Last week was constructive as we got a continuous positive reading of the Conference Board Leading Economic Index that increased 0.7 percent in May to 123.1 (2010 = 100), after a + 0.7 percent in April, and + 0.4 percent in March, which puts it back at levels we haven’t seen since 2006 and which allows us expecting more economic expansion in H2 of the year.
In this context, it could become interesting to see how the third revision of GDP growth in Q1 will print we’ll get on Wednesday, after the second revision printed negative.
Besides that, real hourly wage earnings growth came in above 2 percent, which was the fastest growth rate since 2009.
That said, today we’ll have the continuation of the Greek saga.
Notwithstanding there is for the moment a lot of optimism, I think a little bit more sense for reality wouldn't be misplaced. E.g. European Council President Donald Tusk said in a video message released on Friday said: “The purpose of the summit (Monday evening) is to make sure that we all understand each other's positions and the consequences of our decisions. We need to get rid of any illusions that there will be a magic solution at the leaders’ level. The summit will not be the final step. There will be no detailed technical negotiations. That remains the job of the finance ministers … The situation of Greece is getting critical. We are close to the point where the Greek government will have to choose between accepting what I believe is a good offer of continued support or to head towards default … The game of chicken needs to end, and so does the blame game. Because this is not a game and there is no time for any games.”
On Monday, the ECB has provided for the third time in just six days new emergency liquidity assistance (ELA) for an amount of close to 1.3 billion euros, which is certainly not a good sign. Investors should better remain prepared for when the crisis will finally come to a head (take care that could still take some time!), which will be the day the ECB decides it can no longer provide further ELA because either the Greek banking system is no longer solvent or the collateral it is being offered is no longer acceptable.
Keep in mind when in 2013 Cyprus' parliament rejected a 10 billion euro bailout program it took the “troika” (ECB, the IMF and the European commission) two days for telling Cyprus that ELA emergency funds to two of the island's largest banks, the Laiki, also known as Cyprus Popular Bank and the Bank of Cyprus, would be cut off if the government failed to agree on the Troika's bailout plan. Cyprus rather quickly agreed and introduced capital controls. Maybe it could be helpful to remind Cyprus was forced by the Troika to sponsor a portion of the bailout by levy-ing bank shareholders, bondholders, and depositors with more than 100,000 euro in accounts.
Coming back to Greece we aren't there yet and at the rhythm money is withdrawn from Greek banks, in the end there won’t be much left… Goldman Sachs estimates Greek banks have lost over the last 6-7 months close to 45 billion of domestic deposits, which level now stands at just above 120 billion euros.
It’s really mind-boggling to see all that precious energy, time and above all that Eurozone taxpayers’ money being wasted in that Greek disaster.
Maybe it could helpful for getting a better understanding on why Greece position “inside” the Eurozone is merely nothing more than an illusion (my personal opinion!)and that, by the way, has already been made clear in 2012 by former French President Valéry Giscard d'Estaing, who was one of the architects of the European Monetary System (EMS) that later became the European Monetary Union (EMU), when he said in an interview with the German daily Der Spiegel: “… it was a mistake to accept Greece. Greece simply wasn't ready. Greece is basically an Oriental country…”
Because of all that, but also of the ECB QE program, improving U.S. growth and higher U.S. rates on the horizon, I continue believing the euro could hit parity with dollar much earlier than many think today.
Maybe many too optimistic investors could do well remembering what Napoleon Bonaparte said: "Reality blithely ignores the lies we tell ourselves about it.”
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