Saturday, September 10, 2011

Will a Greek Default Bring Down the Eurozone?

Heading off to Elounda this weekend, one of my favorite places in Crete. Will attempt to swim across Elounda to Spinalonga island, something I haven't done in over 20 years. But I feel like a million bucks here, healthy as ever, and absolutely love swimming in that sea. When I'm swimming, I forget about all my problems, forget that I have MS, forget the weasels in finance, forget everyone and everything negative in the my life and in the world. It's the best therapy for one's body, mind and soul.

Right now, the world is on edge. People are starving to death in Africa and many innocent children are needlessly dying of famine. On Sunday, we will all remember 9/11 and the horrible attacks that took place that fateful morning ten years ago. I remember it like it was yesterday. I was here in Iraklio, Crete, came back from the beach, my dad opened the door and told me "airplanes just hit the Twin Towers." He had this serious look on his face that I'll never forget. Spent the day glued to CNN, watching and trying to understand what the hell was going on. I also remember that week and how the markets got clobbered with the Dow losing over 800 points.

Fast forward ten years. Hopefully we will not get any reprisal terrorist attacks for the killing of bin Laden, but even if we don't the markets are on edge, worried about the "imminent breakup of the Eurozone." As I watch mainstream media castigating Greece, I get angry because it shows me how ignorant people are about this whole European debt crisis and the plight of the Greeks.

I'm Greek-Canadian, been fortunate enough to travel to my ancestral home all my life, and will be the first to admit that Greek politicians and Greeks made many mistakes over the years. I know Greece, Greeks and the challenges this country has to get out of this mess. My uncle who passed away several years ago drove a taxi in Athens for over 50 years. He always told me "you may have a university degree but if you want to know what is really going on with the economy, ask an experienced taxi driver."

So that's exactly what I do everywhere I go. Fuck economists and their economic models. They can't predict shit in these markets because they don't understand how financial markets are impacting the supply of credit and the real economy. They don't understand how hedge funds, sovereign wealth funds, pension funds , insurance funds and other institutional funds are impacting credit. I should know, I have a Master's in Economics from McGill University and have always been skeptical of "high powered" econometric models. Paul Krugman posted a brilliant comment on the profession and the crisis, one that is well worth reading.

Anyways, back to my taxi cab indicator, which might be simple but sometimes simple is much better than complicated. Had an older cab driver the other day who explained it to me in simple terms. "The country is in a crisis, unemployment is soaring, and politicians are increasing the value added tax to 23%. They're cutting jobs, wages, pensions, benefits and now they want to tax us to death. Unless we get growth, this country is doomed."

That is the basic problem in Greece. Sure there is tax evasion, corruption at the highest levels, an overbloated public sector, but austerity is killing the Greek economy which is already on life support. And now politicians pressured by Troika are going to impose a tax to kill the remaining economy. It's utter madness!

The Germans can cry foul all they want but their stupid bankers lent Greece billions of euros knowing full well that Greece was never going to pay them back. I still think this is all part of a master plan of Germany to impose economic hardship on southern Europe so they can then buy state assets on the cheap. But if this is the case, Germany is playing a dangerous game, one that will backfire on them and impose severe repercussions on the global economy.

I can't believe we're still discussing a possible breakup of the Eurozone. If I was President Obama, I'd get on the phone with Merkel and tell her off: "Stop fucking around and get your act together. We're not going down because of European policy blunders. Do what Soros and others recommend and introduce eurobonds that Germany and France back up." The truth is Germany is already doomed and they know it, so it's best to bite the bullet sooner than later. And the breakup of the Eurozone isn't in anyone's best interest. I read this insightful comment from hedgefundinvest on Twitter (@hedgefundinvest):
The biggest risk now in Europe is not a Greece bankruptcy, nor a widening of Italy/Spain CDS spreads. It's something more basic. Today it was clear; European harmony is worth tons to the markets, disunity is heavily penalized. I do not think Eurozone will break up.
I don't think Eurozone will break up. Bought Naomi Klein's book, the Shock Doctrine (a best-seller here in Greece), at the airport in Athens and enjoying reading it. There is a lot of "shock and awe" in the markets these days. The wolves are making a killing off all the negativity and scaremongering. They love volatility. I continue to trade risk assets but admit that European policymakers and politicians scare me more than their US counterparts. They just don't get what is at stake here and are proving to be hopelessly inept.

Finally, watch Rob Arnott, founder and CEO of Research Affiliates, discuss if the toxic debt crisis in the EU could rival that of the 2008 U.S. financial meltdown. I roll my eyes at some of the comments but others are bang on. And one last word to the families that lost loved ones and friends on 9/11. We will never forget those attacks and our prayers are with you during this difficult milestone.

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