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Alex Cook
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Alex Cook is a graduate of the University of North Carolina, where he studied economics. In college he founded Tar Heel Business, a print and internet publication focused on business and economics. Alex now writes for frontieroutlook.com, where you can read about macroeconomic trends and... More
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  • More confusion from Greece

    This is starting to get absurd. According to a news report, Athens Mayor Nikitas Kaklamanis made a statement asking Germany to pay reparations for the Nazi occupation of Greece during World War II. I am an economist and not a diplomat, but this doesn’t seem like the best course of action when your country is desperate for an EU bailout. In my view, the likelihood of a Greek default has increased over this past week.

    The article also mentioned Parliament Speaker Filippos Petsalnikos responding to harsh editorials in German media about a possible bailout:

    Petsalnikos accused Stern of offering an “oversimplified and populist take” on Greece’s financial crisis by lambasting Greeks for frittering away German taxpayers’ savings. In a letter sent to the magazine, Petsalnikos argued that Germany too had reaped benefits from European Union membership, stressing also that it was Greece’s main arms supplier. He noted that Germany was one of the countries that benefited most from EU membership, with more than 60 percent of its exports going to member states in 2007.

    Sorry, what? Of course Germany benefited from EU membership, but that is entirely irrelevant. Greek military purchases from Germany barely move the needle on German GDP.

    In my view though, an even bigger sign of dysfunction is the front page of Greek newspaper Kathimerini English Edition posting this message today:

    TO OUR READERS
    Kathimerini English Edition and the International Herald Tribune will not be published in Greece and Cyprus tomorrow because of the participation of the ESIEA journalist’s union in the 24-hour general strike today. We will be back on Friday.

    This was the very same newspaper that on February 19th put out a strongly-worded editorial against union bosses abusing their power, saying “It is time that those union bosses who believe there is no limit when pushing for demands became aware of the harm they are doing to the country and, in the long term, to their own sectors.”

    While one newspaper is not an adequate sample of all Greek businesses and institutions, it does put to question that, if a newspaper who has taken a stand against aggressive union action cannot control its own staffers, can the national government–who must deal with the unions in elections–gather the political will to pass austerity programs?

    Greece still has a chance to pull through–if the country is willing to endure the painful medicine to avoid a default. One Greek columnist succinctly wrote that “German Chancellor Angela Merkel will not shake with fear at the letter by Parliament President Filippos Petsalnikos nor will BMW’s stock fall because some are thinking about boycotting German products.”

    More rational and level-headed thinking like this is needed. It is said that a crisis can bring out both the best and the worst in people. In Greece, markets have unfortunately only seen much of the worst.

    Conclusion

    I maintain my views on how to protect investments from a Greek crisis. European sovereign debt and Greek equities should be avoided, and could also present potential short-sell opportunities. I would also continue to avoid the Euro. While I think that concern over a dissolution of the Euro is premature, a crisis in Greece (and Spain, Portugal, and Italy) will keep the Euro depressed.

    -Alex Cook



    Disclosure: None
    Tags: Greece
    Feb 25 9:22 PM | Link | Comment!
  • Sunday Briefing on February 21

    The discount rate is hiked in the US, the Battle for Marjah continues, and the Winter Olympics takes place in Vancouver. Here is a recap of last week’s major events, and a preview of next week’s market movers in time for your morning meeting.

    Market moving events next week:

    Monday Feb 22: Ben Bernanke will testify before the House Financial Services Committee. Dendreon, Nordstrom, and Radio Shack release earnings. Auctions for the 3-month and 6-month T-Bills, and auction for 30-year TIPS.
    Tuesday Feb 23: House Price Index released. Consumer Confidence report released. Amedisys, Barnes and Noble, Home Depot, Macy’s, Office Depot, Petrohawk, Sears, and Target release earnings. Auctions for the 4-week T-Bill and 2-year T-Note.
    Wednesday Feb 24: Ben Bernanke will testify before the House Financial Services Committee (again). New Home Sales report released. Bank of Cyprus (listed on Athens Stock Exchange & Cyprus Stock Exchange), Commerzbank, Dollar Tree, and Garmin release earnings. Auction for the 5-year T-Note.
    Thursday Feb 25: Ben Bernanke will testify before the Senate Committee on Banking, Housing, and Urban Affairs. Durable Goods Orders report released. Gap Inc., Hellenic Bank (Cyprus Stock Exchange), Hyatt Hotels,  Novell, Safeway, and Wynn Resorts release earnings. Auction for the 7-year T-Note.
    Friday Feb 26: GDP released. Consumer sentiment report released. Existing home sales report released. Bayer, NW Natural, and The Nielsen Company release earnings.

    Analysis

    This could potentially be a very busy week. Ben Bernanke will be speaking three times before Congress, and markets will still be digesting the discount rate hike. There are also a number of very important economic indicators coming out all in this week: GDP, Durable Goods, Consumer Confidence, and also a number of high-profile earnings releases. This will give more insight into if we have finally reached a recovery phase.

    What I also strongly recommend watching are the earnings releases for the Bank of Cyprus and Hellenic Bank. The Greek crisis still has not resolved itself. Cyprus is not facing a crisis as Greece is, but these banks have a major presence in Greece (remember that Greece and Cyprus have very close cultural and historical ties), so watching these Cypriot financial institutions will give more insight into the health of beleaguered Greece.

    Recapping last week

    The Fed raises the discount rate. The US Dollar rallies, but oil climbs as well.

    The NATO/Afghan Army offensive continues in Marjah. Clearing Marjah will ease pressure across the volatile Helmand province.

    Senior al-Qaeda leader killed in Predator missile strike.

    Training for Iraqi Army paratroopers commences. Training is being led by the US 82nd Airborne Division.

    The big story last week

    The Israeli intelligence agency Mossad has been implicated in the January death of a Hamas official who was assassinated in Dubai. Some military blogs have suggested alternate theories that it was not Mossad but perhaps mobsters in an arms deal gone wrong, which is plausible since Israel does have an organized crime presence. The Israeli Navy in 2009 intercepted an arms shipment from Iran en route to Hezbollah, and both Israel and Egypt have clamped down on arms smuggling tunnels into Gaza, so perhaps Hamas was seeking an alternate supplier through the organized crime black market. Nevertheless, Mossad remains the most likely assassin.

    Given how the Dubai police were able to piece together evidence from the assassination, and given that the fake identities of the assassins were actually the identities of unrelated Israeli citizens, some Israeli newspapers have questioned if the operation was botched (however Mossad has not taken credit for the operation). There are some other possibilities however, albeit speculative:

    1. The usage of Israeli identities was deliberate as a “calling card” to not implicate Mossad directly, but to send a message as the parlance goes.
    2. Dubai police were able to piece things together–since they were in on it. The police releasing the information is a way to placate internal factions. This would explain why the Hamas official was traveling without bodyguards, if he assumed that Dubai’s police would provide him protection.
    3. Israel really didn’t do it. Using the names of Israeli citizens was a “false flag”, with the belief that implicating Israel–as they would definitely be one of the usual suspects–would cause people to think nothing more of it.

    This is of course all speculative, but it is another interesting chapter in the shadowy world of intelligence in the ever-volatile Middle East.

    Current market stats

    TED Spread: 0.1454
    3-month Libor: 0.2519

    S&P 500: 1,109.17
    FTSE 100: 5,358.17
    Nikkei 225: 10,380.84
    Hang Seng: 20,413.01

    Oil: 80.24
    Gold: 1,121.30

    Euro/US Dollar: 1.3639

    30-Year Fixed Mortgage: 5.16%
    Business Credit Cards: 11.32%

    Best attempts at accuracy were made at 8:55 PM Pacific Standard Time on Sunday, February 21. These stats are for informational and educational purposes only, and no liability is assumed for inaccurate information.

    -Alex Cook



    Disclosure: No positions
    Feb 22 12:03 AM | Link | Comment!
  • Updates on Greece and the markets

    Markets rallied on Tuesday, shrugging off news from Greece and the Eurozone. Turmoil in the Hellenic Republic continues though, and it will have long-term implications. Some new developments have happened.

    First, Greek Prime Minister George Papandreou pinned some of the blame of the crisis—on the EU! The EU does have its share of problems, but it is not the responsibility of Germany and France to take charge of decades-long fiscal mismanagement in Greece. From my perspective, either Papandreou is putting out statements like this to appease internal political factions in Greece, or he is out of touch with the economic reality.

    In all fairness, the crisis is not entirely his government’s fault, as frankly no Greek government since World War II has shown much fiscal discipline–or at the very least a drive to create a climate that attracts investment. The previous conservative government was brought down in the polls partly due to ineptitude of handling riots in 2008 that took days to restore order. Complicating the matter was that Greek police are forbidden from going onto a university campus as a reaction against the Greek military dictatorship in the 1960s and 1970s. This restriction gave rioters and criminals a place to avoid capture.

    The Greek newspaper Kathimerini has been ripping on the PM’s government in the editorial pages for over a solid week now. One columnist went as far as to call Papandreou a “complete failure.”

    What this means

    From a distance, these developments may be almost comical to watch, but the political uncertainty that they create puts a number of things into question: 1) can Papandreou’s government garner the political will to push for fiscal austerity, especially considering he comes from a traditionally socialist party, and 2) will France and Germany be less eager to extend a bailout, thinking that it could be squandered on an ineffective government?

    The first point may indeed be possible. History has shown that major political maneuvers have sometimes been easier to accomplish when pushed by a party traditionally associated with opposing them. Examples in the United States would be President Clinton passing welfare reform and NAFTA, or President Nixon opening relations with China during the Cold War. However, Clinton and Nixon were not facing immediate crises when those events took place.

    The second point of whether or not other European nations will be willing to make a bailout is now less certain. I said previously that a bailout is becoming more and more likely, but political will for this in Germany is not as strong as I had anticipated. A recent poll shows that “a majority of Germans want debt-ridden Greece to be thrown out of the euro zone [sic] if necessary and more than two-thirds oppose handing Athens billions of euros in credit.”

    Conclusion

    Political economics is always messy. I had though that we had more clarity on Greece last week when the prices on Greek sovereign debt credit default swaps started dropping. That was not the case.

    Until we have a definitive answer on Greek plans or EU/IMF plans, I maintain my position that European sovereign debt should be avoided entirely. The Euro will also likely trade depressed for some time. I would also avoid buying US Dollars on a slump in the Euro, since there may be a short-term flight to quality from the Euro, but the US has its share of weakness as well.

    Disclosure: None.

    -Alex Cook



    Disclosure: None.
    Tags: Greece
    Feb 17 3:25 AM | Link | Comment!
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