Jun 17/15 – Cramer on a death spiral of total hyperbole

2015-06-17 9am EDT  |  #China #CNBC #Cramer #Europe #gold #Greece #Russia

You know that couple that is always threatening to break up? Everyone has someone like that in their life. The constant “he treats me so badly, I don’t know why I stay with him.” Or the “she doesn’t understand me, I can’t even remember why I married her.” At first you are sympathetic to their plight, but by the end you just want them to shut the f$# up and get divorced.

That’s where we are today with Greece and the EU. We are all so sick and tired of hearing the constant back and forth accusations. We want them to make a decision and drive on. Luckily we are getting closer to the end day as the Europeans have issued an ultimatum. Either we get an agreement this week-end, or they will issue capital controls. I am not sure how the EU can issue capital controls on a sovereign nation, but at this point I don’t care. Let’s bring this thing to a head already.

Some have suggested the Greeks purposely dragged out the negotiations so the ECB would be forced to gradually fund more and more of the fleeing capital from Greek banks. As money left Greece, their banks have fewer deposits, so they have turned to fund their short term liabilities by borrowing from the ECB (indirectly through the Greek Central Bank). This borrowing is known as the Target 2 liability.

Every day without an agreement has resulted in more money leaving Greece. Every day the ECB has become more on the hook. Whether this is some Machiavellian scheme by the Greeks is unknowable, but there is no doubt the delay has not served the Europeans. They should have forced a decision months ago.


Who is getting played?

Are the Greeks master negotiators or bumbling idiots? The common narrative is latter.

The biggest bumbling idiot of them all – CNBC’s Jim Cramer – recently summed up the street’s view about the Greek tactics in a five minute epic panic.

“Greece on a death spiral of total insanity.” Holy shit, typical Cramer. As usual, Cramer mouthes the views of his financial overlords, arguing the status quo needs to be maintained.

The Greek politicians act as if nothing good came from austerity anywhere. Sometimes it feels like they think the money’s free, and there were never any strings attached. People in Greece don’t see the positives in Spain and Ireland after they embraced austerity.

Cramer conveniently forgets that austerity is already in place in Greece. It has been in place for the past few years, and things just keep getting worse.

He raves like a lunatic about the consequences if Greece doesn’t bow to its European debtors.

No one has seem to thought any of this stuff through – least of all the Greek government. It is almost surreal how the politicians in Greece have failed to explain the consequences of a default to their citizens, who seem to be oblivious themselves.

The people running Greece seem to believe this whole drama will play out in a fairy tale fashion. They default on all their debts. They issue new bonds. A whole new crop of lenders will step up to buy their bonds. And it starts all over again. Easy peasy.

They don’t seem to understand what happens when your country is a financial pariah. No one buys your bonds. At least not this generation of lenders, maybe the next one.

Really Jim? You think the Greek politicians have not thought it through? You think there is no plan? I guess all Tsipras meetings with Putin were just social calls.

Jim Cramer somehow thinks the failure of the Greek government to publicly map out an exit plan ahead of time means there is no contingency strategy. This has to be one of the stupidest arguments I have heard from him in a long time (and that is saying a lot because he says a lot of stupid things).

As it is there seems to be no plan. The people running Greece just assume the rest of Europe will blink and they would rather send their economy into a death spiral than hurt anyone’s pension. They are either insane, or maybe the best gamesman in history.

Now maybe I am misjudging the Greek government. Maybe they are just fools assuming the Europeans will blink and once the EU calls their bluff, they will come running back begging to be forgiven.

But then again, maybe the Greek government knows exactly what they are doing. Maybe they already have the Russians or Chinese lined up. A new Russian pipeline brings revenues and jobs. A Chinese or Russian naval port in the Mediterranean secures their funding. A cheap Drachma results in a flood of tourists and a resurgence in Greek manufacturing.

Maybe the reason the Greeks are driving such a hard bargain is they have little to lose and everything to gain. Remember the line about the difference between owing the bank $1 million or $1 billion. I think the market is misjudging who has the problem.

The only thing Cramer gets right in his hyperbolical rant is the conclusion:

Here is the bottom line. Until I hear a concrete plan about how Greece can default and stay in the Eurozone without mass homelessness, with not enough to eat and tremendous emigration, I remain convinced that this market can go lower.

The market has assumed the two sides will come together at the last moment. Like the couple who always threatens to leave each other but never do, the market assumes neither side has the guts to leave the other. That might well be the most likely result, but the market is over estimating that outcome. The chance Greece tells the Europeans to go pound sand is higher than the market realizes, and if that happens, although it will ultimately be good for Greece, the short term market action will be uniformly ugly.


Timestamping this one

I had to laugh about this CNBC commentator who said the following yesterday:

I will not do much except timestamp this comment so we can pull it up in a year or two.

Of course gold is a stupid investment, it has been going down, and lord knows we don’t buy things when they are down – instead we chase overpriced equities – after all, that sure brings better ratings than warning about the dangers from this financial house of cards we have built.

Thanks for reading,

Kevin Muir

the MacroTourist