Greece, Greece, and More Greece

June 20, 2011

Equity markets broke their six week losing streak last week with a slight increase. Markets are opening soft this morning on concerns the Greek bailout package may be delayed, US banks continue to struggle, and QE2 approaches termination. Regarding QE2, the program is scheduled to end June 30th, however, because of heavy front end loading of the purchases, it is likely that the Fed has either completed the program, or is effectively out of bullets as it concludes the program over the next week. Bloomberg is reporting that, similar to Japan, US banks now hold deposits that exceed loans. Deposits hit a record of $1.45 trillion last month. In Japan, loans dropped and savings surged. Lending has declined 27% since 1996 in Japan while bank holdings of government debt jumped 5x to $1.98 trillion. This buying power has helped keep interest rates low in both countries, with the possibility of negative real returns over the next few years.

Greece is turning into a Greek tragedy. The Eurozone finance ministers delayed a $17 billion loan tranche in an effort to pressure the government to cut spending and sell assets. Additionally, the ministers will implement a “voluntary” rollover of debt held by private investors, although it seems unlikely many will bite without additional incentives.

The Financial Stability Board will meet next month to finalize a plan to implement a surcharge on the world’s largest banks. The goal is to protect taxpayers should a systematically important bank collapse. A surcharge of up to 3.5% has been discussed. Bank executives-yes, the same ones who ran themselves into the ground and then into the arms of the Fed-have warned that the requirement would include a prolonged battle. Is anyone else thinking we should have required management changes when we gave them TARP funds?

The IMF is now looking for a worldwide slowdown through the end of the year due to high public debt and slowing growth in the US as well as European risk. Additionally, inflation and rising rates are beginning to pressure growth in key developing countries.

Oil continues its decline as the global economy slows and investors speculate demand will soften. Oil futures are down 2% this morning. The WTI is now at $92.

Wal-Mart won a ruling at the Supreme Court that may limit future class-action suits. The ruling blocked an effort to sue Wal-Mart for discrimination on behalf of potentially one million female workers.

APAC markets were weak last night, as are EMEA markets this morning.

Rory McIlroy ran away with the US Open yesterday, shattering the tournament scoring record and erasing the bad memories of his Master’s collapse in April.

Have a great day

Ned