Euro down, stocks set to tank, Grexit potential looms large

Greek-led Eurozone chaos disrupts stocks, bonds, commodities as gold gets a bid and international monetary instability reigns supreme. UPDATING.

Athens ATM queue, June 28, 2015.
Greeks queuing up at a bank ATM in Athens Sunday evening, June 28, 2015. (Via Twitter.)

WASHINGTON, June 29, 2015 – The chaos caused by the intransigence of Greece’s Communist-led government boiled over this weekend after Greek Prime Minister Alexis Tsipras announced a snap July 5 referendum in his country on Sunday to determine whether Greek voters would support or turn down the latest iteration of bailout and austerity measures offered by the EU through the “troika.”

Tsipras’ offer amounted to a not-very-diplomatic flip of the bird at the rest of the Eurozone, given that the deadline for accepting or rejecting the latest bailout terms is June 30. The result: the potential for a Greek exit from the Eurozone’s single currency − the dreaded “Grexit” − looms larger than ever.

ECB, EU prepare for Grexit after Tsipras referendum ploy

The Eurogroup in charge of negotiations quickly returned the favor, flatly rejecting yet another Greek government request for “a few more days” to drag out its answer while awaiting results of the referendum, whose wording has yet to be determined, following a pattern of a banking- and capitalist-hostile government that often seems to float about in another world.

While the European Central Bank (ECB) has pledged to keep emergency funding for Greece’s banking system at current levels—for now—euros are getting ever scarcer in that country as the clock ticks down to the final buzzer. Thousands of Greek citizens queued up at ATMs across the country over the weekend, desperate to get hold of hard currency before disaster strikes.

But most ATMs were quickly exhausted, leaving customers with virtually no alternative for money as threatened capital controls and a weeklong banking “holiday” have already been proposed and are likely to get set in motion even as this article is written.

According to CNBC, which cited a Reuters wire report, “Asked, as he left a meeting of the Financial Stability Council, whether banks would open on Monday, Piraeus Bank Chief Executive Anthimos Thomopoulos, said: ‘No.’ Additionally, a source told the wire service that the Athens stock exchange would not open on Monday either.”

Freaky Friday: Stock markets nervous as Grexit potential grows

From their words and deeds, it’s obvious that the current Greek leadership is employing standard Marxist rhetoric and tactics, focusing on a “class struggle” scenario they’ve been dreaming up, hoping to rouse the Greeks into leaving the euro even as that same government—and the Greek people by an overwhelming majority—claim they want to stay with the single European currency.

The Maven doesn’t have the reporting resources to keep up with every move of this fast-moving story in real time, but European sources like Reuters and the BBC are good bets for the news-hungry.

What we’re left with in the U.S. is a stock market that’s likely to plunge at the open, with Dow futures currently off a whopping 188 points and the other averages falling into similar red ink lines.

UPDATING DEVELOPMENTS from our earlier report:

Three updated items recently posted by Reuters:

  • Greek government had planned to close banks for seven days. Now claims they will reopen on Thursday.
  • Also: 850 Greek branch banks will open to pay pensions, date not cited.
  • Potential ECB cave: ECB will keep emergency funding to Greek banking institutions open through the scheduled Sunday referendum. But as before, credit line will allegedly by minimal and main credits and bailout funds still not extended, in what appears to be a half-way move.

Today’s trading tips

Unless your intestinal fortitude is ironclad, today, or at least this morning, is probably not the time to buy anything at all, unless you want to chase one of the gold ETFs: IAU, GLD, or SGOL.

Gold is up this morning. But unknown, influential currency manipulators—likely an international banking and central banking cartel—have been keeping gold artificially low for at least two years running now, so any upswing in gold is likely to be a quick trade here. Beware.

Warren Buffett has often said that the best time to buy quality stocks is when blood is running in the streets, and we’ll be getting at least a trickle of the red stuff today. But this story has many threads, so it’s best not to be hasty whether buying or selling.

‘Grexit,’ Fed minutes stories resemble ‘Flash Gordon’ serial

Long stock positions can be conservatively protected by selling calls against them, a strategy known as “writing covered calls.” Weak positions should probably be dumped before they get worse.

Finally, entire portfolios can be hedged by buying a block of the double-short S&P 500 ETF, symbol SDS, that’s large enough to cover the value of your portfolio. This is known as a hedge and should go up at least enough to protect the value of current positions investors wish to hold, although in such an environment, perfection is not guaranteed.

But if you’re not heavily invested, perhaps the best advice is to sit back and watch the gruesome fun. It’s not every day that an ideological government chooses catastrophically self-destructive grandstanding over a more logical path. But it’s what we’re viewing today and this week. Don’t imagine it can’t happen here.

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Terry Ponick
Biographical Note: Dateline Award-winning music and theater critic for The Connection Newspapers and the Reston-Fairfax Times, Terry was the music critic for the Washington Times print edition (1994-2010) and online Communities (2010-2014). Since 2014, he has been the Business and Entertainment Editor for Communities Digital News (CDN). A former stockbroker and a writer and editor with many interests, he served as editor under contract from the White House Office of Science and Technology Policy (OSTP) and continues to write on science and business topics. He is a graduate of Georgetown University (BA, MA) and the University of South Carolina where he was awarded a Ph.D. in English and American Literature and co-founded one of the earliest Writing Labs in the country. Twitter: @terryp17
  • Alex

    “unless you want to chase one of the gold ETFs: IAU, GLD, or SGOL.”

    I’m not sure about the other gold ETFs but it definitely isn’t wise to use paper gold GLD to hedge against any event of consequence. GLD does not give retail investors the right to redeem for any of its questionable holdings. This guarantees the GLD shares to be nothing more than paper. GLD’s prospectus is also chalk full of weasel clauses that allows them to get away without the full physical backing. A good example is the clause that states GLD has no right to audit subcustodial gold holdings. There are no good reasons for the existence of this audit loophole. Some other issues I’ve come across:

    “Did anyone try calling the GLD hotline at (866) 320 4053 in search of numerical details on GLD’s insurance? The prospectus vaguely states “The Custodian maintains insurance with regard to its business on such terms and conditions as it considers appropriate which does not cover the full amount of gold held in custody.” When I specifically asked for clarification on this clause and about how much of the gold was insured, the representative proceeded act as if he didn’t know and said they were just the “marketing agent” for GLD. What kind of marketing agent doesn’t know such basic information about a product they are marketing? It seems like they are deliberately hiding information from investors.

    I remember there was a well documented visit by CNBC’s Bob Pisani to GLD’s gold vault. This visit was organized by GLD’s management to prove the existence of GLD’s gold but the gold bar held up by Mr. Pisani had the serial number ZJ6752 which did not appear on the most recent bar list at that time. It was later discovered that this “GLD” bar was actually owned by ETF Securities.”