WASHINGTON, June 12, 2015 – Thursday’s bullish stock market fun is so over this morning, but traders should have seen this 180 coming. Yesterday’s markets got happy on early headlines claiming as fact rumors that the “Troika” (European Commission, the European Central Bank [ECB] and the International Monetary Fund [IMF]) and the Greek government had come to an interim agreement dealing with that country’s sorry fiscal mess, at least in the short term.
Problem is, the traders and the rumor-mongers who drove them ignored the facts on the ground, namely, that those happy talk rumors were already being vigorously denied, particularly by the IMF, which told its delegation to pack their bags and go home from the endless and pointless negotiating sessions with the Greek Communist government, which were generating precisely zero results.
As the situation gradually became clear, yesterday’s rally began to lose some steam near the close. Today the bears are back in control, and yesterday’s happiness has turned into a rout.
As in both the 1981 and 2010 feature films versions of “Clash of the Titans,” but independent of the ancient gods, the Greeks have just released the Kraken on the world. Again. Stocks were down over 150 Dow points earlier Friday morning, with the other, broader averages off accordingly.
(Below: Zeus releases the Kraken. “Clash of the Titans,” 2010 reboot.)
As we approach the noon hour on the East Coast, the Dow is still off over 110 points, with the broader-based S&P 500 off nearly 11 and the tech-heavy NASDAQ down an unpleasant 24 and change.
Like good Communists from the dawn of time, Tsipras and his Marxist pals in Greece’s current government remain convinced that their nominally capitalist antagonists in the EU will do what rich capitalists always do: cave in and pay off the Commies, beaten down at last by their endless barrage of threats and intransigence.
Unfortunately, the Greek government may very well be right in the intermediate term, which offers more evidence as to why negotiations on any topic with the left invariably lead to defeat for the other party.
Communists ultimately don’t really negotiate. They dictate terms. And they’re brilliantly effective when doing this from a position of weakness, which aptly describes the Greek government in this particular situation.
Operating with no leverage, the Commies face off against the people or organization that has beaten them, refuse to budge, keep doing provocative things and ultimately turn the victors into the vanquished. It’s a wonderful trick, 100 percent effective since Vietnam set the pattern, and that’s why hard-left ideologues like Tsipras keep opening that page in their playbooks.
At least for now, the IMF is showing some spine and calling Tsipras’ bluff. We’ll see how that works out and how long the IMF’s negotiating fortitude will last.
The bottom line is that the European investors, banks and countries on the hook for all the credit that’s kept the Greeks afloat for the last several years don’t want to take any more haircuts. They continue to count on the effectiveness of their own intransigence, in spite of the fact that they clearly made lousy loans to a country that did not have and will not have any intent or motivation to reform the systemic graft, corruption and hypocrisy that’s run this country since the Greek Civil War.
They do this because, as always, they intend to scalp the average taxpayer if things don’t work out for them. Why take the blame? The taxpayers are too stupid and bovine to do anything about it, right?
If just once, these moneyed clowns, overstuffed governments and politicians—all of whom are rich beyond avarice anyway—would just suck it up and stick to their guns, Greece would be forced to default, revive the drachma and leave the Eurozone. No more paper tiger opponents. Intransigent Commies would see that they could actually lose. It would change the entire paradigm.
Better yet, the lesson would be learned by all those who remained with the Euro; namely, that if you allow unionized government employees to extort topline wages and vastly superior and very early retirements out of the private sector and the average citizen, they’ll happily end up spending every single tax dollar in the kitty, letting the entire country go to hell for lack of funding.
That’ll be the day.
Which is why we get endless turnabouts like Thursday and this morning, generating investment action that drives the average investor—if indeed anyone is left in this category—to pull out cash in frustration and stuff it in the mattress. Who needs this crap? We’re getting a little disgusted ourselves.
It’s time for the miscreants, unions and other assorted scofflaws to become street people. Otherwise, the rest of us will. The Greeks remain the canaries in the coal mine. Because the same thing is slowly happening right here in the U.S. It’s only a matter of time.
UPDATING: Friday at 3:30 p.m. EDT: According to CNBC, Reuters has reported
… that the Greek government is ready to submit counter-proposals and that Athens and its creditors are closer than ever to a deal, a Greek official said. Prime Minister Alexis Tsipras also spoke on the telephone with European Commission President Jean-Claude Juncker about the next steps in negotiations.
Stocks are slightly off their lows of the day. So, you wanna buy a bridge in Brooklyn?
Today’s trading tips
It’s pretty clear that Greece did not, does not and forever shall not be serious about negotiating a constructive end to its current Eurozone impasse. Adding the Fed’s interest rate oriented Hamlet complex to the stew, there’s not much for an investor to do except continue to sell off poorly performing positions while hedging what’s left with short ETFs like SH (short S&P 500) or SDS (double short the same).
The Maven has been increasing his position in SDS incrementally and probably needs to pick up the pace. The hopelessly impecunious Greeks come bearing some very bad gifts these days.
Investors who either refuse to get out of this market or hedge their remaining investments will at some point this summer find the dreaded Kraken knocking on their front doors. That legendary monster of Greek mythology will devour such investors and their portfolios so quickly that no one will ever know where they went.