Today's Market: Big Movers And Why Greece Will Accept A Deal Rather Than Default

by: Matthew Smith


The Nasdaq Composite hit fresh all-time highs yesterday as the entire market rallied after this week's FOMC rate decision.

Greece will have to accept a deal that Europe wants, especially if further emergency liquidity is withheld by the ECB from Greek banks.

MSO and SQBG are in talks to merge.

The Nasdaq was cheered yesterday as it convincingly took out old highs and made a solid move higher, all in the midst of fears over Greece and a potential debt default. The PowerShares QQQ Trust (NASDAQ:QQQ) followed suit and ended the session nearly 1.50% higher. While we believe that a tech bubble is taking place (mostly outside of publicly traded stocks), the move higher we have seen this year is becoming quite convincing from a trading perspective and appears to indicate to us that this rally could continue longer. We are not short tech, biotech, etc in any way, but we are managing risk much more carefully and focusing on individual names which make sense when looking at growth and valuation rather than investing blindly in a basket of stocks.

It was nice to see the Nasdaq hit these highs on a day with a lot of excitement over the Fitbit (NYSE:FIT) IPO. Even though the wearables company decided to list on the NYSE, it was good to see new tech rise along with old tech.

Chart of the Day:

We have been warning that Chinese markets were due for a correction for the last two weeks and it now appears that the move is underway. While it was positive to see the major reversals that took place recently that erased large intraday losses, it was becoming quite obvious that the bull was becoming tired. The bulls were finally worn out and now investors must watch for the ensuing retracement and potential consolidation.

Source: CNBC

We have no economic news today, but looking ahead to next week, we will get Existing Home Sales data on Monday.

The Asian markets are higher today:

  • All Ordinaries - up 1.31%
  • Shanghai Composite - down 6.36%
  • Nikkei 225 - up 0.92%
  • NZSE 50 - up 0.56%
  • Seoul Composite - up 0.25%

In Europe, markets are higher today:

  • CAC 40 - up 0.58%
  • DAX - up 0.05%
  • FTSE 100 - up 0.29%
  • OSE - down 0.32%

The ECB Has A Superior Hand

Apparently negotiations between Greece and its European partners have broken down again, deteriorating to a point where emergency meetings are being called by Eurozone leaders to address the potential fallout from a Greek debt default. While Greece has reverted to hardline negotiating tactics, it appears that they have forgotten that the European Central Bank holds the best cards at this point. Playing a game of chicken and trying to pretend that you have nothing to lose is one thing, but continuing to push this out and potentially crossing the line of no return is far worse for Greece than the EU, ECB, France, Germany and everyone else on the other side of the table.

The Global X FTSE Greece 20 ETF (NYSEARCA:GREK) highlights just how worried investors are for Greece, and as you look at the banking sector it is quite obvious just how worried Greek citizens are about the effects of a default upon their savings and liquidity. National Bank of Greece (NBG) and Alpha Bank (OTCPK:ALBKY), two large Greek banks, have been under constant pressure along with peers as outflows continue due to consumers withdrawing deposits.

So why is this important? Well the ECB has been extending emergency funding to the Greek banking sector, and because the ECB previously ruled that Greek bonds were unacceptable as a form of collateral the banks have been borrowing funds under a guarantee from the Greek government. With various financial media outlets reporting that Greek banks saw withdrawals of at least 1.5 billion euros (and some reporting up to 2 billion euros) today, the ECB is now being asked to increase emergency funding to the banks.

Now the ECB can extend further credit, which under "normal" circumstances would be a formality, or they could work in conjunction with negotiators to ramp up pressure on Greece. To push Greek leaders back to the negotiating table they could say no publicly and then tell Greek leaders that they will not extend further credit until there is an agreement in place to lower their risk.

While some would obviously worry about Greece leaving the Eurozone, dumping the Euro, and reverting to its own currency, we think that is the bluff that must be called. If Greece's leaders want to go over a cliff, it might be best to let them see the repercussions because their citizens already do. Defaulting on its debt will keep Greece out of international debt markets for years, and switching to its own currency will result in more flexibility but will require for massive devaluation which will steal from savers and lower the standard of living for pensioners...the exact group they are supposedly trying to protect with this tactic to dictate rather than negotiate. Add in the fact that their debts are not priced in whatever new currency they will launch and it becomes even more troubling because at that point currency devaluation and runaway inflation would probably hurt the Greek economy and pensioners more than simply paying the bills they already owe.

This weekend should be interesting, especially if Europe decides to call Greece's bluff.

Martha Stewart Deal Rumors

Shares of Martha Stewart Omnimedia (MSO) rose over 26% yesterday after reports of a possible deal to sell the company to Sequential Brands Group (NASDAQ:SQBG) surfaced during the trading session. Shares were halted after an initial rise, and once the trading halt was lifted the move higher continued. Investors and traders liked the idea of a deal, as Sequential Brands' shares closed at $16.08/share after rising $1.81/share, or 12.68%.

While details regarding the pricing and structure of a potential deal were not discussed in the headlines we saw, investors were cheering because of the potential synergies the two companies could create by combining forces. While Martha Stewart already has retail deals with major retailers, the brand could get a boost from Sequential's marketing ability and brands already in its portfolio, such as Linens 'N Things, while also helping increase sales and margins by using an in-house distribution channel such as the Linens 'N Things website.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: QQQ has previously been recommended.

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