Don’t blame the lemmings. Lemmings do not run for cliffs to commit suicide; it’s part of their migratory behaviour, and to be frank, poor navigation. Can the same be said about the performance of investors in global markets yesterday and overnight as Greece heads towards the cliff of a possible IMF debt default tonight, our time? The answer, insofar as it related to the US, Asia and Australia, is yes. Led by hedge funds and other speculators, investors headed for the cliffs and leapt off, driving share prices down by 2% to 4% and more. The euro plunged 2 cents, then recovered those losses and more as smartypants hedge funds who were short the currency were squeezed and had to cover their positions. US bond yields and those in Germany fell sharply as investors looked for safe havens (a safe haven in Germany, in the eurozone, surely not?). Gold rose a whole US$7 an ounce. Gold’s small rise was a more accurate move and one representative of the real story, which is: Greece doesn’t matter, even to the eurozone. Compared to the situation in 2010 to 2012, when Greece’s problems were a real concern for a fragile eurozone and a wobbly world economy — especially the US, where things have changed a lot. Most of Greece’s US$300 billion-plus in debts are with the European Central Bank, the EU, European governments and the eurozone stability bailout fund. — Glenn Dyer
Vote fiddles. Like all governments, Greece’s can’t help itself when it comes to framing questions in votes or referenda to suit itself. The key part of the 72-word question for Sunday’s national vote was issued overnight. It reads: “Should the draft agreement submitted by the EC, ECB, IMF at the Eurogroup on June 25 which consists of two parts that make up their full proposal be accepted?”
That ignores a very important point — that June 25 offer to Greece is like Monty Python’s Norwegian Blue: dead, buried, no longer exists, having been withdrawn. So Greeks are being asked to vote on a nonexistent proposal. But the real con is in the way the ballot paper is organised. Voters will be asked for a simple yes or no. But this is where the government has got cunning and will get the result it wants. The boxes for yes or no are at the top of the ballot paper, above the question. So what will most voters do? Simply vote yes or no without reading the question, and the vote will be overwhelming in support of “no”. But no to what?
Chinese whispers. In fact China remains the big, big concern, especially for Australia. Saturday night’s rate cut has the opposite impact on investor confidence and if anything served to underline the vulnerability of China’s sharemarkets. The Financial Times produced a table in one of its stories overnight showing that Chinese rate cuts have had no impact on sharemarkets since around 2002. Yesterday’s 3.3% slide in Shanghai (and big falls elsewhere in Shenzhen and in the start-up index) was the second largest fall after a rate cut since 2002 (the largest was a fall of nearly 5% after a rate cut in December, 2008, as the GFC was at its peak and China’s financial system was freezing up). The rest of the world has much stronger trade and financial links to China — for some 47 countries, China is the largest trading partner (including Australia). The falls have pushed all Chinese sharemarkets into bear territory, and we will soon start hearing or reading stories about big losses. That’s why the health of the Chinese economy and financial system is far more important than what is happening to Greece. But like Greece, many of China’s problems are self-inflicted: wasteful, costly investment, weak finances and dodgy accounting, shadowy finances, now overlaid by the most intense purge seen in the country for years. — Glenn Dyer
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America’s own little Greece. Puerto Rican governor Alejandro Garcia Padilla told The New York Times on Sunday that the commonwealth could not pay its US$72 billion in debts. The Times quoted him as saying “The debt is not payable … There is no other option. I would love to have an easier option. This is not politics, this is math.” The report said Puerto Rico would “probably seek significant concessions from as many as all of the island’s creditors,” including up to five years of deferred payments. Puerto Rico is classified as a municipal debt issuer in the US (like states, towns and cities). Tens of millions of people invest in these securities or funds because they are tax-free, and the Puerto Rican debt (which is roughly the size of the debt that Ireland had when it was bailed out) is widely held, especially by investment funds. So any losses from a restructuring of debt will ripple across the US financial markets and possibly trigger a sell off in so-called muni bonds. Like Greece and China, Puerto Rico’s problems are self inflicted — too much debt, too little thought and resources, fat benefits to staff and the public sector and ostrich-like behaviour when confronted with the grim reality. And like Greece, many of the talented, smart Puerto Ricans have headed offshore — to the US in this case. — Glenn Dyer