The latest chapter of the ongoing Greek crisis could be nearing its conclusion...
We've closely followed the situation in Greece since the beginning. In short, Greece is bankrupt. It owes hundreds of billions of euros it has no chance of ever paying back.
In response, the European Union ("EU") has arranged a series of "bailouts," where it has lent Greece money to make its short-term debt payments in exchange for specific "austerity" measures, like budget cuts and government reforms.
Over the years, Greece has generally failed to live up to these agreements... which has resulted in several renegotiations of the bailout terms. Under new Prime Minister Alexis Tsipras of the left-wing Syriza party, Greece is now actively ignoring them...
According to the Wall Street Journal, the latest talks between Greece and its European creditors "collapsed" last weekend. Greece's current 245 billion euro bailout deal with the European currency union expires on June 30 – the same day Greece owes a 1.6 billion euro payment to the International Monetary Fund ("IMF").
European officials say Greece must accept their terms for a new deal or risk triggering a default and possible exit from the euro... while Greek Prime Minister Alexis Tsipras is "calling their bluff" and betting Greece can secure a better deal by drawing the process out until the last minute. From the Journal...
The swiftness with which European officials dismissed the Greek government's latest proposals on Sunday – calling them "vague and repetitive" – suggests Prime Minister Alexis Tsipras is placing all of his bets on appealing for better terms to German Chancellor Angela Merkel and the 17 other eurozone leaders at a Brussels summit on June 25. If he fails, a default on the country's debt and a possible exit from the currency bloc loom...
The European Commission, which has been leading the negotiations, sent out a brief statement Sunday, saying the gap between the two sides over what spending cuts and other concessions Greece would have to make was still as high as 2 billion euros of budget revenues annually.
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The news sent the euro and European stocks lower this week. The euro weakened slightly versus a basket of other currencies, while the benchmark STOXX Europe 600 Index fell 2%.
Our colleague Paul Mampilly noted in the March 16 Digest that the Greek "bailout" has been a sham from the beginning...
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Everyone knows it. You see, the game is that you're supposed to wink, nod, and pretend. But Greece is not playing the game. It's going for broke...
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Paul explained that the EU is "between a rock and hard place"... and Greece knows it. When push comes to shove, the EU will ultimately have little choice but to give in to Greece's demands. More from that Digest...
If they let Greece go, and make it exit the eurozone, all of the European banks that own euro-denominated Greek debt are in trouble. The old game of "lending" money to Greece to prop up the price of the country's debt on the books of German/European banks is no longer an option, because [Greece] is calling the EU's bluff...
If the EU wants to keep Greece, it will have to give them what they are asking for.
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Paul sent us his latest thoughts on the situation in a note this week...
Greece understands something the bumbleheads at the EU don't: This bailout negotiation game is about winning in the court of world public opinion.
Friendly, pleasant, sunny, ancient, cultural Greeks versus mean, calculating, cheap, dour, mechanical Germans.
Greece is working this angle... by using pension cuts to widows and seniors as the sticking point for not making a deal. Picture those mean Germans wanting to let Greek widows starve and die, just for a few euros.
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Despite comments from European officials, Paul believes a deal is likely before the June 30 deadline...
Greece has gotten a lot of what it wanted. The EU has agreed to a 1% surplus budget target instead of 3%. The Greek leadership is now using pensions again to see what else it can get from the EU. The EU wants a higher retirement age for Greek pensioners and fewer people being allowed to retire on government pensions.
I think the deal will get done... Recent polls show that 85% of Greek citizens want to stay in the eurozone. And why not? Without the EU and Germany, these people would need to go find a new paymaster to keep getting money. Greece is getting free money. It will never repay this bailout, or the next one, or the one after that.
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Still, like he mentioned in March, Paul believes this is just a temporary solution. And sooner or later, he says the EU will have to forgive Greece's debt...
This deal doesn't solve anything. Greece's debt is estimated at $317 billion... or 177% of the size of the economy. This is far too much for Greece to ever pay back in euros. The deal will get done, if only to kick the can down the road for two or three years.
Still, that gets everyone what they want right now. The Greeks get some money and the German and European banks won't take losses on the Greek debt that they hold (for now).
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Our colleague Steve Sjuggerud has been incredibly bullish on European stocks. As we've mentioned several times, Steve believes stocks will soar as European Central Bank head Mario Draghi creates his own version of the "
Bernanke Asset Bubble" in Europe.
But given the news this week, we asked Steve for an update on Greek stocks in particular. He shared his latest thoughts in a private e-mail...
Greek stocks have crashed – down more than 50% in the past year. After a fall like that, you might think that I'd be getting interested. I'm not.
In short, investors are way too excited about buying Greek stocks. I will buy when Greek stocks are hated and out of the headlines. We're not there yet.
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Steve says the situation today is the same as it was back in February. Here's what he told his True Wealth Systems subscribers at the time...
In a crisis, you can often get in at record low prices, after everyone has given up on an idea. Surprisingly, that's not where Greece is today. U.S. investors are pouring into Greek stocks right now. Instead of giving up, they're wildly optimistic.
One easy way to see this is through the shares outstanding of the major Greek stock fund... the Global X FTSE Greece 20 Fund (GREK).
Since peaking in March 2014, GREK is down 50%. But that hasn't kept investors away. Shares outstanding have doubled in just the past two months! U.S. investors are pouring in as the market crashes. This is a bearish sign. And it's why we're not interested in investing is this particular crisis yet.
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So while he's bullish on European stocks in general, he still isn't bullish on Greece...
The story is the same today: Greece is in crisis mode, but U.S. investors continue to put money to work in Greece. GREK shares outstanding are up 82% since February... Greek stocks have fallen 8% since then.
Once again, this is a situation that won't end well. Greece will soar when everyone hates the idea of buying Greek stocks.
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One area of the market investors haven't been bullish on is emerging markets. As Steve noted in the April 9 DailyWealth...
Investors have been completely ignoring emerging markets...
The news has been terrible. China is growing the slowest in a quarter-century. Brazil's major company, state-owned oil-and-gas giant Petrobras, has been mired in scandals. And Russia has been confounding the world with its actions in Ukraine, and it has been suffering with the huge fall in oil prices.
China, Brazil, and Russia are the major emerging-market countries – and it's hard to imagine them being more hated than they already are by investors today. The thing is, if you're a smart investor, this is just when you want to consider buying them.
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Even with the big rally in China over the past couple months, emerging markets are still being ignored. And if recent data is any indication, they're as unloved as ever...
According to British newspaper The Telegraph, investors are withdrawing money from emerging-market stocks at the fastest rate since the financial crisis. From the report...
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Data from the tracking agency EPFR show that equity funds in Asia, Latin America, and the emerging world bled $9.27 billion in the week up to June 10, surpassing the exodus in the 'taper tantrum' in mid-2013 when the Fed first began to hint at monetary tightening.
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In our experience, when markets are as cheap and unloved as emerging markets are today, this type of selling is more often a sign of a capitulation than a sign of a top.
In the March issue of True Wealth, Steve told subscribers about his favorite "one-click" way to invest in emerging markets. This fund is still yielding almost 5% today (which is massive in our zero-percent interest-rate world). The last time this fund was this cheap, shares doubled over the next two years. The same potential exists today. You can gain access to this recommendation with a risk-free trial subscription to True Wealth.