Morning Report – Endgame for Greece 6/19/15

Markets are lower after the ECB increased the size of its emergency liquidity program to Greece. Bonds and MBS are up.

No economic data today

We are getting to crunch time with Greece. Euro-area leaders are meeting Monday to try and hammer out some sort of gameplan. The ECB’s emergency liquidity package expires on June 30, which is also the day a big payment is due to the IMF. It is looking more and more likely that Greece is going to exit the Euro. While most Greek debt is owned by the Greek banking system, some is owned by the big European banks as well. Some could see a hit to their capital. This will probably be dollar (and Treasury) bullish.

Chinese stocks have been selling off, and have entered correction territory (defined as down 10%). The Chinese stock market has been in bubble territory for a while, and it looks like it is finally bursting. This market is being fueled by a toxic cocktail of margin debt and dumb money. Current margin debt is $368 billion. The market increased over 150% in one year (or about $6 trillion). While the index was higher in 2009, the Shanghai Composite P/E is currently about 95x earnings, versus 68x at the height of the 2009 market.

The bursting of the Chinese stock and real estate bubbles is going to complicate the Fed’s job of trying to normalize interest rates by causing a flight to quality in US Treasuries. The biggest headache for the Fed will be when China begins to export deflation. Inflation is still too low as far as the Fed is concerned. The biggest fear? Interest rates are already at the zero bound throughout the world, and central banks are largely out of ammunition.

32 Responses

  1. Brent, yesterday JNC linked to an opinion that the Greek exit has now been well prepared for by Germany/EU in that very little GR debt is held by banks, although most of it was when the crisis began.


      • Greek PM trying to buddy up to Russia. Truman drew the line at Greece in the beginning of the Cold War. If this Greek PM, who is blaming EU for Greece’s financial collapse, takes Greece out of NATO to hide under the scorpion’s tail, it will be like national slow death for Greece.

        I don’t think Churchill and Truman would have had a magic answer for Greece. After all, the Greeks brought it on themselves, with the mad combination of a total welfare state and no taxes collected, for decades.


  2. This could prove interesting:

    “What Really Happened in the Waco Motorcycle Gang Massacre?
    Defendants and eyewitnesses complain of unjust mass arrests; lawyer tells Reason ‘it was mainly the police shooting at sitting ducks’

    Brian Doherty|Jun. 18, 2015 10:55 pm”


  3. The current picture of Merkel on Drudge is something that has to be seen to be beleived.


  4. Rand Paul’s tax plan apparently is pretty similar to something that Jerry Brown proposed back in the 1990’s.


    • Funny ole Rand Paul.

      We are slowly approaching the time when candidates weed themselves out. My fave R is Lindsey Graham – no surprise for anyone here who recalls my McCain affection. Right now, I think Jeb Bush and Rubio will survive the Texas primary. FWIW, polling shows Cruz and Perry without significant support in their home state.

      Now if Jim Webb could survive on the D side, that would brighten my day. The notion that two Ds are running well to HRC’s left is…uh…not encouraging.


  5. Flaming Hawk With Snake in Its Talons Sparks Fire Near La Jolla

    I saw these guys open for Quiet Riot in ’84.


    • Very interesting, George. Thanks.

      I wonder what he found looking at different western nations. My sense is that Germany is more “unified” in what it wants, but that Japan is very top oriented, however, with a top layer that is by culture into what we would call noblesse oblige.


    • McWing:


      This just helps to confirm me in my belief that it is crazy to encourage everyone to vote.


  6. Democracy is the theory that the common people know what they want, and deserve to get it good and hard.

    H. L. Mencken


    • Now that the NYT “”Science” page has embraced the Pope as an authority on matters of science, I look forward to more Science page articles about when life begins and what that means for abortion policy.


  7. That’s different.


    • Is the abuse systemic?

      Apparently. From the article, this kind of practice has grown tremendously since I was in active federal practice. It was always a nuisance, even pre-internet, as the investigatory power is far broader than even the ability to claim probable cause and indict. I haven’t tried it, but I will bet that googling “fishing expedition” will give you a long trail, and not to Lake of the Ozarks.

      The Reason article is well presented and I recommend it.


  8. Then why shouldn’t the Justice Department be disbanded?


    • Then why shouldn’t the Justice Department be disbanded?

      There are less drastic ways of dealing with systemic abuse then abolishing the system. A clear signal from Congress, supportive of some recent case law out of the Supremes, will make it easier to quash catch-all subpoenas to journalists and the like. The stand Reason has taken, coupled with more resistant behavior from Google, is going to catch on, and will have a healing effect over the next couple of years, unless:

      another big terrorist attack and Congress turning its back on government gathering raw info puts us back in a hole. Expect swings on this, is my best guess.


  9. Happy Father’s Day to all you Daddys!!! Hope you have a fun filled but relaxing day and that your children appreciate you!!!


  10. Could never happen today…

    What went wrong with Lysenko and dietary fat was that in each case a monopoly was established. Lysenko’s opponents were imprisoned or killed. Nina Teicholz’s book The Big Fat Surprise shows in devastating detail how opponents of Ancel Keys’s dietary fat hypothesis were starved of grants and frozen out of the debate by an intolerant consensus backed by vested interests, echoed and amplified by a docile press.


    So where’s the outrage from scientists at this presidential distortion? It’s worse than that, actually. The 97 per cent figure is derived from two pieces of pseudoscience that would have embarrassed a homeopath. The first was a poll that found that 97 per cent of just seventy-nine scientists thought climate change was man-made—not that it was dangerous. A more recent poll of 1854 members of the American Meteorological Society found the true number is 52 per cent.

    Wait… what?

    The second source of the 97 per cent number was a survey of scientific papers, which has now been comprehensively demolished by Professor Richard Tol of Sussex University, who is probably the world’s leading climate economist. As the Australian blogger Joanne Nova summarised Tol’s findings, John Cook of the University of Queensland and his team used an unrepresentative sample, left out much useful data, used biased observers who disagreed with the authors of the papers they were classifying nearly two-thirds of the time, and collected and analysed the data in such a way as to allow the authors to adjust their preliminary conclusions as they went along, a scientific no-no if ever there was one. The data could not be replicated, and Cook himself threatened legal action to hide them. Yet neither the journal nor the university where Cook works has retracted the paper, and the scientific establishment refuses to stop citing it, let alone blow the whistle on it. Its conclusion is too useful.


    In March this year Dr Mann published a paper claiming the Gulf Stream was slowing down. This garnered headlines all across the world. Astonishingly, his evidence that the Gulf Stream is slowing down came not from the Gulf Stream, but from “proxies” which included—yes—bristlecone pine trees in Arizona, upside-down lake sediments in Scandinavia and larch trees in Siberia.

    It’s because they’re idiots, AmIRight?

    The great Thomas Henry Huxley put it this way: “The improver of natural knowledge absolutely refuses to acknowledge authority, as such. For him, scepticism is the highest of duties; blind faith the one unpardonable sin.” Richard Feynman was even pithier: “Science is the belief in the ignorance of experts.”

    But other than that the science is Rock. Fucking. Solid.


    • Just heard a new poll for TX that puts Cruz first and Goodhair second among Rs. This a week after I read a poll that had them further down than Bush and Rubio.

      Being in Austin I don’t have a personal sense for which is more likely, but the Cruz-Perry 1-2 would seem to have historical support and the advantage of name ID.


    • McWing:

      Butter hit hardest.

      LOL. I love the formulation of these things. “Scientists have found that X will happen 50 years from now.” Perhaps these scientists are named Emmett Brown?


  11. Read the link about Science Fraud and Gaia, it’s enlightening.


  12. I find that the passion and certainty about climate science is inversely proportional to the number of math classes you passed after freshman algebra…


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