This has to stop. Do not read my articles! Tuesday was a record page-view day and because I am respectful of the audience, I feel morally compelled to follow-up. But stop this, I have a life! One son to Lacrosse and the twins to soccer, I’ll be right back.
OK, I’m back. Yes, on Tuesday we came close to the 1205 level I presciently mentioned on Monday, and we did hit 1.365 on the Eurodollar December Futures. Totally unexpected, if it wasn’t from the clue from HYG. It’s the Baroque masochistic pain I was referring to here. Papandreou is the plot’s main character. Second role goes to Berlusconi. They are the romantic heroes, going for a Swan Song before committing suicide. In the meantime, they are completely unpredictable, so what’s the play here?
In Papandreou’s script, the unfolding is a seemingly triple win. If the parliament supports his referendum, he wins. If the people agree with the bailout, as it seems the majority would, he wins – and he marginalizes the dissenters by the same token. And if the people disagree with the bailout, he wins too, in a pure Social Democrat albeit artificial fashion .
What happens next is a government/cabinet reshuffle, which is better than the 2 MP majority his PASOAK party currently holds after the defection of several. Here is the cue: Greece was not a democracy until 1975. Papandreou made it happen from the beginning, and clearly went on too long, too far. When the pendulum swings, it will be to the right of center, at best, and chances are Papandreou is out. In other words, as in all Greek dramas, he wins, but he loses. Typically Pyrrhic.
What does this mean for the bailout/Eurozone? I say it would be a positive. Nothing personal, but what Europe needs is credibility and accountability. Papandreou lied to his people, to Brussels and by and large to the rest of Europe. Time to pay the Piper, or go bankrupt. I am not an expert on Greece, but I know that much: it is a proud nationalistic country, and bankruptcy is not an option for the ruling class. For the people, it may be another story. Neither the Germans nor the French will budge, and the Italians and Spaniards are not about to cough up the money they need for themselves. For those who don’t know, there is a famous saying in France about the Greeks. Absolutely not printable here, but fairly explicit as to conventional xenophobia.
This means that Greece will not derail Europe, plain and simple. They will take the package, and Papandreou will leave with honors. Now, to be sure, I would prefer that it exit the Eurozone, so I asked a few well informed friends of mine in Europe about the process. Contrary to popular media, no way Jose. As I understand it, once a member, only a country can ask to be excused. And then, all the others have to approve. Once they do, if they do, all contracts and treaties have to be rewritten, and there too, unanimously approved. Even if it were to happen, it would take years.
There is, of course, another possible explanation for Papandreou’s seemingly irrational behavior. This one borrows from Machiavel and targets his compatriot Mario Draghi. Let’s face it, there is one indisputable fact differentiating the end of October from the beginning of November, and that is Jean-Claude Trichet being replaced by Mario Draghi at the helm of the ECB. Did Papandreou negotiate with the former to torpedo the later? This is pure conspiracy theory, but bear with me. Draghi was at Goldman (GS) when Goldman issued a bunch of Sovereign Greek bonds in 2005. Since these bonds are now junk, is Papandreou dragging Goldman in, via Draghi and the ECB? Wouldn’t that be a cinch!
What are we left with? “Il Cavaliere” Berlusconi. The Roman versus the Greek. Strangely enough, even though he is at the opposite end of the spectrum, he may finally succumb to the same fate as Papandreou, and for the same reason. There is another difference though. He is a powerful man, money and establishment wise. Clearly he has lapses, like kissing Gadhafi, but he has been through confidence votes before. Papandreou has his socialist “values” to preserve. Berlusconi is more interested in his bank account. So while Greece is likely to get the short hand of the stick, Italy should get the long, albeit smelly long hand.
Translation: Italy will not derail Europe either. If anything, they will regress to the mean, as in “not nice”. It is the unfortunate constant in this whole equation. When Angela Merkel has to trace her “bailout” position to the origin of the EU, don’t gloss over. The threat of nationalism is inherent to Europe, and it may choose to shift away from Socialist Democracy. Not Germany to be sure – it is the only country which can still afford it.
So, if neither Greece nor Italy derail Europe, what’s the problem you may ask. Well, the problem is kind of simple: there is not enough money for everybody. Hence the EFSM/ESM Ponzi. Note that the M in the acronym stands for Mechanism. There is nothing new to report on this that I haven’t dealt with, except to say that the truth is in the eye of the beholder. Ponzi works as long as you believe.
Now, and it’s late, let’s move to the conclusion. Like with any very sick patient on the road to remission, or if you prefer my Baroque analogy, pain is a recurring thing. Get used to flares when you least expect them. We are having one right now. We took a chill pill Wednesday, as we closed at SP 1238 and 1.374 on the Eurodollar December Futures. As of this writing, 9:30 pm EST, the euro was trading down to 1.367, and Thursday’s opening looks like a test of 1205 is in order – actually, call it 1190, as in my favorite pivot point.
Next act, please. Don’t buy the dip right now, but have your shopping list handy.