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A chupacabra, as depicted by "witnesses", is a hundred times uglier than a bear. Sadly, that's where we have been heading to. We have been heading to the ugly, and fast. Going from "bearish" to "goatsuckerish". But here's the thing, there is only so much panic that politicians and central banks can stomach. I am not favoring or attacking the long term consequences of monetary easing or bailouts; I'm just acknowledging what many stock investors think is going to happen. The market is thirsty. The central banks are starting to get tense.

Don't die, I'll get you water. Stay there. Don't move, I'll get you water. Don't die until later.

-Tuco, from The Good, The Bad and the Ugly

In Europe, bailouts and other considerations will not be given easily at first sign of market trouble. If they are given easily, then austerity can not be forced into austerity-averse countries... and it's clear that Mrs. Merkel wants everybody to eat their veggies before she brings the ice cream. We all know the drill. Mr. Panic has to rise to certain levels before politicians get more flexible, maybe not "eurobond-flexible", but at least more willing to negotiate.

So, is the tension high enough? The GDP annual growth rate and debt/GDP graphs of Greece can show us an ugly picture...

(click to enlarge images)

To add some salt, unemployment is around 21% and the government budget deficit is 9.1% of GDP.

If we "zoom in" and switch from satellite view to street view, we can hear rumors that a growing number of people are not paying their utilities and that some are withdrawing all their cash from their bank accounts. There are protests almost every day and the political race is getting out of control. On Thursday, the spokesman of the far-right Golden Dawn Party slapped a female leftist politician in the face and threw a glass of water on another during a live TV debate. The country feels embarrassed by this despicable act. An event like this could give the leftist party SYRIZA an additional push in the race. Currently, the conservative New Democracy Party is running slightly ahead, according to a recent poll.

Billions have been injected into Greece one way or another in the last couple of years and the situation in the "Mediterranean black hole" is even worse.

Will the ECB give the ailing country more ice cream? My guess is yes, they will. Not only because of the destructive chain of defaults that could unfold from it, but also because the ECB is not the only one with a bargaining chip. As this chart shows, capital has been flowing quite aggressively from troubled countries to "safe heaven" countries in the EU:

Image credit: Bloomberg

Considerable amounts of money are being transferred and because of this, it is said that the ECB is capitalizing banks in Greece secretly through the Emergency Liquidity Assistance program as reported by Bloomberg. The acceleration of the same panic-induced money flow has to be prevented from happening in countries like Spain and Italy.

So who has the upper hand, Merkel or the Greece government? Will this result into a prolonged "chicken game"?

If the SYRIZA party wins the June 17 vote, they will have more seats in the parliament, the negotiations will be virtually impossible to resolve and it's basically game over. They will pass the austerity memorandum through the nearest paper shredder they can find. No more bailouts will be given, Greece will return to the drachma and inflation will swallow the country in the same way the Kraken used to break ships and use them as toothpicks. That would be a tragic end for such a beautiful country with such good people.

So, what will it be? Will the ECB, Merkel and Greece be able to reach an agreement or will they scream "Release the Kraken?"

If Greece leaves the euro, the flow of capital out of troubled countries will likely accelerate, which leads me to think that the bailouts will keep coming little by little.

Source: The Bull, The Bear And The Chupacabra: Part I - Greece And Capital Flow In The EU