As this is being written, there are four different articles on supposedly four different deals that are happening with the Greece negotiations. Quite amazing! The bottom line and the logical outcome is simple. The math just does not add up and all parties know it. We can bore you to death with the numbers but the numbers change by the hour. What hasn’t changed is that Greece takes in much less than they pay out and what hasn’t changed is the dummies (the lenders) keep feeding what is simply a black hole of socialism. A black hole where a 175 billion euro economy has a public debt of 320 billion euro. Any deal will take weeks, if not months to work out and as of this second, any deal does not include any write-downs of Greek debt. There is just no way anything gets worked out without write-downs as there is no chance of anything being paid back. We will just watch a bigger credit card being issued again. Keep in mind, this is all happening while yields have been rigged and manipulated down to the bone. It is that bad. The manipulators had better continue to contain things. Greece by itself would not end the world but Greece exposes the massive debt and leverage that continues around the globe. In a case of no one learned any lessons from 08, debt and leverage have left the numbers from 08 way behind enabled by maniacal central banks that actually think they are heros.
We could not move to the China farce without mentioning the other farce and that’s us as in the U.S. A man named Jack Lew, the Treasury Secretary, came out this past week preaching to the Greek government about how they have to become more responsible with their debt and deficits. Frankly, I had no idea we even had a Treasury Secretary as I don’t think I have seen this man once front and center. Mr. Lew has obviously forgotten that he represents an administration that has created more than $7 trillion of new debt in 6 years. In other words, this administration gets the championship belt on debt. They have shown they could not give a crap about the taxpayer and could not give a crap about the taxpayer’s kids as they continue to mortgage the future while telling everyone they have done a wonderful job. Keep in mind, this debt is over and above the approximately $3 trillion they take in every year of earned taxpayer dollars. We get away with it by printing money and our own rigging and manipulating of rates down to the bone. But don’t worry. Krugman says everything is just fine.
China…where do we begin? We think the Chinese government has realized their number is up and that they cannot continue to fake the numbers so do the next thing…the Bernanke dance. That is to try and bubble up asset prices as best as you can in hopes that higher asset prices gets the economy moving again. They simply enabled investors to go into massive debt (margin) in order to get the job done. Margin loans jumped to over $300 billion which was nearly 10% of the whole valuation of Chinese stocks. But China forgot that when bubbles pop, it is just that leverage that does the job in slamming markets back down and quickly. So what does China do? Regardless of reality, regardless of valuation, regardless of fear and greed, China goes all in trying to control all parts of the market. You want to short? We will arrest you. You want to sell? Ain’t happening! And don’t worry. We will lend an unspecified amount (why name the number) to the state-owned Chinese Securities Finance Corp. which in turn would support the stock market with that money. Add it all up and you get a rally from very oversold conditions.
We won’t even venture to guess how this plays out but there is precedent and ultimate outcomes are never good. When all is said and down, valuation will matter and the real world will matter. While our central banks were printing trillions to bubble up asset prices, we used to joke that they should just print tens of trillions and buy up the whole S&P 500. Looks like China may be headed there.
We will have our market report Monday night as we want to see what happens over the weekend. We actually doubt anything gets done because the Greek people are not going to go for any deal. We would like to say there was improvement in the market but not yet, just a bounce. There are a few areas that are shaping up as drug stores, a few airlines cruise lines and oil refiners are breaking out of range but that’s about it.