Notes From Underground: Tsipras–1; Merkel–0; and the Sycophants of Access Journalism Prattle On

The outcome of the Greek referendum surprised all, even those who believed a NO vote was imminent. As NOTES has written ad nauseam, the referendum card was the nuclear option for Prime Minister Tsipras and he played it for a resounding impact. Chancellor Merkel was furious with Tsipras for having the audacity to challenge the EU elite by going to the people and testing the concept of the general will. The financial media and its purveyors of pabulum could only see this move by the Greeks in its impact upon the equity markets–and marginally the global bond markets. The outcome for the debt markets is a mixed bag for some bonds rally while the debt of smaller peripheral economies take a hit as the risk-off trade is initiated to the possible negative fallout from the lopsided Greek vote of NO.

The continual surprise and failure to see the significance of the Tsipras move is another prime example of Yra’s First Law of Finance: Money Is Fascist. Why? It has been a constant that investors crave stability over democracy. A stable strong state with guaranteed payment of debt is always preferred to a capricious electorate that challenges the policies of a corrupt, inefficient government. Crony capitalism with a strong military has been the preferred destination for investment from time immemorial. (Fascism is pejorative to some but for this discussion it merely connotes a system where the ideal of trains running on time is more important than individual rights.) Whether Greece stays or goes is not the issue facing Chancellor Merkel. It is releasing the concept of the contagion of referendum that scares the German governing class.

What happens when the guarantors of the European credit card want to vote on whether they desire to keep transferring German wealth to support the spendthrift habits of their European brethren? What if the German electorate was asked if it wanted to finance a European bond with its AAA credit rating? How would the Germans vote on the issue of the ECB paying negative interest rates on seven-year money while inflation is running at 1.5% and German unemployment at record lows?

Now, the classic europhile response is that Germany benefits from the low rates and a weakened euro through the strength of its global exports, but would that really placate a German middle class receiving negative real and nominal interest rates on its savings? One day some one will challenge Merkel and put it to a vote. Other one-dimensional thinkers would say it would be disastrous for the Germans to opt for  a democratic challenge to its representative government’s decisions on the EU and ECB for the DAX would fall and a global economic crisis would ensue from a potential break-up of the EU.

Therein lies the rub for Tsipras has played the nuclear option and the fallout may well spread across the rest of Europe. The intransigence of Djisselbloem and others, in an effort to teach the Greek “commies” a lesson, has reverberated into the halls of Brussels.

For all global macro traders there is a great lesson learned during the past year: Four elections have taken place and the pundits failed to successfully predict the outcomes. First, the U.S. Congressional elections were a resounding defeat for the Democrats; Second, the Israeli elections surprised all the pundits; Third, Prime Minister Cameron’s outright victory in the British elections; and fourth, the NO vote on the Greek referendum. It seems that in the world of social media and tweets the world of analysis has become an ECHO CHAMBER and the sycophants of financial wealth talk only to each other and merely receive whatever their access contacts wish them to hear. It’s tough to discern facts in a world guided by the last price in the SPOOS.

***Merkel and Hollande are meeting separate from the whole European Commission to discuss potential outcomes for Greece. President Hollande is fearful that a failed state of Greece will generate increased support for Marine Le Pen and the right-wing Front National. Remember, the basis of the EU was one for all and all for one (see ROTTEN HEART OF EUROPE, p.99 of the 2012 edition) for if the EU fails to support Greece the French will see it that the EU and its commitments to each other are vacuous guarantees. If Germany will not ante up for the pittance of Greece, what will happen if Spain, Italy or France were to be in need of a financial support package?

Le Pen has been campaigning on an anti-euro platform because of the austerity measures pressed so hard by Germany. Add the anti-immigration element to the Front National’s campaign and President Hollande is very concerned for the political future of France’s mainstream political parties. The euro establishment played a bad hand in opposition to Prime Minister Tsipras in Greece and further punishment in retaliation will only lend support to the other extremist parties plaguing present European politics.

***Tonight the Reserve Bank Of Australia will announce its interest rate policy at 11:30 p.m. CST. RBA Governor Glenn Stevens usually delivers a succinct overview of the global economy in explaining the rationale for the RBA‘s policy stance. The aussie has been very strong against the kiwi for the last two months, which may provide Stevens with cover to push for another rate cut. Coupled with KIWI weakness has been the drop in iron ore prices as well as other industrial metals, resulting in less capital investment in Australia. The uncertainty about the strength of China’s economy is something to pay attention to in the RBA release for the Aussies have been the best light unto the darkness of real China data.

If the RBA cuts rates, be patient as to the effect on the Aussie dollar as it was sold hard today as commodity prices were under pressure due to the equity market’s response to the Greek referendum and rising uncertainty about China. If the RBA surprises with a rate cut and the AUSSIE rallies it will signal that the market has priced in the slowdown in the Aussie economy and will begin to look for growth in response to record low interest rates.

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14 Responses to “Notes From Underground: Tsipras–1; Merkel–0; and the Sycophants of Access Journalism Prattle On”

  1. arthur Says:

    Great Greece’s post. By the way, do you think the threat posed by a slowdown in China should be of far greater concern?

  2. asherz Says:

    I would name those who you call Fascists are of yesteryear, and are really today’s elite Crony Capitalists. They are the beneficiaries of the policies of the financial rulers, while the hoi poloi and those who depend on their savings to survive struggle to make ends meet.

    There is a building rage among this large group and a call to man the barricades is gaining resonance. It may be some years off but a 61% majority in Greece is viewed with satisfaction in Madrid, Milan and Marseille.
    Record low interest does not guarantee growth as the string cannot be pushed, especially when unsustainable debt/gdp ratios suck out the oxygen.

  3. Alex Says:

    Remember what Bernard Connolly said are the ONLY 2 options for the Germans, and he said it over 10 years ago (maybe more).

    1) A massive devaluation of the Euro, to say 60-70 against the USD, or

    2) Germany having to financially support the weaker Euro nations like Greece, Portugal etc FOR EVER.

    Only 2 options, both are easy to understand and to the point. So which one would you opt for if you were German?

    This Euro mess looks like it can only get messier because it’s not going away.

    PS. Contact Yra for a copy of Connolly’s book, it lifts the lid on how things really work behind the curtain. Great economic history.

  4. yra Says:

    alex thanks —-all with a copy of the Rotten heart of Europe OUGHT to reread the 2012 Forward to the reprinted book

  5. yra Says:

    Asherz—yes but fascism is always the life blood of crony capitalism in the annals of history—see Russian oligarchs and possibly the robber barons

  6. ShockedToFindGambling Says:

    Here is my partial solution to the Greek situation.

    1)ECB lends Greece $160 Billion
    2)Greece uses the money to launch a tender offer for all outstanding Greek debt at 50 cents on the dollar (everyone will sell their debt back to Greece)
    3) Greece now owes the ECB $160, not $320

    4)Advantages
    a) Greece’s debt load is cut in half
    b) Holders of Greek debt get 50 cents on the dollar, as opposed to the zero they are likely to get
    c) Net cost to European financial system is ZERO ( ECB loses 160,
    but European banks/investors gain 160).

    This could be part of either a deal to keep Greece in the EU or a GREXIT.

    If part of a GREXIT, it softens the blow for holders of Greek debt.

    If part of a deal to keep Greece in the EU, acts as an incentive for Greece to make a deal (equivalent to the debt forgiveness Greece wants).

    Borrowers are effectively SHORT bonds. We are just giving Greece a facility to cover their SHORT.

    Corporations sometimes do this. When their debt gets hit, they buy it back with borrowed money.

    • Chicken Says:

      “Corporations sometimes do this. When their debt gets hit, they buy it back with borrowed money.”

      And Wall Street knows this, forced liquidations are a WS insider free-for all, an arranged heist just like the current Greek predicament.

      Make a sub-prime.loan you know can’t be paid, short the stock or the market and collect the spoils of liquidation at pennies on the dollar. Buy low sell high, Rinse and repeat. The central bank will even conspire if you’re TBTF, no chance you won’t get your bonus/paycheck and shareholders will pick up the criminal fines.

      It’s God’s work.

  7. Chicken Says:

    Unfortunately, the pundits are the best contrary indicator available.

  8. Chicken Says:

    Germany should force the lenders(whomever they are) to take their haircut, IMO. Sure would be refreshing to see these irresponsible lenders get their just rewards.

  9. yra Says:

    Chicken and Shocked—the workout should be surpervised by Tomas Piketty–a deep knowledge base and well respected in Europe and the IMF

  10. yra Says:

    Chicken–the best insider-game going is trading European sovereigns when you have access to the ECB

  11. costaselgreco Says:

    How ironic Greek “commies” showed the European establishment how democracy works, and in the process implied European banks should take a haircut for their malinvestments. I think that’s what free markets are supposed do, right? Punish bad investments…

    Mr Tsipras’s mandate has now strengthened by 25% in six months, left and right wingers supporting the No vote. Is this the end of traditional left wing/right wing political ideology, Yra?

  12. Chicken Says:

    Good point Yra, insiders likely don’t want to see an ending of their gravy train, do they.

    If this does end with a just resolution as opposed to another in a long series of special interest group handouts, seems like that would lend credence to the validity of the euro system.

  13. yra Says:

    Costas—seems correct–the new politics is consensual pragmatism–we can only hope

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