This week we won’t be looking at charts, but instead discussing the most important macro issues that will determine the future trends of all asset classes.
Tomorrow Greece’s parliament votes on whether or not to implement more “austerity” measures, also known as cutting social programs and raising taxes. Greek citizens, enraged that they keep picking up the tab for banks (both domestic and international) that made poor bets on Greece, will be implementing a series of strikes and riots.
However, the facts remain the same. The world is awash in garbage debt. The only reason the banks and others haven’t taken the “hit” that they NEED to take is because they’ve bought out the politicians. Put another way, we are seeing clearly that the two primary principles of the West (capitalism and democracy) have both become jokes: alleged “capitalists” like the banks don’t ever actually see losses for mistakes and “democratically elected” leaders are in fact owned outright by the banks via donations/ bribes.
Greece, while ultimately a small player in the global debt game, will set the course of the rest of the financial world this week. If Greece implements more austerity measures, that the “extend and pretend” game will continue a little longer, the Euro, stocks and commodities will rise, and the US Dollar will fall.
However, if Greece doesn’t pass more austerity measures, indicating that the bailout/ stimulus nonsense has hit a wall, expect a serious “risk off” move in which stocks, commodities, and the Euro to take a hit, and investors rush into the US Dollar.
However, this will not be a simple one-way street. The EU, and now China are both committed to helping the failed experiment of the Euro continue its death march.
Yes, you read that correctly, China has committed to insuring that Eurozone debt holders don’t take a haircut. It’s even mentioned possibly buying European sovereign bonds outright.
The reasons for this a multiple… but ultimately they boil down to:
1) China wants to flex its “dump the Dollar” political muscles
2) China wants to support its primary export market.
China’s been warning about the US Dollar as an investment for years. They’ve lowered their Treasury holdings for five months straight and have even hinted they might cut their holdings by 2/3. So China’s move to support the Euro can be seen as a continuation of this “anti-Dollar trend.”
Regarding exports, the EU accounts for roughly $400 billion of China’s exports, making it China’s single largest export market. So if Europe collapses, China’s economy takes a BIG hit.
And all of these issues (China’s exports, the bailout madness, European bank debt holdings, Greece’s sovereign collapse, the future of the Euro, and stocks, commodities, and the Dollar’s trends) hang on Greece’s shoulders this week.
With that in mind, the Greece situation needs to be watched very, very carefully as all investments will trade based on this outcome and the subsequent interventions by the EU/ China. With that in mind, stay nimble and don’t over-commit to anyone outcome just yet.
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