focus Remains on Greece, Fed; Zombanks a No-Touch

By    |   Tuesday, 16 June 2015 08:10 AM

The Federal Reserve and Greece continue to haunt investors, providing "fear of the unknown."

In the first clip, Art Cashin, of UBS, and CNBC’s Bob Pisani briefly discussed the implications of a potential Grexit, with Pisani noting that there is no consensus as to what the most desirable outcome is and Cashin saying that most of the Greek debt has moved into official hands.

But Cashin said the pressure is on Germany’s Merkel, as the leader of the eurozone, to manage the circumstance and on Federal Reserve Chairman Janet Yellen to provide “a long explanation” in conjunction with this week’s meeting of the FOMC as to how the Fed can raise interest rates at the same time that the IMF and World Bank are calling on the Fed to be cautious and delay the move.

In the next clip, CNBC’s Steve Grasso complains about the lack of liquidity in financial markets outside of the opening and closing, and then Bill Griffeth asks him just what traders are worried about with respect to Greece.

Grasso responds that the markets are trying to price in risk but are dealing with “fear of the unknown.”

He recalled that “subprime was the train that hit you when you were looking the wrong way down the tunnel,” and the outcomes and strategies regarding Greece “change on a daily basis.”

Grasso’s reference to subprime is another indication of what this writer, who predicted the crisis episodes of 1988 and 2008, suspects, that another one may be in store for 2016.

Another way of looking at this is to consider that the U.S. has never fully emerged from the 2008 crisis.

Rather the authorities have used the Fed’s humongous balance sheet and perpetual ZIRP/QE to avoid the “write downs and fire sales” that the IMF’s Christine Lagarde, Yellen, and Treasury Secretary Jack Lew fear so much.

Lew is scheduled to testify before the House Financial Services Committee on the annual report of the Financial Stability Oversight Council (FSOC) on the same day the FOMC meeting concludes.

In a classic interview, Andrew Wellington, CIO of Lyrical Asset Management, who has an outstanding performance record based on limited trading in a small group of liquid stocks, is introduced as an investor who has indentified one group that he must avoid.

At that point, this writer is thinking, “Banks!” Like an echo the answer comes back, and Wellington proceeds to explain that he started out consulting on banks, and he now avoids them “because I know them really, really well, and I know how difficult it is to get them right.”

He stressed that a “simple truth” of investing is that one must “get the earnings right,” and he found there were too many difficult variables. “There’s volatility in trading profits, there’s huge swings in credit losses, there’s exposure to interest-rate risk. It’s hard to get all those things right.”

This writer acknowledges that the TBTF banks are sponsored by the federal government, as were the S&Ls, Fannie Mae, and Freddie Mac. The Treasury, whose leadership has long been dominated by bankers, has bet the entire economy on a group that Wellington called “unanalyzable.”

In the final clip, UBS’ Art Cashin returns to talk about the tepid market response to the “acrimonious” dialogue between the Greek and German authorities.

He agreed with the consensus that Merkel will get a deal done.

Cashin recalled that a couple years ago the debt was owned by banks, but “now it’s owned by the government.”

Therefore, there will be no need to mark the assets to market, “and that would have been a disaster.”

He added that now Janet Yellen “will have to, through the press conference and upcoming speeches, rebuild a case for raising rates this year” when the IMF and World Bank have asked them not to.



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Robert-Feinberg
Art Cashin, of UBS, and CNBC’s Bob Pisani briefly discussed the implications of a potential Grexit, with Pisani noting that there is no consensus as to what the most desirable outcome is and Cashin saying that most of the Greek debt has moved into official hands.
Art Cashin, Bob Pisani, Grexit, Greece
635
2015-10-16
Tuesday, 16 June 2015 08:10 AM
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