So yesterday I became pre-occupied with the French Revolution. With the comments coming out of Europe, and Germany in particular, the mud pit scene from the 10 Commandments is all I can think about. The slave master whipping the slaves to crush the straw into the mud until they are collapsing.
The situation in Greece has taken a more sinister turn. The outrage in Greece is growing. More and more of the people on my distribution list with ties to Greece are pointing out how bad things are there. Daily life is getting more difficult by the day for most people, yet the EU has told the Greeks that their current offer isn’t enough and that they have doubts about its implementation. At least they got that right, the austerity measures, will not remain implemented. It seems obvious to anyone who hasn’t become locked into a negotiating stance that the whole austerity idea isn’t working.
It is possible over the weekend that the Greek parliament will defer to EU demands and vote in a plan that is “acceptable” but I don’t see it lasting. The people are fed up and more and more realize that defaulting and costing the foreign bankers money is worth a shot. Default is NOT the end of the world or of Greece. For all the politicians who keep saying default is the end, they are just wrong. It will cause problems, but Greece will survive, and for the first time can start focusing on a plan to move forward rather than dealing just with problems of the past.
The German and Portuguese Side Deal <http://www.zerohedge.com/news/schaeuble-blesses-gaspar-german-finmin-promises-rescue-portugal> here is appalling. It is a stark reminder that Portugal and Ireland are waiting in the wings to get a better deal. It is also clear that the Finance Ministers are politicians and at some level this is all just politics and a game to them. They are so far removed from the day-to-day concerns that they are not creating solutions that can deal with the real problems.
European credit indices are weak – again. The Financials index is out 12 bps this morning and at the wides of the day. That is in spite of the impending LTRO – with watered down collateral requirements. IG17 looks like it is opening a couple of bps wider, no surprise given how weak it went out yesterday.
Those betting on a “solution” are likely to be wrong. The focus now should be what happens with a Greek default. How bad will it be. There is no way it is priced in. The carnage for Greek banks and the knock-on effects haven’t been included. A default will impact all the debt floating around that is guaranteed by Greece and funded by the ECB or Greek Central Bank. It is not the end of the world, but it seems hard to maintain 1300 on the S&P in the event of a default (especially with an earnings backdrop that has been mediocre and raised as many questions as it has answered). The buy the dip mentality is still intact and too many people want to believe in a solution that the market may continue to bounce, but the reality is that too many people in Greece are being pushed over the edge to where they think default can’t be worse than more bailouts.
I’m just happy that the movie that came to mind was the 10 Commandments and not The Sound of Music.