Yesterday, Greek voters backed its national administration’s position of rejecting the latest EU bailout conditions in a resounding vote. 60+% of total ballots were “No,” with the nays being a majority in all regions of the country.
S&P futures fell to about -24 when the official voting results were announced shortly before 11pm eastern time last night. As I’m writing this just before 8am, futures are off by -14; European stock markets are trading lower, but not by much, as is the euro.
Not the best, but not bad, either.
I think what Mr. Tsipras has demonstrated with this vote is that Greece simply will not accept the bailout terms on offer from the ECB/IMF. Yes, the two sides might sign an agreement, but any Athens government that attempted to implement it would be tossed out of office and replaced by one that would not.
In many ways–and, in particular, from an investment perspective–this simplifies the situation a lot.
As I see it, the ball is now in the EU’s court. It can either make enough further concessions to make a bailout deal palatable to Greek voters …or it can walk away from the negotiating table, thereby forcing Greece to exit the euro. The first course presents significant political risks to Brussels and Berlin. In fact, the Tsipras negotiating style has both brought the idea of further concessions to the point of being at least thinkable and simultaneously made making them much more politically incendiary. For German voters still paying extra taxes to rebuild the former East Germany, having Ms. Merkel so publicly bested by Mr. Tsipras’ could easily end the political careers of her and her supporters.. I can’t imagine politicians in Ireland, Spain or Portugal who accepted EU austerity regimens faring any better.
We may know which way the EU and IMF have decided very quickly.
Greek banks are supposed to reopen tomorrow, after being shut for a week. They likely don’t have enough cash, without ECB support, to meet massive demands for withdrawal of deposits that will most likely ensue if those funds haven’t been transmuted into drachma overnight.
As an investor, I think Greece leaving the euro today would be the optimal outcome. This is pure pragmatics. That way, the Greek crisis would at least be over–for countries other than Greece. Markets would decline somewhat, sectors would readjust to the new reality …and then the mind of he market would be on to the next thing.
My guess is that Greece exiting the euro but remaining in the EU will actually be the final outcome. I also suspect that the process will take longer than just to tomorrow, but that the bulk of the market reaction to whatever happens will take place over the next few days. The creditors acceding in more than the most superficial way to demands for better terms is the biggest surprise–meaning, least likely outcome–I can think of.
What am I doing in my portfolio?
I’m keeping a much closer eye on China (more tomorrow).
I’m watching US trading carefully today. I’m looking looking for stocks to buy whose prices may be depressed by worries about Greece. If futures are any indication, I won’t have much luck.