Greece and Its Misguided Champions

From Michael G. Jacobides in Harvard Business Review:

….while some EU policies are punitive or counter-productive, the strength of opinion of pundits long on conviction and short on detail seems to ignore the real root cause of the crisis. This is that the Greek economy has become inward-looking, unproductive, incumbent-favouring, and rife with rent-seeking. They may also underestimate how Grexit would exacerbate many of the Greek pathologies at the root of the crisis.

Greece’s main problem isn’t its currency. Rather, it is that its Byzantine regulations and institutional uncertainties discourage investments and reduce competitive pressures. Grexit would further restrict available capital, shatter the fragile banking sector, and increase the investment gap, which, as McKinsey’s recent study shows, is the key issue.

Read more at Greece and Its Misguided Champions.

Greece and Iran party but China lurks in the shadows

From the Wall Street Journal:

Greece’s Parliament passed early Thursday a crucial set of austerity measures required for a eurozone bailout package….The measures were supported by 229 lawmakers in the nation’s 300-seat Parliament.

A Grexit has been avoided for the present, but unless the Greeks are successful in implementing structural reform, reversing many years of cronyism and corruption, we are likely to witness further re-runs in the future.

The nuclear deal with Iran has outraged the Right in Israel and the US. There are many pitfalls along the way but I believe this is a bold step forward. The outcome will be uncertain for many years but presents both sides with a chance to build a new relationship where they can peacefully co-exist. The alternative is another war in the Middle East — with no winners.

Iran

//platform.twitter.com/widgets.js

I was surprised to see the Russians playing a constructive role in the dialogue. I am sure that Vladimir Putin would take personal delight in poking a stick through Obama’s bicycle spokes, but the interests of the state come first. “Follow the green” as one US diplomat described it. The New York Times offers a clue:

Sergey V. Lavrov, the Russian foreign minister, lost no time in talking about the accord on Iran’s nuclear program. He was on television minutes after the deal was clinched, and even before the formal news conference had begun, announcing the landmark agreement to the audience back home and emphasizing the many potential benefits, strategic and economic, that it holds for Russia…..Russia possesses some of the world’s foremost expertise in atomic energy, and has helped build and operate atomic reactors in Iran for many years. Rosatom, the Russian state nuclear energy company, helped build and expand the Bushehr nuclear plant and already has contracts to build two more reactors there.

China, on the other hand still lurks in the background. The state managed to stem the flood, suspending trading on more than 50% of stocks and forbidding large stockholders from selling. This is a public acknowledgment that Chinese stock prices are artificial and in no way to be trusted (“What’s new” some cynics would ask). They have destroyed any credibility that their stock markets had. Japan had zombie banks after their 1990 stock market crash, solvent in name only. China seems to be following a similar path with zombie stocks. Banks who have lent money against those stocks are likely to follow.

For a deeper understanding of the situation, read China’s stock market falling off a cliff: Why, and why care? by Alicia Garcia-Herrero at Bruegel.org

Europe

Germany’s DAX recovered above its descending trendline, indicating the end of the correction. Follow-through above 11600 would strengthen the signal, suggesting a fresh advance. Breakout above 12400 would confirm. Recovery of 13-week Twiggs Money Flow above its descending trendline shows that selling pressure has eased.

DAX

* Target calculation: 12500 + ( 12500 – 11000 ) = 14000

The Footsie also recovered above its descending trendline. Follow-through above 6750 would indicate another attempt at 7100. A 13-week Twiggs Money Flow trough at zero flags buying pressure.

FTSE 100

* Target calculation: 7000 + ( 7000 – 6500 ) = 7500

Asia

The Shanghai Composite is testing resistance at 4000. Government efforts to stem the crash are unlikely to restore credibility to stock prices. The large divergence on 13-week Twiggs Money Flow continues to warn of selling pressure.

Shanghai Composite Index

* Target calculation: 4000 – ( 5000 – 4000 ) = 3000

Japan’s Nikkei 225 recovered above 20000, suggesting a fresh advance. Breakout above 21000 would confirm. Recovery of 13-week Twiggs Money Flow above its descending trendline suggests the correction is over.

Nikkei 225 Index

* Target calculation: 21000 + ( 21000 – 19000 ) = 23000

India’s Sensex recovered above 28000, suggesting a fresh advance. A 13-week Twiggs Money Flow recovery above zero indicates medium-term buying pressure. Breach of primary support at 26500 is now unlikely.

SENSEX

* Target calculation: 30000 + ( 30000 – 27000 ) = 33000

North America

The S&P 500 respected medium-term support at 2040. Another 13-week Twiggs Money Flow trough above zero would confirm long-term buying pressure. Breakout above 2120 would offer a target of 2200*.

S&P 500 Index

* Target calculation: 2100 + ( 2100 – 2000 ) = 2200

The CBOE Volatility Index (VIX) retreated to low levels typical of a bull market.

S&P 500 VIX

The Nasdaq 100 is approaching its Dotcom-era high of 4800. Breakout above 4550 would signal a test of long-term resistance. 6-Month Twiggs Momentum oscillating above zero reflects a healthy long-term up-trend.

Nasdaq 100

Canada’s TSX 60 recovered above support at 850/855. Breakout above the upper trend channel would indicate the correction is over, suggesting another test of 900. Recovery of 13-week Twiggs Momentum above zero would strengthen the signal. Respect of the upper trend channel is unlikely, but would warn of continuation of the down-trend.

TSX 60 Index

* Target calculation: 900 + ( 900 – 850 ) = 950

Australia

The ASX 200 broke out above its descending trend channel, flagging end of the correction. A 21-day Twiggs Money Flow trough above zero indicates medium-term buying pressure. Follow through above 5700 would signal another test of 6000.

ASX 200


More….

Could a new property tax save the Australian economy?

Will Iran deal nuke crude?

Hint of Greek bailout revives rates (and the Dollar)

Bank share prices tipped to decline

Gold: Is Barrick next?

APRA considers two per cent capital adequacy increase

Greece: the musical (with thanks to Grease)

Markets are constantly in a state of uncertainty and flux and money is made by discounting the obvious and betting on the unexpected.

~ George Soros

Greece: the musical (with thanks to Grease)

Hat tip to Barry Ritholz

Another week another crisis

The crisis in Greece continues, dragging down stocks across Europe.

Germany’s DAX broke support at 11000, warning of a decline to 10000. Reversal of 13-week Twiggs Money Flow below zero would warn of a primary down-trend. Recovery above 11500 is unlikely, but would signal a fresh advance.

DAX

The Footsie found short-term support at 6500. Decline of 13-week Twiggs Money Flow below zero warns of a primary down-trend. A peak below zero or breach of support at 6100 would confirm.

FTSE 100

* Target calculation: 6700 – ( 7100 – 6700 ) = 6300

Asia

Events have been overtaken by collapse of Chinese stocks. The Shanghai Composite found support at 3500, but government efforts are unlikely to stem the rout. Reversal of 13-week Twiggs Money Flow below zero would warn of further selling pressure. Expect support at the primary trendline, around the 3000 level.

Shanghai Composite Index

* Target calculation: 4000 – ( 5000 – 4000 ) = 3000

Japan’s Nikkei 225 was unsettled by events in Shanghai, breaking support at 20000 to warn of a correction. The decline on 13-week Twiggs Money Flow is gradual, suggesting a secondary correction.

Nikkei 225 Index

* Target calculation: 20000 + ( 20000 – 18000 ) = 22000

India’s Sensex retreated below 28000 warning of another test of primary support at 26500. A 13-week Twiggs Money Flow trough above zero, however, would indicate medium-term buying pressure. Breach of support at 26500 is also unlikely, but would signal a primary down-trend with support at 23000*.

SENSEX

* Target calculation: 26500 – ( 30000 – 26500 ) = 23000

North America

The S&P 500 is testing medium-term support at 2040. Declining 13-week Twiggs Money Flow suggests a test of primary support (1980/2000) but today’s rally in China may alleviate this. The index is likely to range below 2120 until the situations in both China and Greece reach a conclusion.

S&P 500 Index

* Target calculation: 2120 + ( 2120 – 2040 ) = 2200

The CBOE Volatility Index (VIX) is fairly subdued but likely to break 20, indicating moderate risk.

S&P 500 VIX

Dow Jones Industrial Average broke support at 17600. Follow-through below 17500 would warn of a test of primary support at 17000. Decline of 13-week Twiggs Money Flow below zero indicates strong selling pressure but this was aggravated by yesterday’s technical trading halt on the NYSE and recovery above zero is likely.

Dow Jones Industrial Average

Canada’s TSX 60 broke support at 850, warning of a test of primary support at 800. Decline of 13-week Twiggs Momentum below zero suggests a primary down-trend. Recovery above the descending trendline is unlikely, but would indicate the correction is over.

TSX 60 Index

* Target calculation: 850 – ( 900 – 850 ) = 800

Australia

The ASX 200 found support at 5400, highlighted by the long tail on today’s candle. Breakout above the trend channel is still unlikely, but would indicate the correction is over. It would be prudent, in the current climate, to wait for a higher trough or some other confirmation. Rising 21-day Twiggs Money Flow indicates moderate buying pressure.

ASX 200


More….

Gold Bugs warn of a bear market

Dollar calm while prospect of rate rises fades

Silver tests primary support at $15

Australia: Rising foreign debt

RBA strategy: Fight fire with gasoline

Crude breaks $54

Australian stocks: Buy in July?

Never let a serious crisis go to waste.

~ Rahm Emanuel

Australian stocks: Buy in July?

Australian stocks typically encounter tax loss selling in June (before end of the financial year), followed by a rally in July/August that often carries through into the next calendar year. Sale of poor performing stocks before EOFY withdraws money from the market and effectively lowers all stock prices. After the year end, investors start to accumulate stocks again, lifting the market.

ASX 200 Accumulation Index

A monthly chart of the ASX 200 Accumulation Index since 2006 shows 2 years where the rally started in August (dark green), 5 years where the rally started in July (light green), and 2 years (red) where the EOFY rally disappointed, continuing a down-trend.

This year is complicated by turmoil in Greece and China. July 2011 also had its Greek drama. Prime Minister George Papandreou survived a confidence vote but was eventually replaced by Lucas Papademos, former governor of the Bank of Greece and vice-president of the European Central Bank. S&P also downgraded US government debt at the start of August 2011.

What does July 2015 have in store for us?

I don’t have a crystal ball, but breakout above the trend channel on the ASX 200 daily chart would indicate the correction is over, suggesting another advance. Rising 21-day twiggs Money Flow indicates mild buying pressure.

ASX 200 Index

But it would be prudent to wait for confirmation, in case it turns into a bull trap like 2011.

ASX 200 Index

Australian stocks: Buy in July?

Australian stocks typically encounter tax loss selling in June (before end of the financial year), followed by a rally in July/August that often carries through into the next calendar year. Sale of poor performing stocks before EOFY withdraws money from the market and effectively lowers all stock prices. After the year end, investors start to accumulate stocks again, lifting the market.

ASX 200 Accumulation Index

A monthly chart of the ASX 200 Accumulation Index since 2006 shows 2 years where the rally started in August (dark green), 5 years where the rally started in July (light green), and 2 years (red) where the EOFY rally disappointed, continuing a down-trend.

This year is complicated by turmoil in Greece and China. July 2011 also had its Greek drama. Prime Minister George Papandreou survived a confidence vote but was eventually replaced by Lucas Papademos, former governor of the Bank of Greece and vice-president of the European Central Bank. S&P also downgraded US government debt at the start of August 2011.

What does July 2015 have in store for us?

I don’t have a crystal ball, but breakout above the trend channel on the ASX 200 daily chart would indicate the correction is over, suggesting another advance. Rising 21-day twiggs Money Flow indicates mild buying pressure.

ASX 200 Index

But it would be prudent to wait for confirmation, in case it turns into a bull trap like 2011.

ASX 200 Index

Gold suggests no “Grexit”

Gold reversed the gains of the last two weeks, anticipating a resolution to the eurozone’s “Grexit” crisis. Follow-though below $1170/ounce would warn of a test of primary support at $1140/$1150. Repeated peaks below zero on 13-week Twiggs Momentum signal a primary down-trend. Breach of primary support would offer a long-term target of $1000/ounce*.

Spot Gold

* Target calculation: 1200 – ( 1400 – 1200 ) = 1000

Far from being a disaster, the results of the Italian election could be a turning point for Italy and the Eurozone. | EUROPP

Jonathan Hopkin argues that austerity has failed to produce results in Southern Europe and calls for European leaders to reconsider their approach:

…..perhaps the most important result of the election is that it will likely prove to be a turning point in the way in which the European Union deals with the debt crisis in the South. As was the case in Greece, the attempt to impose technocratic rule on a debtor nation to implement austerity and reform has been a political and economic disaster…… The Monti experiment produced no clear economic gains and has been decisively rejected at the polls. It would be reckless in the extreme of Europe’s leaders not to reconsider their approach.

via Far from being a disaster, the results of the Italian election could be a turning point for Italy and the Eurozone. | EUROPP.

Samaras Is Sworn In as Greek Premier – WSJ.com

Greek conservative leader Antonis Samaras was sworn in as prime minister Wednesday at the head of a three-party coalition that is tasked with carrying out the country’s harsh European-led bailout.

…..Although New Democracy won the most votes in the elections, it didn’t control enough seats to govern on its own and had to seek coalition partners to control a majority in Greece’s 300-member Parliament. Combined with the forces of the Socialist and the small Democratic Left parties, the coalition will hold 179 seats.

via Samaras Is Sworn In as Greek Premier – WSJ.com.

Greece’s Election Results: Déjà vu All Over Again? | TIME.com

Joanna Kakissis: The conservative New Democracy (ND) party eked out a victory in Sunday’s parliamentary elections, edging out the leftist Syriza party, which is strongly opposed to the austerity measures imposed as part of the country’s bailout. The margin was less than three percentage points….New Democracy failed to win an outright parliamentary majority and must join forced with at least one party to govern…. Greek media are speculating that the conservatives might join force with their traditional rival, the Socialist PASOK party, which came in a distant third on Sunday.

via Greece’s Election Results: Déjà vu All Over Again? | World | TIME.com.

Greek “final exit polls” suggest a New Democracy/Pasok coalition | The Big Picture

Greek “final exit polls” please remember these are Greek “final exit polls” suggest that New Democracy and Syriza and Pasok will have 159 seats in the 300 seat Parliament. The important point is to win, as the party with the most votes gets an additional 50 seats in Parliament. Its still pretty close but it looks from the “final exit polls” that there will be a sigh of relief in equity markets tomorrow.

via Greek “final exit polls” suggest a New Democracy/Pasok coalition | The Big Picture.

UK & Europe

Dow Jones Europe Index found medium-term support at 220 but reversal of  13-week Twiggs Money Flow below zero warns of strong selling pressure. Breach of primary support at 210 would signal a decline to 160*, close to the 2009 low. Respect of support is less likely but would indicate a rally to 260.

Dow Jones Europe Index

* Target calculation: 210 – ( 260 – 210 ) = 160

The FTSE 100 is consolidating above 5250 on the weekly chart. 13-Week Twiggs Money Flow remains above zero but 63-day Twiggs Momentum warns of a primary down-trend. Failure of primary support at 5000/5100 would confirm.

FTSE 100 Index

* Target calculation: 5000 – ( 6000 – 5000 ) = 4000

Abstruse Goose » Fill it up with unregulated

Fill it up with unregulated — Greek/CDS humor:

Abstruse Goose: Trading CDS

via Abstruse Goose » fill it up with unregulated.

UK & Europe: Closer to the breach

Europe inches closer to the point when the artificial levee, built to protect European banks from market forces, is breached. Germany and France delay the inevitable while they attempt to restore bank balance sheets — by widening interest margins at the expense of depositors and transferring risky bonds to the European Central Bank . They do their utmost to avert a Greek default, because of contagion risk to the rest of the euro-zone, but their actions merely encourage more strident demands from Greece. If the levee breaks, damage will be that much greater because of the build-up of market forces behind the artificial barrier.

Spain’s Madrid General Index broke support at the 2009 low of 700, signaling another primary decline with an immediate target of 600*. Reversal of 13-week Twiggs Money Flow below zero reinforces the signal.

Madrid General Index

* Target calculation: 750 – ( 900 – 750 ) = 600

Italy’s MIB Index broke primary support at 13000, confirming the earlier signal from 63-day Twiggs Momentum and offering a long-term target of 10000*. Recovery above 13500 is unlikely but would warn of a bear trap.

Italy MIB Index

* Target calculation: 13500 – ( 17000 – 13500 ) = 10000

Germany’s DAX broke support at 6500 and is testing the rising trendline. Support remains strong, with 13-week Twiggs Money Flow holding above zero, but breach of the rising trendline and breach of short-term support at 6200 would indicate a test of primary support at 5400.

Germany DAX Index

France’s CAC-40 is also headed for a test of primary support at 2800. Reversal of 13-week Twiggs Money Flow below zero warns of selling pressure. Failure of primary support would offer a long-term target of 2000*.

France CAC-40 Index

* Target calculation: 2800 – ( 3600 – 2800 ) = 2000

The FTSE 100 found short-term support at 5300 but breach of the rising trendline and 63-Day Twiggs Momentum below zero warn of a primary down-trend. Failure of primary support at 5000/5050 would offer a long-term target of 4000*.

FTSE 100 Index

* Target calculation: 5000 – ( 6000 – 5000 ) = 4000

Europe’s nuclear brinkmanship with Greece is a lethal game – Telegraph Blogs

Ambrose Evans-Pritchard: Polls show that 70pc or even 80pc of Greeks still wish to stay in the euro, while at the same voting in large numbers for hard-Left and hard-Right parties committed to tearing up the Memorandum – a course of action that will take them straight out of the euro.

I do not wish to reproach the Greeks for cognitive dissonance. We all do this, and besides, euro membership is more than just a currency for Greece. It is the anchor of identity for an isolated Balkan nation living cheek by jowl with the Ottoman nemesis……..

The chief danger is not for Greece. It is for the rest of the eurozone. If the German political establishment is unwise enough to force Greece out of EMU on the assumption that the country is a special case, it will be disabused of this illusion very quickly.

via Europe’s nuclear brinkmanship with Greece is a lethal game – Telegraph Blogs.

Not Out of The Woods Yet: Despite Progress, Euro Crisis Is Far From Over – SPIEGEL ONLINE

Christian Rickens: So has Greece been rescued and financial markets been tamed? Is the euro crisis a thing of the past? Unfortunately not. With their successes in the last few days, euro-zone politicians have done little more than bought themselves time. They must use this window to brace themselves for the next wave of the euro crisis which is about to crash down on Europe.

It’s already clear that the Greek economy can’t survive with a government debt to GDP ratio that will — at best — still be at 117 percent in 2020, especially given the record pace at which the country’s GDP is contracting. There is still no coherent strategy for making Greece competitive again inside the euro zone, or for raising the capital for the huge investments needed — let alone for the wholesale revamp of the country’s entire public administration.

And so Greece is likely to report the next set of disappointing budget figures in a few months, and the wrangling over a new debt cut and a new rescue package will start shortly afterwards……

The other euro-zone governments have at most a few more months, perhaps only a few weeks, before the situation in Greece worsens again……That means that Portugal, Spain and Italy, the three other problem countries in the south of the euro zone, must perform the magic trick of stimulating growth while reducing their budget deficits. That can only succeed with a lot of pragmatism — austerity without growth is as pointless as growth without austerity.

via Not Out of The Woods Yet: Despite Progress, Euro Crisis Is Far From Over – SPIEGEL ONLINE – News – International.

EconoMonitor : Note from Athens: Feeling on the Ground Has Palpably Changed

Despite the clear sense of despair and anger in Greece, politicians and members of the public continue to think that the alternative—default and EZ exit—would be even worse.

……Among the increasingly popular fringe left- and right-wing parties, the only party actually advocating a EZ exit is the communist party, or KKE. The KKE will have just over 10% of the vote in the election in April according to most estimates and refuses to cooperate with any other parties in a coalition. For now, the rest of the political establishment advocates doing whatever it takes to remain in the EZ.

….. most Greeks express desperation to stay in the EZ. This is reflected in recent opinion polls: according to a poll conducted in February for Skai TV and Kathimerini, 70% of respondents said a EZ exit and return to the drachma would make Greece’s situation worse and 61% said they viewed the euro favourably.

via EconoMonitor : RGE Analysts » Note from Athens: Feeling on the Ground Has Palpably Changed.

The World from Berlin: ‘Europe is Pouring Money Into a Bottomless Barrel’ – SPIEGEL ONLINE – News – International

In an interview with SPIEGEL published on Monday, [Interior Minister Hans-Peter Friedrich] said: “Greece’s chances to regenerate itself and become competitive are surely greater outside the monetary union than if it remains in the euro area.” He added that he did not support a forced exit. “I’m not talking about throwing Greece out, but rather about creating incentives for an exit that they can’t pass up.” It was the first time a member of the German government called on Greece to leave the currency.

via The World from Berlin: ‘Europe is Pouring Money Into a Bottomless Barrel’ – SPIEGEL ONLINE – News – International.