Alexis Tsipras

Greek Deal Done: Will Tsipiras Lose His Job?


"22 hours and all I got was this lousy deal!" That's the tee shirt that Greek Prime Minister Alexis Tsipiras will likely have to wear, when he heads back to Greece and tries to convince the Greek Parliament to approve a three-year, €82-86 billion bailout deal ($91 billion to $96 billion). While the 22-hour marathon negotiation allows Greece to remain in the common currency zone, it does so at a steep price. Price tag = €82-86 billion: The first thing to note about the deal is that it is larger than the €53.5 billion the Greeks had requested and the reason is clear: In the past month, while Tsipiras was messing around with trips to Russia and a snap referendum, the Greek economy ground to a halt, further crippling commerce. The upshot is the Europeans believed that the Greece asked for too little in its third bailout request.

Austerity: Greece will immediately implement tax increases, tough pension reforms and privatization of certain industries, like energy transmission. Additionally, Greece agreed to changes in labor laws and administrative overhauls.

New €50 Independent Fund: Greece will transfer €50B of state-owned assets into a fund, which will be sold off or wound down to help pay down the country’s debt over the coming years. Because there is no trust in the Greeks, the Europeans will supervise the fund.

U-Turn on Greek Legislation: When Tsipiras came into office at the beginning of the year, he enacted legislation that tried to ease up on austerity, including rehiring of some laid off public employees. The new bailout requires that Greece undo those measures.

IMF IN: Greece asked for the IMF to be excluded from a deal, but the Europeans liked the concept of an adult in the room, so the IMF will continue to monitor the Greek’s adherence to its bailout commitments.

Greek Banks: The Europeans will earmark €10 - 25 billion to recapitalize the banking system, though it is unclear when the banks will be able to reopen.

Re-Profiling debt: Europe will not write down Greece's existing debt, but will consider "re-profiling" it, which essentially means that after Greece passes its first review, the Euro group might potentially elongate the terms and reduce the interest rates applied to various loans.

Deadline: The Europeans said that the Greek Parliament has until Wednesday to approve the deal, which could mean that Tsipiras will have to cozy up to become "frenemies" with some right wing legislators.

Tsipiras Out?: The parliamentary process could  trigger fresh elections and Mr. Tsipiras could find himself not only as the architect of a lousy deal, but an unemployed one as well.

BOTTOM LINE: Although the Europeans may have won the battle, they will likely lose the war. Yes, Greece will remain in the Euro zone, but the deal just kicks the can down the road. Without a significant write-down of the now more than $350 billion in debt, the Europeans are unlikely to see total repayment and Greece may ultimately have to leave the Euro zone. For the Greek citizens, this lousy deal will amount to even more suffering.


Super Mario to the Rescue, Greek Election, Fed Fun


After four years of doing absolutely nothing to propel the moribund Euro Zone economy, European Central Bank President Mario Draghi (aka Super Mario) finally unveiled the ECB’s version of bond buying last week, where it will buy €60 billion ($68 billion) of bonds a month in an effort to boost stagnant growth and fight falling prices. The ECB will fire up the printing presses in March and will conduct the purchases “until we see a sustained adjustment in the path of inflation.” So although the European version of QE at first seemed half the size of that in the US and UK, the open-ended prospect seemed to quell fears that it was not enough.

While on the topic of Europe, it is worth noting that there is a big election in Greece today, where Alexis Tsipras, the leader of the leftwing, anti- austerity Syriza party is leading in the polls. There are fears that Tsipras might lead Greece out of the euro zone (the so-called “Grexit”), but it now seems more likely that he will seek a restructuring of debt with the Troika (the European Commission, the European Central Bank and the International Monetary Fund).

As a reminder, Greece has suffered through six years of economic contraction, triggered by over-the-top spending, the financial crisis and then exacerbated by fiscal belt-tightening imposed by the Troika. According to Capital Economics, Greek “gross domestic product is now a quarter smaller than it was in 2008. A quarter of the working age population is out of work. Only half of the eligible young have jobs.” Both the Troika and Greece have reason to come to terms, which should prevent a Grexit, at least for now.

Here in the US, the week ahead should be a little less dramatic. The Federal Reserve will conduct a two-day policy meeting, where it is widely expected to maintain its recently adopted language that it “can be patient in beginning to normalize the stance of monetary policy.” With wage growth tepid, no meaningful increase in core inflation and global uncertainty swirling, the Fed is likely to sit still and do nothing.

On Friday, the first reading of fourth quarter growth is due. GDP is expected to increase at a 3.2 percent annualized rate. That would be downshift from the strong 5 percent gain in the third quarter, but would still be a lot better than the 2.25 percent pace of the recovery.

Finally, there was some concern late last week, after the National Association of Realtors released its Existing Home Sales report. While sales accelerated in December, for all of 2014, existing home sales dropped by 3.1 percent from 2013, the first annual decrease since 2010. The problem was a lack of inventory, but as Bill McBride of Calculated Risk points out, “the NAR inventory data is ‘noisy’ and difficult to forecast based on other data.” The good news is that “distressed sales were down sharply - and normal sales up around 7 percent.” With the economy strengthening, confidence building and mortgage rates at 18-month lows, home sales should accelerate in 2015.

MARKETS: Stocks rose, snapping a three-week losing streak and the euro dropped to its lowest level ($1.12) in 11 years.

  • DJIA: 17,672, up 0.9% on week, down 0.8% YTD
  • S&P 500: 2051, up 1.6% on week, down 0.3% YTD
  • NASDAQ: 4757, up 2.7% on week, up 0.5% YTD
  • Russell 2000: 1189, up 0.3% on week, down 1.3% YTD
  • 10-Year Treasury yield: 1.79% (from 1.84% a week ago)
  • March Crude Oil: $45.59, down 7.2% on week
  • February Gold: $1,292.60, up 1.2% on week
  • AAA Nat'l average price for gallon of regular Gas: $2.04 (from $3.29 a year ago)


Mon 1/26:

DR Horton, Microsoft, Texas Instruments

Tues 1/27:

3M, Apple, AT&T, Caterpillar, Coach, DuPont, Pfizer, P&G, Yahoo

FOMC 2-day meeting begins

8:30 Durable Goods Orders

9:00 Case Shiller Home Price Index

10:00 New Home Sales

10:00 Consumer Confidence

Weds 1/28:

Boeing, Facebook

2:00 Fed Policy Announcement

Thurs 1/29:

Amazon, Conoco Phillips, Ford, Harley Davidson, Visa

8:30 Weekly Jobless Claims

10:00 Pending Home Sales

Fri 1/30:

Altria, Chevron, MasterCard

8:30 Q4 GDP (1st estimate)

9:45 Chicago PMI

9:55 U Mich Consumer Sentiment