NO!” It has been said that NO is the most powerful word in the English Language, and after Sunday’s Referendum, NO became the most powerful word in the Greek Language as well. The Greeks said “NO,” 61% voted against accepting the latest bailout package offered to them by their European creditors, this is not the story we care about, what we care about is what is going to happen to the Macro Economic picture in Europe and thus the World.
With a population of about 11 million people, Greece is about the size of New York City and Houston combined. With a GDP (Gross Domestic Product) of about $330 billion it has about the same GDP as the state of Washington. As we talked about last week the default risk is “only” $360 Billion and most of it is spread to the ECB (European Central Bank) and IMF (International Monetary Fund), but a drop in the bucket to the Trillions that are at risk propping up China. Probably like you, EQS does not hold Greek debt, so why do we care? We care because it is an economic event that will change the supply and demand of commodities.
In cards if you know the “tells” of the guy sitting next to you, you can develop a strategy on how to play your cards. Despite one too many plastic surgeries Kenny Rogers still knows when to hold’em, when to fold’em, knows when to walk away, and when to run. We are not looking for a Yes, or a No from Greece, what we are looking for is how the world will play its cards in reaction to the Greek vote, so we will know when to go long or short with different commodities.
A consortium of Chinese brokers announced on Saturday (before the Greek vote) to inject another $19 billion into the market and the government has required China’s mutual funds to pledge not to sell equity positions for at least a year. We know the “tells” of China as they played their cards even before Greece showed their hand. Now we wait to see how others will play their cards.
How the “cards” are played will give us insight on the health of the economy and we can model the only things we care about as traders…Supply and Demand. Why do we care about Supply and Demand?…Prices.
The Great Recession was started from similarly “small” beginnings. The debt crisis was created and snowballed by reactions to economic events such as the one that is occurring in Greece. This is why we care about it, and why it is so important.
The next question is what happens to the Euro? If Greece exits the EU how will this shake up all of Europe, how will that shake up the World and what will that do to the supply and demand of commodities, and thus prices. Again it really does not matter to us if Greece uses Euros, the Drachma, or moon rocks as their reserve currency, but what matters is how a default would change the price of those Euros, Dollars, or of course moon rocks.
For those that are new to commodity trading, or those that are old pros, we have to remember basic principals of economics. Prices rise and fall with supply and demand, and they rise and fall from EXPECTED future changes of supply and demand, this is why we care about Greece. Market corrections are healthy, and the Greece issue could be wakeup call and make Europe stronger. The market is currently digesting this not as a panic, but a needed correction.
The World did not end in 1929, and it did not end in 2008, and it will not end now. People will still need oil, gas, metals, and food. Expect some “noise” in the markets, and that is why we trade with stop loss limits.
There is always money to be made in volatility and market turmoil, trade patiently and if you act like the “house” you can know the tells of the guy next to you and make money when you play your cards no matter the hand you are holding.