Greece – Summary of FUBAR

This is just a short summary of the status of Greece (financially) as I see it. I’ll be modestly freely mixing my opinion / vision of things in with sourced material (that will generally have a link). I’m not going to be spending too much time on “sources” as I’ve got 60 tabs open for things I want to post and I’m adding more faster than I’m getting them done, so things need to move faster for a while ;-)

First off, a chart of the Greek ETF (Exchange Traded Fund) ticker symbol: GREK. This isn’t my usual chart from BigCharts as I’m getting a “loop error” when I try to use them on the Chromebox. (The Android is fine with them, so something is different in the browsers or DNS or ‘whatever’…)

http://bigcharts.marketwatch.com/

This webpage has a redirect loop

ERR_TOO_MANY_REDIRECTS

And yes, I cleared all the cookies as they recommended… it’s something else. BigCharts has, from time to time, screwed around with the path names for the chart creation web page. On one occasion I had to go through my pre-made “look them up” web page and change ALL the links. A few weeks back, it looked like they had done it again, and I just ignored it. Now it looks like they may have broken it for some browsers. Oh Well…

So I’m using a different, less colorful, but just as capable chart maker today:

http://stockcharts.com/h-sc/ui

We’ll see how well I do at image capture and / or settings and such. First up, my attempt at a 1 year chart of GREK with some indicators.

Greek ETF one year chart

Greek ETF one year chart

Well, that worked out OK. Colors are different, so instead of my usual “red on top is bad, blue on top is good”, we have different things to look at; but the overall effect is about the same. This is an ETF of selected Greek stocks. I’ve not looked inside the box to see just what companies make up this ETF, but it ought to be a good enough general indicator of what folks are “voting with their dollars” on the Greek government and economy. As a small thin ETF, it can have stronger movements than the market in question as a whole, so for more detail, one needs to go to an actual market index.

The first obvious thing is that it goes from upper left to lower right. Greece has been in steady decline as the economy grinds down. THE single thing most likely to destroy an economy is the political class screwing around with the economy and money. IMHO, over 90% of the time in modern times, that is what collapses an economy and a government. A few times it is revolution / military escapades, but one can make the case that they, too are government caused failures. (See Egypt where a dictator lead to a revolution and collapse of the economy). Lord save my money from Government Idiots.

Since this chart service lets me set independent numbers for the three SMA lines (Simple Moving Average), I’ve gotten to do something I’ve wanted for a while now. In traditional charting, it is the 50 and 200 day moving averages that are used to indicate trend reversals. (That is roughly a 1 year of trading days vs a quarter of trading days). I’ve typically used about a 23 to 25 day SMA at the low end, then BigCharts turns that into 50 and 75 day by adding it to itself twice. I’d rather have a ‘fast line’ at about one month ( 4.3 weeks x 5 trade days / week = 21.5 ) and then the “usual” 50 and 200, but the way BigCharts does it prevents that. Here I can indulge. I’ve kept my usual slow line compromise of 23 days (that’s a bit longer than 21, but on BigCharts gives a number ‘close’ to 50 at the first double) just because my subconscious has been a bit calibrated to it visually. Then used the 50 and 200 partly just to see if I like this “set” more than the usual 23, 46, 69 from BigCharts. So far, my impression of it is “pretty good”.

But what do I read in those lines?

The 200 day is still in a long slow decline. Greece is an economic mess and shows little sign of recovery yet. Price is well below the 200 day, so things are not even close to starting a reversal. It’s still “decline underway”. Moving to the faster lines, the 23 / 50 set have been down running with the faster line sometimes touching the slower, but not penetrating, UNTIL you get to the very end. At end of March and end of April we have price down spikes that “fail to advance to the downside” and are of about equal value. That’s a bottom indication of sorts. Needs confirmation action, but that’s the first sign. SMA 23 crosses 50 and we have the start of a “price / 23 / 50 day bottom weave” as the three lines weave together. We would expect a “dead cat bounce” as prices bounce off that ‘double bottom indication’ then relax back toward it, but fail to go that low again. (This means ‘the shorts have covered, but the buyers have not yet entered’). Then, as new buyers enter, price would rise above the fast lines and the stack starts to reorder as price over 23 day over 50 day. Sometimes this only happens after the next slower line joins the weave; but since I’ve been using a 70 ish day ‘slowest line’ and now this is a 200 day; I’m not sure what it will look like (that ‘visual training’ hasn’t happened with a 200 day line). Classically, when the 50 crosses the 200 it is called a reversal. Here’s what it looks like with a faster “slowest line” and it is more nearly what I’m used to seeing as a ‘bottom weave’ with all three lines weaving:

Greece ETF 1 year 13 June 2015 with 23, 50, 75 day SMA stack

Greece ETF 1 year 13 June 2015 with 23, 50, 75 day SMA stack

So my first read on these two ‘speeds’ of SMA stack are that my “usual” does a decent job of bottom calling with the bottom weave faster than the other chart. But that the use of a 50 / 200 crossover as confirmation of a new rise is likely to be better than the ‘resolve to the upside’ reordering of the faster SMA stack (price over 23 over 50 over 70ish). I’ll likely use both together for a while to see if there’s value in that. Second thing to notice is the degree to which “visual training” on a particular set of ‘speeds’ of SMA stack matter to one’s perception and understanding. I’ll need to look at a few hundred 23 / 50 / 200 charts to get comfortable that I really know what they are saying. But I like the ability to have both speeds of chart.

On this chart, RSI is at the top instead of the bottom. I kind of like that more. It has had a ‘touch 70’ which is about the same as my usual “near 80” rule. And then drops some after that. This is an early “bottom soon” call.

Volume had a spike at the bottom touch in Feb, then some spikes up after that in late Feb late Apr that are likely short covering. The shorts think the decline is about as over as it is likely to be. For now.

MACD (Moving Average Convergence / Divergence) has moved from below zero to above zero (for the red / black lines) and that generally means the decline has ended. It is still ‘red on top’ at the moment, so ‘stay out’ on a trade basis. The ADX DI (DMI) lines confirm this with weakening strength in the decline to a 10 and dropping for ADX, while DI has weakened into a low value weave but with ‘red on top’ meaning to stay out on a trade basis.

So overall this is saying that Greece has taken a beating, but beating the dead horse more is unlikely to be productive (i.e. more shorting not going to pay off much) and that the ongoing negotiations are more risk to a short than the potential gain. For now.

The Political Game

So what is the current political game?

Greece is in ‘negotiations’ with the EU and EU Central Bank (ECB) over less “austerity” and more “free money”. This particular government was elected based on a “Enough Already with being beaten by the austerity club” platform. The whole reason they are in power is to stop the EU / ECB from ongoing crushing of the Greek people. No more reduction of pensions, no more reduction of subsidies and payola. No more reduction in nice government jobs and their paychecks.

The rest of Europe would like their money back. Germany, in particular, is not seeing a whole lot of upside to handing more €Billions to Greece to spend on pensions, government make-work paychecks, and coffee at the shore…

Sidebar:

Oddly, after a slow DNS issue on saving this page and reading the draft… things have sped up again, and BigCharts is working… One must wonder if someone has been playing “DNS Games” and got something wrong… TLAs (Three Letter Agencies) have likely been spanked over the ‘break ins’ at the USA government, so I’d not be surprised if they are “trying things” and in their rush fumbled something. Or it might just be that there was a bug at the DNS (Domain Name Service) provider… or that BigCharts was doing some maintenance and ‘screwed the pooch’ on the push time… At any rate, it’s back. I’ll try using it again tomorrow…

Back at the politics.

So we have a classical “rock and a hard place” set up. Greece is NOT going to back down on the “Hell No, and give us more money” as that is the only reason those folks are in power. Germany and the EU / ECB are NOT going to back down as they want the money they have already loaned to be repaid, and are not interested in subsidizing the “sweet life” for someone else. The end game of that standoff has only a few possible outcomes, and fewer likely ones.

1) Greece accepts the terms and puts in place the demanded “austerity”. Look for a popular revolt in Greece and the fall of the government. Whatever replaces it even less likely to go along with “austerity”. Probability? Near nill.

2) EU / ECB fold their hand and give a debt restructure. Greece is given ‘breathing room’ via some face saving motions and a promise to pay later for a bit more money now. Probability? Low but possible. Germany has blinked before. Expect a load of domestic complaints in the more fiscally disciplined parts of the EU.

3) Grexit. Greece just says “Hell No and we’re leaving”. The Drachma is reissued and Greece proceeds with the typical over spend, over print, and inflate away the difference. Probability? IMHO medium. It’s the one thing that the Greeks would be ‘fine with’ that is entirely under their control. Germany and the EU would be pissed, but what can they do? Punish the Greeks more by blocking trade? Greece would then just turn to Russia and sign up with them.

4) Kick The Can. The negotiations reschedule the approximately €17+ Billion due in the next couple of months out to about 6 months and try again. Probability? Very high. Nobody gets hurt. All the appearances are kept in place. Problem doesn’t go away, but is off their watch right now.

I don’t see much alternative to those scenarios. There isn’t any case where they can negotiate that mountain of debt and more piling up into a “good times for all”. Greek unemployment is staggeringly high, especially for the young worker wanna-bees, and not going to be fixed in anything other than glacial pace given their excess debt loads and low productivity. You can’t both “pay the debt monster” and have “no economic stimulus” and have “good economic growth”. Broke folks can’t invest in making more industry for more growth and more tax revenue. Similarly, you can’t “spend your way to prosperity” while ignoring a mountain of debt (and Germany would not agree to it anyway).

So to me it sure looks like the choices are that one of the two parties lose, they kick the can and repeat in a few months, or Greece packs up and leaves the Euro Zone with their own currency (so their economy can do what it always has done with rapid inflation) and says “bugger all” to the debt with a default. Not wanting the last one, the EU / ECB folks will settle for a kick-the-can instead; but will push really hard first. Yet neither party can let the other have a clear ‘win’.

This all comes to a head the end of the month, or in just a couple of weeks.

Admiring The Problem

The BBC has a couple of good articles on this:

http://www.bbc.com/news/business-32852468

Will the ECB play its trump card over Greece’s future?

By Andrew Walker
BBC World Service Economics correspondent
2 June 2015
From the section Business

If it chose, Mario Draghi, the president of the ECB, could put Greece in a position that would leave it little choice but to start printing its own currency, and in effect leave the eurozone.
But it’s not a card that he wants to play.

The ECB’s trump card

As the clouds have gathered again over Greece’s economic future, customers have been pulling their money out of Greek commercial banks. Private sector bank deposits in Greece declined by €23bn (£16.3bn), or 18%, between November 2014 and March this year, according to figures from the Bank of Greece.
[…]
For now, banks are able to rely on borrowing money from the Bank of Greece (the country’s central bank) using an arrangement known as emergency liquidity assistance (ELA). That is currently reported to be €80bn and has been raised repeatedly in recent months.
And this is the trump card: it’s the ECB’s governing council that tells the Bank of Greece whether this should continue, whether it should limit the payments or whether it should stop funding the banks.

Anyone with a brain knows that as soon as a government is “in trouble with debt” you yank your money from the banks. Now the EU shot their toes off in Cypress when they raided those banks, and doubled down on stupid with saying that would be the model for the future. So it is no surprise that folks are hauling money out of the banks. Were I a Greek, I’d have near zero in any bank anywhere in the EU, but especially in Greek banks. They’ve seen this movie in Cyprus and know what to expect.

So the ECB can shut off the money flow (provided the Greek Central Bank actually goes alone…).

[…]
So, if the interminable political negotiations between Greece and its eurozone partners conclude with the Greek state defaulting on its debts, the country’s banks will also sustain financial damage. For its part the government is ticking over – just – partly due to short term borrowing from the banks.

So if the Greek Government moves to trump, they have a banking crisis and need to do some kind of bank takeover, that would likely only be doable if they repudiate a load of EU “treaties” they’ve signed. It’s a question of who has the actual power and control over Greek institutions and legal authority. Most likly, IMHO, devolved powers would need to be reclaimed by Greece. That would cause a full exit from the EU. Otherwise their banking system goes under and we get the Cyprus play all over again.

Yet if they go with “austerity” writ large, money flow to consumers in the economy drops even more (as so many are on pensions or government paychecks) and the banks have yet another cause for collapse as there is less economic activity and more default.

So the ECB’s trump card, if it were played, could have very dramatic consequences that would be profoundly political.

It is arguable that, legally, giving up the euro is incompatible with staying in the European Union. In those circumstances, perhaps Greece would make closer friends with other powers that the EU doesn’t greatly care for, such as Russia and China.

There is also the idea built into EU treaties and ideology that the euro is supposed to be for ever. A departure from that principle would have serious political ramifications and as such would constitute intervention far beyond the remit of what was envisaged for a technocratic central bank.

It will be rather fascinating to watch and see if Greece gives a big middle finger to being in the Debt Pen, and exits the EU; or if the German Domination Machine folds. The other POV would be just as fascinating; if Greece stays in the pen and takes a huge domestic revolt and bank raid by the EU / ECB ala cyprus. We then have The Holy Roman Empire II confirmed, with a new German King at the helm.

All while Russia sits on the side nibbling its way to East Germany…

FWIW, IMHO, there is an outside option of Russia floating the needed cash to Greece in exchange for Greece doing whatever Russia wants. Gas pipelines into the rest of the EU (via Turkey), maybe some nice port and bases facilities… Were I Putin, I’d have my ‘main man’ talking with them right now about a nice little base somewhere for a couple of capital ships and maybe a submarine or two; oh, and a part of an air base would be nice…

http://www.bbc.com/news/world-europe-31837660

Could Europe lose Greece to Russia?
By Giorgos Christides
Greece 12 March 2015

Worst kept secret

A drove of Greek cabinet members will be heading to Moscow.

Prime Minister Alexis Tsipras will be hosted by Russian President Vladimir Putin in May, accompanied by coalition partner Panos Kammenos, defence minister and leader of the populist right-wing Independent Greeks party.

The timing has not escaped analysts.

Greece’s bailout extension expires at the end of June and the worst kept secret in Brussels is that Athens will need new loans to stay afloat.
[…]
Greece could look forward to cheaper gas for struggling households, increased Russian investment and tourism to provide a much needed economic boost.

Moscow, in return, would be rewarded with a friendly ally with veto power inside the EU at a time of heightened tensions over the Ukraine crisis.

‘Russian card’

The new government’s intention to forge closer ties with Moscow became evident as soon as the leftist Syriza party won the 25 January election.
Within 24 hours, the first official to visit the newly-elected prime minister was the Russian ambassador, whereas it took German Chancellor Angela Merkel two days to congratulate him with a rather frosty telegram.

On becoming foreign minister, Nikos Kotzias questioned the rationale and effectiveness of EU sanctions against Russia over Ukraine and, from day one, the defence minister advocated stronger relations with Moscow.

Like most members of the Syriza cadre, Mr Tsipras and Mr Kotzias descend politically from the pro-Russian Greek Communist Party.

Looks like I’m not the only one with that POV… Especially given the amount of Russian mob money (and likely government bosses money) that was burned in Cyprus, Russia would just love a bit of ‘pay back’…

http://www.bbc.com/news/world-europe-33099000

Greek debt: IMF leaves talks amid ‘major differences’
11 June 2015

Greece’s international creditors have raised the pressure on the Athens government, as IMF negotiators left talks in Brussels and flew home.
Major differences remained and they were “well away from an agreement”, IMF spokesman Gerry Rice told reporters.

Greece is seeking a cash-for-reform deal, to avoid defaulting on a €1.5bn debt repayment to the IMF.

But the European Council president said there was no more time for gambling and the game would soon be over.

[…]
The EU and IMF are unhappy with the extent of economic reforms the Athens government is offering in exchange for the release of a final €7.2bn (£5.3bn) in bailout funds. Their bailout deal with Greece runs out at the end of June.

Mr Tsipras’s left-wing Syriza party came to power in January on an anti-austerity platform.

‘Happy ending’

IMF’s Gerry Rice in Washington said there had been “no progress” in narrowing differences during the talks between IMF and Greek negotiators in Brussels, and both teams had packed up and left for home.

But he stressed that “the IMF never leaves the table. We remain engaged – but the ball very much is in Greece’s court right now.”

He said the sticking points remain pensions, taxes and financing.

Now that, to me, looks like a “hit the wall” moment is on the cards if someone doesn’t blink.

That article also has a nice timeline along with some sizes and dates on money owed.

What next for Greece?

The Greek government needs an urgent deal as it is running out of cash and needs the last slice of its bailout money.

18 June: Ideally, any deal needs to be signed off by eurozone finance ministers, so it can then by ratified by Greek MPs

30 June: If there is no deal, Greece is in trouble. This is when its eurozone bailout agreement runs out, and it has to find €1.5bn to pay the IMF
One possible solution would be a temporary deal with EU creditors until March, when the IMF part of the bailout also runs out. But if that does not work out, Greece could default and there is a risk it could fall out of the euro.

Is Greece close to Grexit?

In June Greece owes 6.74 billion euros

In July Greece owes 5.95 billion euros

In August Greece owes 4.38 billion euros

Earlier this week, Athens submitted a revised reform plan to the EU and IMF, after Mr Tsipras rejected a set of reforms put forward by Jean-Claude Juncker.

It is believed Athens has conceded some ground on VAT reforms, pensions and the country’s primary surplus target.

A major sticking point in the talks appears to be Mr Tsipras’s demand for some debt relief for Greece, the BBC’s Damian Grammaticas in Brussels reports.

European leaders will not countenance writing off debts before Greece commits to reforms, our correspondent says.

Last week, Greece postponed until the end of June a €300m payment to the IMF, deciding to bundle up four payments amounting to €1.5bn.

Mr Tsipras has warned that a failure to reach a deal on Greece’s bailout by the end of June would be the beginning of the end for the eurozone.

That last line is particularly interesting. The Greek Prime Minister is outright saying he is willing to play the Grexit card (and a likely Russian Snuggle if not an outright bear hug…) so it’s “blow off the debt, or else.”

In one week, on the 18th, we know if a deal is done and presented. At the end of the month, we have a €6.74 Billion wall, followed in one month by 5.9 Billion more and in another month by the topper of another €4.38 Billion. All told €17.1 Billion in 3 months. Greece, per the wiki, has a population of about 11 million. So that’s about €1550 per man, woman, child, and baby in the country to be coughed up in the next quarter. Somehow I don’t see that coming out of ‘austerity’ or more taxes in that period of time.

To me, it looks like there’s no way in hell Greece can pay the bill and no way in hell the ECB will take no for an answer. So I’d look for a ‘kick the can down the road’ a bit; and more endless ‘negotiations’; because the alternative is either the collapse of Greece, or the collapse of the EU as it is today. All while the Russian Bear is sniffing the air for the scent of honey…

In Conclusion

I have no money invested in the EU or any member State, nor any in Asia at the moment. I have no dog in this fight on any side.

IMHO, the EU is showing the inevitable instability from the way it is structured. Cyprus was a horrible precedent and says that NO EU / EMU / ECB related bank can be trusted.

At all.

Ever.

Germany is demanding that all of Mediterranean Europe be “Good Germans” and that just ain’t gonna happen. Even the UK is having strong second thoughts, and it is 1/2 German anyway and not even in the EMU (European Monetary Union).

The “shorts” have gotten out of the trade for now as it is crap dice on which way the Greek Issue goes; but they are not buying in to Greece either.

The EU Power Brokers have decided to play a hardball hand and are showing that they are NOT your friend, even if you are inside the club (“pen”…). This will not make other Sovereign Nations in the EU feel all that good about it.

It all hits the wall inside this quarter, even with some more ‘kick the can’, as the snowball is now moving down hill and continues until it hits the 17 mile marker…

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About E.M.Smith

A technical managerial sort interested in things from Stonehenge to computer science. My present "hot buttons' are the mythology of Climate Change and ancient metrology; but things change...
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6 Responses to Greece – Summary of FUBAR

  1. LB says:

    There’s one explanation. Why is Syriza dishing out the abuse to Germany?

    My reading is that they have no intention of doing what is needed. They never did. So they are going to grexit in order to print. [Or parallel currency]. That’s their calculation. However, they have to address their voters. What better than to create a scapegoat? Germany. It’s tainted because of the Nazi’s behavior so its an easy sell.

    So my betting is a bit of pretend and extend, with no new loans, just the odd rolling over. Then the Greeks have to put the squeeze on themselves.

    Then they will parallel currency, leaving the fig leaf of still having the Euro.

    The question, what does the ECB do about the Greek banks? It could carry on support, but the Greeks will lose the seniorage as consequence.

    So they have to default on their pensions, even more, and internally devalue on pay etc. They might even get around to a firesale of assets.

  2. Adam Gallon says:

    The EU’s between a rock & a hard place here. Let Greece off paying its debts and the other southern European countries who’ve struggled under their austerity policies will also start to ask why the same can’t happen to them? Spain, Portugal & Italy will be arguing for the same treatment as Greece.
    Greece’s admission into the Euro was a fudge of the first rate. http://news.bbc.co.uk/1/hi/business/4012869.stm
    Mind you, the Greeks were just following the example set by France & Italy!
    http://www.economist.com/node/152332
    Like all great political ideas, it couldn’t be allowed to fail, Greece is gambling on this continuing,

  3. Graeme No.3 says:

    Maybe the Monetary Easing underway in the EU is a way of buying up all Greek debt from the EU banks, before the inevitable.

    One point, the EU cannot let Greece not pay the debt and stay in the EU, otherwise there will be a new Greek crisis in very few years.

  4. p.g.sharrow says:

    The Greeks need some Russian discipline. Maybe the best outcome is to let the Greeks out of the EU and let Putin support them for awhile. Works for me, Greece has been living off their reputation for 2500 years. As a Nation they have never been too good at anything except as merchant/bandits. Small wonder that their neighbors want to control them. I wouldn’t invest in Russia or Greece. pg

  5. hillrj says:

    EM How about another option. 5. A referendum. Syrizia formulates a question to the Greek people.
    If you agree to this xxxx then we stay in Euro. Else, we exit. Let the people decide. xxx has to be agreed with EU beforehand. Is this a Swiss approach?

Comments are closed.