Tags: greece | exit | federal reserve | rates

Grexit Looking More Likely; Strategist Predicts Cautious Fed

By    |   Friday, 12 June 2015 08:46 AM

After a flurry of optimism earlier in the week that a short-term deal to avoid a Grexit was in the works, Steen Jakobsen, Chief Economist of Saxonbank, told CNBC that the EU has concluded that the Greek government will not adopt needed reforms and that Greece needs to stay in the euro “politically but not economically.”

He added, “All of us are educated to think there’s a solution to every problem, but this is a problem where there isn’t any solution at all. The end of the road is probably Greece leaves the euro but stays in Europe. For me that is the ultimate. The Greeks are right – we need a haircut on the debt, but to get a haircut you need to be willing to reform.”

However, Jakobsen thinks the Greek public still wants a deal. He concluded as a game theorist that Greece overplayed its threat to leave the euro.

Next, Jakob Christensen, Senior Economist at Exotix, adds his perspective in response to a question as to whether it is useful “to have a few sick countries in Europe, just to keep the pressure off the euro.”

Christensen thinks the Germans might like this, “but everybody are quite tired of having these discussions, and I think everybody wants to find a solution that can take Greece off the headlines.”

He contends the authorities want “to avoid volatility” here in order to deal with bigger problems, such as how to cope with Russia.

The cynical interviewer opined that, “Politicians get paid to talk and are enjoying that moment,” and most people still expect an eventual deal. Christensen agreed but said it will require “more movement from the Greek side.”

Given IMF Managing Director Christine Lagarde’s expressed concern over the potential for writedowns and fire sales of assets, this writer wonders who is at risk and what measures will be taken, including by the Federal Reserve, to forestall recognition of losses.

Speculation continues as to when, and in some quarters, whether, the Fed will act to raise interest rates and how the financial markets will react.

Meanwhile, Sari Hamid, of Financial Alliance, predicted that slow global growth, as reflected in reduced forecasts by the IMF and an outbreak of MERS will cause the Fed, meeting next week, to “err on the side of caution” and wait until September to raise rates.

The interviewer saw a potential for another “taper tantrum” and was asked which market would be “most vulnerable to an exit of foreign money from equities as well as bonds.”

Hamid responded that this is already occurring in the form of a gradual unwinding of the “carry trade” in Asia.

Hamid observed that investors are “flush with liquidity” but having a hard time finding assets where valuations can be justified.

However, he thinks conditions are still favorable in Singapore and Hong Kong and is optimistic that emerging markets are bottoming.

Finally, after months of speculation, late Thursday afternoon brought a flurry of Twitter activity as the departure of Dick Costolo as CEO was announced and pundits opined on what this means for the company.

Charles Sizemore, CEO of Sizemore Capital Management, joined critics who have complained that Twitter has been “spinning its wheels” compared to Facebook for several years.

The interviewer suggested that a radical change is needed, and she asked what form this might take.

Sizemore cited a headline that this might be “a Steve Jobs moment” for Jack Dorsey, the interim CEO, but “he has to have a vision, and it’s not altogether clear that he does.”

Sizemore defines the issue as a lack of popularity of Twitter among “ordinary people.”

When the interviewer asked about rumors that either Google or Facebook will acquire Twitter, Sizemore quipped that, “Google doesn’t necessarily need this albatross around their neck.”

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Robert-Feinberg
Steen Jakobsen, Chief Economist of Saxonbank, told CNBC that the EU has concluded that the Greek government will not adopt needed reforms and that Greece needs to stay in the euro “politically, but not economically.”
greece, exit, federal reserve, rates
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2015-46-12
Friday, 12 June 2015 08:46 AM
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