Greece is the dead horse, why continue to beat it? Greece is old news, everyone knew it was coming, it should not be any surprise. But it is finally here, and the markets are nonetheless still beating it to death. It is likely that Greece will remain in the EU, there is just too much at risk and the Germans don’t want to risk losing THEIR money! It is an interesting story nonetheless, and it is the precursor of many stories that we will be following for weeks, months, and years to come. As we said it is old news, Greece, Italy, Japan, China, and even Puerto Rico are all saddled with debt that simple Economics 101 tells us cannot be sustained as supply and demand must balance in the long run.
The story is not that Greece cannot pay its debt, the story will be the fallout to the Greek economy, their banking system, the EU, the World and what happens when these non-third world economies start to collapse when they can’t meet their debt payments. Remember that as traders we hate sideways markets, volatility is your friend, so lets focus on the economics behind these global events and model how we want to trade them.
Since the Greek tumble is the first major global economy that the Oh Great and Powerful Laws of Econ will be shaking out since the Great Recession, we have put caution on our Bull and Bear calls and will be tightening stops until Monday July 6th when most of Wall Street comes back from a short week and we can fully digest what is going to happen in Greece.
Now to the important stuff…China. If you recall it was Iceland’s financial crisis that started to set off a global chain of events that lead to the Great Recession in 2008 and they only owed $50 Billion. Greece owes $360 Billion, most to the ECB (European Central Bank) and the IMF (International Monetary Fund), but it is a drop in the bucket compared to the 1,000 lb Gorilla, China. China has had a net increase in their equity markets of $7.6 Trillion in the last year alone!
As China has loosened up their markets to allow everyday citizens the ability to invest in the booming economy, millions of investors have been pouring money into the booming market. There is currently $370 Billion of margin debt alone in China, which alone is $10 Billion more than the total at risk with a Greek default! Do you think that there could a storm on the horizon? And if you thought that the Germans didn’t want to see Greece bust, the Chinese government sure does not want to see their markets bust as at the end of the day it is the Chinese government that is the Chinese banking system!
Remember the Laws are Economics are Laws for a reason. When you break Laws there are consequences as Greece, the EU and World is about to find out. Remember to take a disciplined trading approach and know that in the long run our Laws of Economics will always prevail and because of that there is money to be made in rising and falling markets if you remain disciplined and don’t chase horses that are dead or dying.