Whither Europe, Whither Greece?
Poor Alexis Tsipras having to turn on a 10 eurocent coin and change the whole direction of his party's mandate. Today's Financial Times features editorials by Wolfgang Münchau saying the creditors have destroyed the eurozone project; and another by Gideon Rachman saying Germany had surrendered to profligate Greeks.
Looking for a third opinion led me to Bloomberg which is of course less Eurocentric. Its editors wrote:
“Enough is enough: Greece should leave the euro system.
“The terms forced on Prime Minister Alexis Tsipras last weekend have little chance of being accepted, carried out and sustained by this Greek government or its successors. Greece's parliament may accept them this week because it thinks the alternative is worse -- and in the short term, that may be true. In the long term, a deal imposed under extreme duress, and bitterly resented by most Greeks, won't succeed.”
Don't think the website is alone in its caveats. Here is the view of a capitalist without a boss active in politics like ex-Mayor Michael Bloomberg. David Einhorn, head of Greenlight Capital, accused Europe’s leaders of pushing Greece to fail so as to discourage other countries from electing populists: “Europe is unwilling to allow Syriza a face-saving compromise, even if that means Greece collapses and the rest of Europe suffers,” Einhorn wrote in a letter to investors.
“Syriza has capitulated by proposing a deal which leaves Greece with even more austerity than when negotiations began and no actual debt forgiveness,” Einhorn added. “This might not be enough, as the grand goal of the European negotiators appears to be to discourage other countries from electing populists.” (Bloomberg got a confirmed copy of Einhorn's note.)
And if you think Tsipras has problems, consider what the two sides (or 7 sides) in the Iran talks will have to deal with once the full terms of the agreement have been released (besides the photograph of everyone smiling already in the public domain.) Pres. Obama has indicated he will veto any attempt by Congress to prevent this banner deal for his Administration from being signed. The Iranian Majlis must also align with the approved text.
Meanwhile the dollar and US interest rates are down because Americans did not spend enough in June, and spent less than reported earlier in April and May. The consumer is not consuming enough, which, along with other perils around the globe, may mean that the Fed will delay its plan to raise interest rates in the autumn. We were all supposed to go to the mall and blow the money we were saving on gasoline, but we failed to do so. But Britain may be the next to raise rates instead. Its CB governor Mark Carney told the press today that “the point at which interest rates may begin to rise is moving closer.” That pushed up sterling against the greenback and the euro just in time for our Thursday return to London.
My college acquaintance Mark Mobius is stepping down as emerging markets mgr for Templeton Funds after 25 years, to be replaced by Carlos Hardenberg, like Mark a Germanic Latin. Mark will remain as chiarman of the Templeton Emerging Markets Group, part of Franklin Templeton (NYSE-BEN). Mark's lead closed-end fund, Templeton Emerging Markets Fund, EMF, has lost ~15% YTD and 11 of the 13 funds he managed have under-performed their benchmarks over the past 5 years. While I own EMF it is not in our model portfolio, mainly because I bought it years ago for very much less than it is at now. We used to recommend the Templeton Emerging Income Fund, TEI, a bond fund where Mark was not the principal manager, but sold it before the Global Financial Crisis.
More for paid subscribers follows from Finland, Norway, The Netherlands, Britain, Canada, Panama, Costa Rica, Spain, Denmark, the China region, Israel, and California. Lots of news outside diplomatic talks.
My Big Fat Greek Solution
A decade after one of the post-World War II institutions for improving the world fell into disarray as the Serbs slaughtered Bosnian Muslim men and boys who were being protected by Blue Berets in Srbrenica, another post-war outfit nearly suffered the same fate. The European Union managed to hack out a deal for Greek debt at the weekend, keeping Athens in the euro and Europe, after both sides played chicken (or Russian roulette) during the negotiations. So they can still get cheers if they play Beethoven's 9th Symphony in Greece, the country where the very name Europe was invented. The Blue Berets' failure to protect Bosniaks in the worst ethnic cleansing since WW II in Europe, opened the way to copycats in places like Ukraine, Sudan, the northeast of Nigeria,
The Syriza government cannot pass the required guarantees to get the large check from European institutions this week without support from parties of the center and right, particularly since many of its own most left-wing parliamentarians oppose the 11th hour deal made with the EU and the ECB.
A Greek coalition is actually a potential bonus for my Three O's program for combining reform and investment to enable the country to recover and rebuild its banking system and economy.
O number 1 is oligarchs, the successful Greek billionaires operating shipping fleets and foreign companies making huge profits in unexpected businesses. The Greek presence is visible in everying from bottling soda in eastern Europe to selling cars and parts in Africa. Out of their homeland, entrepreneurial Greeks (who may not have kept their Greek citizenship) are a great potential source of funding and example. They need to be lured into a program to help their homeland.
The second O is the Orthodox Church, to which well over 90% of Greeks living in either their homeland or abroad belong. The Greek Orthodox religion developed separately from Catholicism after an early split, and it has been garnering donations and endowments for more than a millennium. So the Greek Orthodox Church is extremely wealthy, and since priests may marry, it has not had to pay fines for child molestation like the Roman Catholic one. Yet rather than helping their parishioners during the huge financial crisis, the money-laden church has been absent, one reason the leftists could win the election. The 28% unemployment rate as growth collapsed over the past 5 years should have led Greek Popes (every Greek Orthodox priest is a Pope) to prefigure the social agenda adopted by the Catholic Pope Francis since his ascension. Rather than being associated with welfare help, the Orthodox Church is associated with real estate scandals and scams. The Greek Orthodox Church also needs to be mobilized for the good of its adherents and its hierarchy.
A third O is Greeks overseas, sometimes many generations from their Hellenic roots, but still usually faithful to their ancestral religion. A bit like Jewish children who have to go to Hebrew School, Greek children learn the ancient Greek prayers and rituals and study church Greek after school. One reason Greeks continue to be Greek Orthodox so long is its glorious and moving services. The other is that Greek Orthodox spouses can marry either Catholics or Protestants without converting. Think of Prince Philip who married the Queen of England, or Queen Sofia who wed the King of Spain.
Daphne is a business acquaintance of Hellenic ancestry whose father was Irish Catholic, whose first child was half Puerto Rican, and whose second half African-American. (Greeks allow divorce.) Both children got religious instruction at the Astoria Greek Orthodox Church in Queens, and were later married there in Greek rites, despite being only 25% Greek to begin with. New York has flourishing 2nd and 3rd generation Greek business people and professionals. Greek-Americans run the ubiquitous NYC greasy spoon diners and telecom dealerships, supermarkets and internet service stores, construction and law firms, manufacturers of fur coats or garments. I believe the same applies to Sydney, Australia.
There are financial experts among the American O's. Paul Sarbanes who drafted the law and regulations to protect shareholders from management fraud was a Maryland senator of Greek ancestry. The best-known and best-paid US bank CEO, Jamie Dimon of JP Morgan Chase is of Greek heritage. My former broker at e-trade, Dino Pappas, who left when it stopped offering global trading, was Greek. A leading promoter of closed-end funds, an investment vehicle I am fond of, Nicolas Bornozis, is Greek.
The time has come to make it possible for the 3 O's, especially those in the diaspora, to help their ancestral homeland.
If Citi can be called in to restructure the Dubai Drydocks debt surely JP Morgan Chase can help the Hellenes by managing the euros 50 bn trust fund Greece must create for privatizations under the 3rd bailout accord of yesterday. It could encourage confidence both among Greeks and among the providers of funds that the sale of unneeded state assets will be done without corruption, by an internationally trusted overseer of the capitalist persuasion. Step up, Jamie Dimon!
Shanghai is up today mainly because its exports have risen for the first time in 4 months, by 2.8%. Yet imports fell 6.1%meaning the Chinese economy is still not on a growth track. GNP figures are expected later this week but are less reliable than trade numbers. Yet the China stocks and the Greek deal have boosted euro-land stocks—but the euro now is down against our dollar.
More for paid subscribers follows from Mexico, The Netherlands, Britain, China, Spain, Switzerland, Israel, and Brazil.
Aie de Mim!
Because the transfer of my stock portfolio has been halted for unknown reasons I cannot update my tables this weekend, nor can I trade. This is probably a good thing given the piled up uncertainties: Greece and China in particular. I am reminded of a saying attributed to Pres. Dwight D. Eisenhower: "Don't do something. Just stand there."
The reason for the halt is a sign of how un-international the world is despite the internet and all those "handiphones" I and everyone else at last week's investing conference in Portugal had with them. To complete my transfer to Interactive Brokers, apparently some shares have to be left with E-trade because the new broker does not have a market maker in them. They mostly seem to be from Sweden and Norway, which is absurd since one of the Swedish shares being blocked actually owns a chunk of our Nasdaq stock market.
To confirm that these shares of mine will not be transfered, the two brokers are seeking word from me that this is okay--by telephoning to my New York numbers (home and office) while I am in Europe for a month. I have been unable to get this changed because of "security concerns."
This mechanistic and robotic approach to what used to be a people business also explains why the NY Stock Exchange was out of order for three hours last week. We are all in instant contact with one another but cannot communicate.
A Portuguese Lesson for Greece
As Greece moves to a final attempt at a euros 53.5 bn bailout program, it is probably a good idea to recall what occurred here in Portugal when it accepted an austerity program with strict conditions in 2009 from the European Union. The statistical impact was spelled out by Prime Minister Pedro Passos Coelho in a “State of the Nation” speech Wednesday night in Lisbon. Portugal was governed by a center-right coalition which did what the EU ordered it to do.
The price was very high. Having grown its economy toward European levels in the years before the global financial crisis of 2009, afterwards Portugal fell back to where it had begun as a new member back in 1986. Today, the Portuguese standard of living is back to where it started, at 25% below the European average.
Adding to the misery was a huge increase in Portuguese taxes since 2009, to cut the government deficit at Brussels' orders. Direct sales taxes which hit poor people hardest rose by over a third, to cover 75% of the EU bailout funds now paid back, a total of euros 60 billion out of euros 80 billion disbursed. Income taxes rose less sharply, up 11%. The poor were hit hardest. Only now is Portugal beginning to tax the tourism-linked real estate investment business, after foreigners were allowed to rent out their Portuguese holiday homes without paying taxes on the proceeds.
Portuguese gross national product fell 7% against that of the EU as a whole after 2010. The country's standard of living fell back to the level of more than 20 years before.
A symptom of woe was the resumption of Portuguese emigration after 2009. Portugal has the highest proportion in Europe of citizens who migrated to another country—higher than the countries of eastern Europe whose exodus to find jobs or economic opportunities is more widely known. Portugal lost about a half million people since the crisis, bringing its population down to 10.5 million, and falling. There are 5 million identified Portuguese who work or live outside the country, plus another 2 million who exited in the past 6 years with one-way tickets. Workers go to northern Europe, particularly France, and more educated professional people to Brazil where there is a common language.
It is fear of similar suffering that has kept the Greek Syriza led government from signing up for a bailout with similar conditions. A center-right coalition still runs Portugal, but polls show that it may lose its majority if a general election were held today. The respectable Socialists are polling 37.6% vs only 32.7% for the center-right. The less respectable Left Bloc has 6%, but to form a government the Socialists would have to either bring in a centrist party, or open the door to the fast-growing Portuguese Communist party, currently at 11%. The polls are hypothetical and there is no team of tie-motor-cycling hard-left outsiders campaigning in Portugal... yet.
A word of warning about the supposed return of upward movement in the Chinese stock markets which began yesterday and boosted bourses around the globe, including on Wall St. The all-China index ostensibly rose another 4.5% today. But the statistics are flawed.
The shares of companies which suspended trading in their shares after they plummeted are not being included in the index which shows the rise, be it the large cap all-China index, or that of Shanghai or “high-tech” Shenzhen. Nearly half of all listed shares are still suspended and the rise is mostly in large cap state-supported firms and banks. Shares can return to the market if they recover from losing 5% of their value in a given day, an operation which is separate from a listed company suspending trading to protect its assets.
I think the amount of capitalism being fostered by Beijing is extraordinary and also dangerous. Today I present an alternative model for economic development via stocks. More for paid subscribers including an annual report from one of our companies today, with news from France, China, Brazil, Switzerland, Singapore, and Myanmar.
China Making Waves
By now Chinese stocks which still can be traded have fallen back to their levels of the start of the year. About 40% of shares have been suspended from trading at all, while others, having reached their daily 5% loss limit, are also banned for the rest of the day.
The Beijing regime opted to institute new measures to try to prop up Shanghai and Shenzhen markets. First the CB, the People's Bank of China, is providing cash to the state-backed stock market margin lending body. Such measures have been used by other countries to stop stock market crashes. The big difference is that official Chinese margin lenders provide only a tiny fraction of the funds punters borrow to buy shares. Most of the margin loans are off the books in a gray market with usurious rates.
But Beijing is also innovating new ways to boost share prices. China also banned selling of shares for 6 months by corporate insiders and board members, and anyone who owns more than 5% of the stock of a major listed company. This applies to some 75% of Chinese-listed companies, according to some reports. You can buy but you may not sell.
The experts think this is something never tried before under capitalism, and they don't like the precedent it sets. The Templeton Emerging Markets Group called the new ban “an act of desperation.” For major shares still trading in Chinese markets this sets up a roach motel: you can enter but not exit.
The impact was quick on Shanghai and Shenzhen shares that were still trading (although the companies which suspended trading in their shares did not now allow it to start up again yet.) Shanghai gained 5.76% today and Shenzhen 6.4%, only counting stocks whose managers allowed them to trade. In Hong Kong, the Hang Seng index gained 4.26%. More importantly, many commodities which Chinese stock investors were dumping to meet margin calls rose sharply today. But China may only have achieved a dead cat bounce.
As I have no idea why the NYSE could not trade for over 3 hours yesterday I am not commenting on this.
More for paid subscribers from Brazil, Britain, Finland, South Africa, Israel, Germany, India, Spain, Sweden, Hong Kong, and Canada today along with important fund news.
Welcome Back to Portugal
The NY Times reported that the Israeli Shas Party leader David Azoulay has declared that anyone who follows Reform Judaism is, in his view, “not a Jew.” So I was thinking about finding another bolthole in case things get tough in the USA and I need to emigrate like my parents did from Germany in the 1930s. Israel may be out for a member of the most beautiful Reform temple in Manhattan, Central Synagogue.
Portugal offers a mixed message. If you are named Azoulay, like the Shas politician, you can easily win Portuguese citizenship without having to make investments or give up your existing passport and with no residence requirement. The special deal applies to those of Sephardic descent, whose ancestors were illegitimately ousted from Portugal in 1500, a few years after the Spanish Jews were also expelled, in 1492.
Of course with two German-born parents (who met and married in the USA), I cannot claim Sephardic ancestry. Sephardic (Spanish) Jews follow a different ritual which dates back to the period when their ancestors lived on the Iberian Peninsula, in Spain or Portugal. My family were firmly Ashkenazic (Hebrew for German which also includes Yiddish-speakers from points eastward).
So this country where I am for a conference will not admit me for being descending from expelled 16th century victims of religious persecution. This despite the fact that my father's parents actually fled from Germany via Occupied France, Unoccupied France, Spain, and Portugal. They sailed from Lisbon to New York in 1941, before the US entered World War II. Portugal was neutral and moderately pro-British at that time, whereas Spain was still pro-Fascist.
Anyway, there are other options for gaining Portuguese and European Union residence, but they take at least $400,000 of investment at present exchange rates, plus 5 years of intermittent residence in Portugal, more than I am prepared to put up with.
Anyone who is Sephardic may want to contact www.lugna.pt to find out more. We have one reader for sure who qualifies.
The theory that commodities are a separate investment category has been disproven by the impact on commodity prices of the continued Chinese stock market collapse. China's biggest market in Shanghai fell by 5.9% today despite frantic measures by the Beijing authorities to try to prop it up. And the share dump hit Hong Kong which after holding out so far, is also off 5.8%. Even Japan is down about 3.2%. The opening in Europe was also in the green.
In the green by the way is Chinese convention. Since red is considered a lucky color, it is used for stock prices rising, while green is used for those falling. For round eyes, it is really easy to work that out because the Chinese show market trends with a plus or a minus sign, a number in normal format, and a percentage sign. Along with gates at the airport and train platforms, this enables you to find your way without knowing any Chinese.
The linkup of Shanghai and Hong Kong was implemented by a Chinese team which included one of our former writers, with a Shenzhen MBA, an American passport, and a good eye for capitalist success. She quit because she was no longer free to write her views and then recommended a fellow journalist with good English skills who lacked her stock-picking skills. So we more or less exited from China too soon for the 2015 rise in the local markets, and the sell-off which began mid-June.
Our former reporter is now on the spot as a facilitator of linkage between Shanghai and world markets. The ban on initial public offerings and the funding of a brokerage pool to finance margin purchases have failed to boost share prices. Insurance companies have been ordered to buy stocks.
The regime's panic measures have certainly shown that China does not yet have a normal stock market. Fei may come back and report for us again if things do not improve.
More for paid subscribers on the commodities selloff's impact on our stock positions, and news from Britain, India, Switzerland, Pakistan, Sweden, South Africa, and Hong Kong.
I place my hope in Euclidean geometry.
The likelihood of a deal on Greece appears to have increased thanks to an overwhelming victory for Syriza among the population, showing that any deal will have to be done with Alexis Tsipras or not at all, plus a change of finance ministers.
The new guy, Euclid Tsakalotos, fills one of my requirements, a link to the glory that was Greece when Plato invented philosophy and Euclid geometry. Helping Tsakalotos is his peculiar heritage. Being born in 1960 in The Netherlands gives him an inside track to the Dutch president of the Eurogroup who was the most negative on his predecessor, Jeroen Dijsselbloem (which Euclid knows is pronounced Yeroon Doyselbloom.) Euclid Tsakalotos is a classic economist, while Yanis Varoufakis specialized in game theory, not good diplomacy.
Euclid's father was an insurance executive and his uncle Thrasyvoulos a right-wing general who slaughtered Turks in the 1920s and invaders during World War II before turning the army's guns on lefties with zeal during the Greek civil war. But before he died Thrasyvoulos Tskakalotos shook the hand of Andreas Papandreou to show that patriotism topped political differences. Nephew Euclid studied philosophy, politics, and economics at Oxford (PPE, an elite degree) and then completed his PhD at Oxford. During his studies he also became friends with the current head of the Greek Central Bank, Yannis Stournakis, a bete-noire of the rest of the Syriza leadership. However he also joined the Oxford branch of the Greek Communist Party in Oxford.
So for all his lefty credentials this man is at least capable of respecting those from the other side. Let's hope he succeeds in Euclidean geometry.
But far bigger problems weigh on global markets than mere Greece. First, the Iranian nuclear talks are due to end today, and the odds are against a deal being approved by the Iranian president, to say nothing of the US Dept of State.
Then too Chinese markets today fell again despite the government program to support stock prices which involved a round-robin collection from brokerages to fund purchase, lower interest rates, and a ban on new initial public offerings (which can lure investors into selling the prior ipo).
The Shanghai market duly managed a tiny rise Monday although more speculative Shenzhen continued downward. However, today the large cap Chinese Index fell 1.8% and the ChiNext index of small caps fell 5.1%. Since June 1 Chinese stock investors have lost the equivalent of 100 times the entire annual gross national product of Greece.
The consensus among pundits is that the Greek crisis can be solved if political grandstanding by both the austerity and the anti-austerity camps ends. The anti-austerity group does include some high-ranking Nobel prize economists and they point out that the debt refinance efforts really have not bailed out Greece so much as northern European bank lenders—and US hedge funds looking for a high-risk high-return bet.
Ironically enough, the governments of countries which survived austerity measures (not as severe as what was imposed on Greece, but certainly no picnic either) are keener to keep the Greeks from getting away with anything than even the supposedly fierce Germans, Finns, and Dutchmen. In Spain and Italy, Ireland and Portugal, there are left-wing Syriza-like parties in the wings ready to pounce on the governments which accepted pain to stay in the Euro and the EU. If Greece now gets away with it, they may lose power.
Over in the creditor camp, the contrary logic holds and also bodes ill for an accord. The right-wing opposition from around 2010 said to let Greece go and stop supporting these insufferable people who wanted to pay pensioners their pension and keep the country working. So if there is yet another trip to the vaults now to pay back the debts of these ungrateful Hellenes, they will say they were right to be right-wing, which will hurt the parties in power starting with the compromiser-in-chieftess, Angela Merkel and her hapless ally, François Hollande.
More for paid subscribers from Israel, The Netherlands, Luxembourg, India, Canada, China, Spain, Portugal, and Denmark today.
Grexit 1 and Grexit 2
There was a brief moment when we were in the London City Airport this morning embarking for the conference we will be speaking at Weds.-Fri. When the Euro fell to $1.01. It was about 6 am and the exchange office posted the figures—but was closed. By the time we arrived at Faro airport the Euro had jumped back nearly to Friday's level of $1.11, hitting $1.1081 as we struggled to find the Alamo car hire firm which turned out to be called by a local company which holds its franchise, Guerin.
Nobody bothered telling us that when we set things up. Guerin also attempted to sell me collision and damage insurance for euros 15,000 despite the fact that we had already bought a policy in the US worth $35,000. I don't need double insurance.
Anyway what boosted the Euro was the resignation of Yanis Varoufakis, the Finance Minister, who had already committed to resigning if the Greeks voted 'yes'. But they voted about 60% 'no' but still got no more motor-cycle jacket Varoufakis. They still have tie-less Prime Minister Alexis Tsipras, another young and inexperienced negotiator.
I will not predict the outcome of any future talks. But the Euro-bloc might well be better off without the Greeks. I am not sure that is good for US policy on Nato or the Balkan countries or Vlad (the Impaler) Putin. But we are not involved in the Greek debt drama except marginally, via the US share of the IMF loan that Greece failed to pay last week. Geopolitics is something else but nobody seems to be worrying about that yet.
Portugal, having gone through an austerity program of its own without protest, was in a similar position to Greece 3 years ago: a small, marginal country which joined the EU and the Euro without the right kind of modern economic and banking system required to make it work. Like Greece, it went into deep deficit from overspending. The Portuguese took their medicine are are now doing better although the banking system is still fragile.
Nobody in Portugal had a kind word to say about Greece today. Everyone involved in dealing with arrivals in the Algarve boasted that “we are not Greece” and our money is sound. They also showed a bit of schadenfreude about Islamic terrorism in a nearer competitor country with beach resorts, Tunisia.
The Portuguese are looking for more bookings this month and next as people make back up vacation plans.
More for paid subscribers from the Eurozone, Switzerland, Israel, The Netherlands, and Britain today.
A Sunday File
Since in much of the world including US health insurance, last Friday was a normal working day, I am doing a quick rundown of developments for paid subscribers before heading for the uncertain global linkages of the Algarve, southern Portugal, tomorrow. I am delivering some talks at a conference called liveandinvestoverseas (read it carefully) at the Hotel Tivoli Almansor in Carvoeiro.
Portugal is now firmly in the pro-austerity camp, mainly because it seems to have survived the process imposed upon it by northern Europe. So I expect there will not be much sympathy for the pickle Greece is in. Curiously, a couple of years ago the prime minister of Portugal bore the family name of Socrates. Tellingly, there is no one with such a classically wire name among the current Hellenic leaders. The polls are too close to call, which in my experience means that people are unwilling to tell pollsters their real intentions. The probably means a yes will win, I guess.
More for paid subscribers follows to cover developments in the Mother Country while we were off feting our independence. Plus a wee note about Germany.
Model Portfolios Updated
I have just updated the model portfolios which can be viewed at www.global-investing.com\
Between July 4 and the movement of my account to Interactive Brokers the data are incomplete and the new listings may be in different currencies and markets than they were last week. I do not have access to my full record while on the road because my backup drive is proving inaccessible.
We are off at the crack of dawn Monday en route to the south of Portugal where we are participating in a conference called Livandinvestoverseas.com aimed at Americans but not only Americans. I will provide reports when I learn things.
In the interval I will take time Sunday to fill you all in on developments in market which were open on Friday, unlike Wall Street.
Happy Real Independence Day. We just were in Islington visiting friends and their neighbors who were not Americans had Old Glory flying outside their door and yankee music playing in the garden. No fireworks, however. It was a nice touch. I started trying to sing The Star-Spangled Banner but was quickly hushed when I missed the high notes. The only person who could sing it was Kate Smith. So I fell back on This Land is Your Land and the others joined in.