Public opinion is no more than this: what people think that other people think. -- Alfred Austin
For those of you who haven't had a Playbill handy, the latest revival of the drama known as the Greek sovereign debt crisis played out into the wee hours of Tuesday morning, as eurozone finance ministers and the related cadre of state officials crossed the T's and dotted the I's of an agreement that will once again provide bailout funds to the struggling Mediterranean country.
In exchange for the lofty sum of slightly over $170 billion to be provided by the euro group, consisting of the eurozone members' financial leaders, Greece has pledged to yet another round of austerity measures that are targeted to create a steep reduction in its debt-to-GDP ratio. The ratio currently sits at around 160%, and the stated intention by both the Athens government and its once and future lenders is to lower it to 120%.
Never mind that there seems to be a dearth of actual investors, economists, and political leaders who believe Greece will be able to attain such a stunning turnaround in a mere seven years. To a large extent, that's not really the point. What it does accomplish is to allow both Greece and the rest of the eurozone to continue to stare across the card table and see who will call the bluff as to whether a default will actually occur.
Will it be the Greek government, which has, up until the moment the new agreement was signed, protested extremely loudly that its citizens would not tolerate being squeezed beyond the point they already have been? Perhaps it will be Germany, which has insisted that greater accountability in the form of increased belt-tightening is the necessary cost of remaining in the eurozone, although the countries are so entangled that it would be hard to say who which suffer greater economic hardship should a default actually occur.
In any event, the latest bailout is simply a stopgap measure, in the sense that the new agreement is only the first of a series of steps that requires a quarterly review process, one put in place to assure that the terms of the loan are being followed. It is possible that, as soon as Greece holds its next elections in April, the conditions required in exchange for the current bailout funds will be called into question.
Though part of the new agreement focused on having Athens stay the course regardless of who the ruling party turns out to be, eventually it will be up to the Greek populace to either honor the terms or to ultimately default.
For the moment, at least, it won't be a surprise to see Wall Street respond with a subdued cheer as it puts to temporary rest the high level of concern investors have rightly held as the Greek drama has unfolded. The equity market's current Bullish trend shall likely continue, though it will likely be timid until more certainty is restored around the euro and its Union, if indeed it ever shall be.
In the meantime, the matter of oil and the Middle East has returned to the radar of traders and investors in a big way, courtesy of Iran.
Tehran has reacted to further threats of embargo by the European Union by returning the favor and threatening to immediately withhold shipments of crude to both Britain and France. In addition, Iran promised to halt future shipments to any other European country that participates in the embargo.
The result of all this economic saber rattling was that oil futures hit their highest price level in over nine months. As of Tuesday morning, the spot market showed bids above $105 per barrel.
As far as the U.S. domestic economy goes, the coming week's round of economic data, including existing home sales, new home sales, and the latest consumer sentiment report will give investors a chance to show how they are weighing the players on the playing field, and if domestic positives, should they indeed be in place, trump international concerns.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
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