Greek Referendum: Oxi or Nai?


In the “Beware what you wish for” category, Greek Prime Minister Alexis Tsipiris’ hastily called referendum on whether or not (“Oxi” is "No", “Nai” is "Yes") the country would be willing to accept European demands of more pension cuts, a reduction in government jobs and higher taxes, had clear results: a hefty 60 percent of Greek citizens -- especially younger ones -- voted no, meaning that they simply could not abide more austerity. (Greece's youth unemployment rate has remained at about 50 percent.) [If you need a primer on Greece, check out this 60 second video!] If the referendum was meant to show that Greece was serious and as a result, the European officials would ease up on their demands, Tsipiras was thwarted. If anything, the vote seemed to steel Europeans, who were undeterred by the closure of Greek banks; the imposition of capital controls; a missed IMF payment; and the expiration of the existing bailout.

With the results in, Greece's Finance Minister Yanis Varoufakis said that officials would be heading to Brussels ASAP to restart negotiations, but there's one wrinkly: Eurozone finance ministers are not planning on an emergency meeting tomorrow. German Chancellor Angela Merkel will travel to Paris for talks with France's President Francois Hollande on Monday evening, presumably so that the two largest economies of the euro zone can hash out a game plan.

If/when they do talk, the big question is: Will the Euro group be willing to cede ground and agree to the last deal that Tsipras offered on June 30th? Chances are looking dim for a quick resolution. The BBC reported that German Chancellor Angela Merkel privately told MPs that, as far as she is concerned, Alexis Tsipras has simply driven his country into the wall. Additionally, Senior German Conservative MP Hans Michelbach said "now one has to question whether Greece would not be better off outside the euro-zone." That doesn't sound like the parties will be strumming Kumbaya any time soon.

Yet with little cash on hand, the Greek government is running out of options. Varoufakis told The Telegraph, "Luckily we have six months stocks of oil and four months stocks of pharmaceuticals," but the country still need the European's cash and time is crucial, because Greece must make a $3.9 billion bond payment to the ECB on July 20th.

If not, the country would no longer be in technical default, it would be in full-fledged default. At that point, the ECB would be hamstrung by its own rules: it can only lend to banks that are solvent and it's hard to say that Greek banks are solvent if the government is not paying its bills. If the NO vote starts a downward spiral towards leaving the Euro zone, Greece will have to create a new currency, which would mean a widespread devaluation of whatever money is left in the Greek banking system and a lot more suffering for the Greek people.

EXPECT A ROCKY START TO TRADING ON MONDAY!!! Almost every large investor that I spoke to over the past week, assured me that a NO vote was "not gonna' happen" and sure it was a risk, "but a very, very long shot risk," against which they would not be trading...

Besides action in Greece and the euro zone, investors return from a long holiday weekend, looking to the release of minutes from the Fed’s last policy meeting. Will the Fed take into account events across the pond? Are they seeing broad-based signs of economic advancement in the U.S.? The last FOMC meeting occurred before the June employment report, which provided a mixed view on the labor market’s progress.

The economy added 223,000 new jobs, making June the 15th month of the last 16 when the economy has added more than 200,000 jobs. The unemployment rate edged down by two tenths of a percent to 5.3 percent, the lowest level in seven years (April 2008). Unfortunately, the rate dropped for the wrong reason: 432,000 people dropped out of the labor force, which pushed down the labor-force participation rate to 62.6 percent, the lowest reading since October 1977.

It seems that every time there is a good employment report, it is followed by a so-so one. Maybe these kinds of inconsistent results occur when the economy only grows by 2.2 to 2.4 percent for three consecutive years (2012, 2013 and 2014) and is on track for a fourth year of the same. For investors, the negative parts of the labor report might be seen as good news: with a shrinking labor force and wages rising by just 2 percent from a year ago, the Fed may rethink a September rate increase and instead opt for December or even early 2016.

MARKETS: Global markets slid last week, but given events in Greece, there were no apparent signs of contagion—US stocks had one bad day and European stocks are still up 15 percent on the year. Lost in all of the hoopla surrounding Greece was the second-quarter results: The S&P 500 fell 4.8 percent, snapping a nine-quarter winning streak, though that doesn't seem too bad compared to Chinese stock indexes, which have plunged a whopping 30 percent in the past three weeks.

  • DJIA: 17,730 down 1.2% on week, down 0.5% YTD
  • S&P 500: 2076, down 1.2% on week, up 0.9% YTD
  • NASDAQ: 5,009 down 1.4% on week, up 5.8% YTD
  • Russell 2000: 1248, down 2.9% on week, up 3.6% YTD
  • 10-Year Treasury yield: 2.38% (from 2.47% a week ago)
  • August Crude: $56.58, down 4.5% on week
  • August Gold: $1,167.60, down 0.8% on week
  • AAA Nat'l avg. for gallon of reg. gas: $2.77 (from $2.78 wk ago, $3.66 a year ago)


Sun 7/5 Greece Referendum

Mon 7/6:

9:45 PMI Services Index

10:00 ISM Non-Mfg Index

Tues 7/7:

8:30 S&P International Trade

10:00 Job Openings and Labor Turnover Survey (JOLTS)

3:00 Consumer Credit

Weds 7/8:

2:00 Federal Reserve Minutes

Thurs 7/9:

Fri 7/10:

12:00 Janet Yellen speaks in Cleveland