Shooting The Greek Rapids, Equities And U.S. Dollar Gain

The River Styx has turned into a set of dangerous rapids Greece, and some part of the developed world, must contend with. But maybe that makes little difference at this point.

In ancient Greece, people believed that when you died, you were ferried across the river Styx by the eternal boatman, Charon, and into the netherworld of Hades. Three-headed dog Cerberus made sure that once the souls of the dead entered, they could not leave.

Greece – collectively – stands on the shore and the boatman approaches. Once it crosses, it will take decades for the little country with its half-baked economy to come back, if ever.

Argentina offers the best object lesson when it comes to countries with chronic financial problems. From The Economist (August 2, 2014):

“Argentina’s first bond, issued in 1824, was supposed to have a lifespan of 46 years. Less than four years later, the government defaulted. Resolving the ensuing standoff with creditors took 29 years. Since then seven more defaults have followed, the most recent this week, when Argentina failed to make a payment on bonds issued as partial compensation to victims of the previous default, in 2001.”

Here is the whole article: http://www.economist.com/news/leaders/21610263-cristina-fern-ndez-argues-her-countrys-latest-default-different-she-missing

The first resolution, almost 200 years ago, took 29 years!

Greece’s problems go well beyond what we are experiencing in the here and now. Inevitably, large defaults that leave a country on the rocks drive out youth, the educated and those with either skills or money. Call it a brain drain.

That makes it even harder for a country to recover its economic footing.

Today this situation has boosted equities and driven down the euro. Obviously a short euro drives the U.S. dollar up.

In turn the dollar’s rise is pounding the price of gold down.

U.S. equities are experiencing a modest rise, more momentum being thwarted by the debt problems of Puerto Rico. Shanghai traders made back about 5.5% of their recent losses. Other exchanges in the East were up more modestly.

There is an exception to rising equities in the U.S. and Asia today. Guess which continent that’s happened on? The DAX, FTSE and CAC were all down well over 1%. Our general feeling, though, is that more and more of the effects of the Greek calamity are being built into pricing of everything from stocks to bonds, from investment commodities to raw materials and energy to agricultural products.

In spite of the dollar’s strength, crude is up robustly. West Texas Intermediate has risen about 2.25% and Brent North Sea is up closer to 2.75%.

Bonds are taking the Geek crisis sanguinely. U.S. 10-year yields are unchanged while both the bund and Japanese bond are essentially unchanged with ever-so-slight ticks, the former down, the latter up.

Perhaps we are getting ready to say goodbye to Greece as it crosses the river into the netherworld of its ancestors – and of Argentina.

Wishing you as always, good trading,