Latest Greek portent pulls down prices
By Laif Meidell, CMT, president of American Wealth Management, and portfolio manager of the AdvisorShares Meidell Tactical Advantage ETF (MATH)
Following Tuesday’s strong rally, the stock market spent most of Wednesday either taking a rest or drifting higher. Then, with less than 30 minutes left in the trading day (very late Frankfurt time), an email was sent from the European Central Bank saying, “The ECB decided to lift the waiver affecting marketable debt instruments issued or fully guaranteed by the Hellenic Republic.” Translated, this means that Greece will not be able to cover loans to Greek businesses with their low-grade (junky) Greek government bonds as collateral. Instead, Greek businesses will have to borrow money from their own national central bank at higher interest rates.
The ECB’s decision on Wednesday to restrict access to its funds following Greece’s newly formed leadership sends two messages. The first message is a lack of trust that Greece’s new leadership is committed to paying off its existing bailout loans, and the second is to redirect the prime minister and finance minister back to the austerity plan laid and agreed to by their predecessors. Greece’s newly formed leadership has put renegotiating the country’s bailout debts as a top priority, in an attempt to garner more fiscal latitude, as well as relief from some of the imposed austerity measures.
Stocks across the globe began falling on the news, with Greek stocks getting hit the hardest. In the last 30 minutes of trading, U.S. stock indexes gave back all their early gains to close in the red, while the FTSE/Athex 20 Capped index fell dramatically closing 10.39 percent lower on the day. Although the Greek index was the worst-performing country on Wednesday, it was still able to hold onto the top spot for the week, with the FTSE/Athex 20 Capped index gaining 11.63 percent over the past five trading days. This just goes to show how optimistic investors were becoming in Greece’s new leadership.
Greece’s new leaders have just had their first lesson in international politics and finance. The question now is whether they chose to toe the line or to forge a new path.
This commentary originally published in the Reno Gazette-Journal. Performance numbers used in this article were obtained through eSignal and are not guaranteed to be accurate.