There's too much innuendo in that cartoon...

http://www.telegraph.co.uk/finance/economics/11704051/The-world-is-defenseless-against-the-next-financial-crisis-warns-BIS.html

Monetary policymakers have run out of room to fight the next crisis with interest rates unable to go lower, the BIS warns...The world will be unable to fight the next global financial crash as central banks have used up their ammunition trying to tackle the last crises, the Bank of International Settlements has warned. The so-called central bank of central banks launched a scathing critique of global monetary policy in its annual report. The BIS claimed that central banks have backed themselves into a corner after repeatedly cutting interest rates to shore up their economies. These low interest rates have in turn fueled economic booms, encouraging excessive risk taking. Booms have then turned to busts, which policymakers have responded to with even lower rates.



G3 real interest rates have never been so low for so long

Claudio Borio, head of the organisation’s monetary and economic department, said: “Persistent exceptionally low rates reflect the central banks’ and market participants’ response to the unusually weak post-crisis recovery as they fumble in the dark in search of new certainties.”

“Rather than just reflecting the current weakness, they may in part have contributed to it by fueling costly financial booms and busts and delaying adjustment. The result is too much debt, too little growth and too low interest rates.

"In short, low rates beget lower rates."

“In some jurisdictions, monetary policy is already testing its outer limits, to the point of stretching the boundaries of the unthinkable,” the BIS said.

The BIS warned that interest rates have now been so low for so long that central banks are unequipped to fight the next crises. Policymakers in the eurozone, Denmark, Sweden and Switzerland have taken their interest rates below zero in an attempt to support their economies, contributing to a decline in bond yields. The decline of bond yields into negative territory is the "most unusual development" of the last year...Extraordinarily low interest rates are not a “new equilibrium” said Jaime Caruana, general manager of the BIS, rejecting the theory of so-called “secular stagnation” which some economists blame for the continued decline in global lending rates.

“True, there may be secular forces that put downward pressure on equilibrium interest rates … [but] we argue that the current configuration of very low rates is neither inevitable, nor does it represent a new equilibrium,” he said. Mr Caruana said that interest rate hikes “should be welcomed”, as global economies have started to grow at close to their historical averages, and a slump in oil prices has provided the global economy with a boost. The BIS report described the threat of a new bust in advanced economies as a “main risk”, with many reaching the top of the economic cycle. The economies worst hit by the last crisis are now suffering the costs of persistent ultra-low rates, the organisation said, which could “inflict serious damage on the financial system”, sapping banks and weakening their balance sheets and their ability to lend. And the continued misallocation of resources during busts prompted by central banks’s rock-bottom interest rates has also hammered productivity growth, the BIS said, as a prolonged reliance on debt had been used in its place.



Economic mismanagement has hampered productivity growth

This problem is compounded as the world’s populations continue to age, the organisation warned, making debt burdens harder to bear. Yet politicians have relied too much on temporary growth boosts by using debt, rather than making painful choices, said the BIS. Mr Caruana said that during booms, workers and capital are shifted to slow-growing sectors, with a “long-lasting negative” impact on productivity growth. “Misallocated labour needs to move from these sectors to other parts of the economy,” he said. The BIS said that the current turmoil in Greece typified the kind of “toxic mix” of private and public debt being used as a solution to economic problems, rather than making the proper commitment “to badly needed” structural reforms.

Mr Caruana said that policymakers must now focus on the supply side of the economy, introducing the right reforms, rather than continue to lean on debt which will inevitably undermine growth. IF HE MEANS MEETING THE DEMANDS OF THE PUBLIC, WITH PUBLIC JOBS AND PUBLIC INFRASTRUCTURE, OKAY. IF HE MEANS REGANOMICS---WRONG!

WELL, GEE, THEN THEY ARE JUST GONNA HAVE TO TAX THE OBSCENELY WEALTHY! THAT WILL SHRINK THE MONETARY INFLATION IN PAPER ASSETS AND STOP BUBBLES FROM FORMING. IT WILL FUND INFRASTRUCTURE INVESTMENTS, PENSIONS, AND WAGE INCREASES... AND WE WILL HAVE A FUNCTIONING ECONOMY AGAIN!

http://www.marketwatch.com/story/how-hedge-fund-geniuses-got-beaten-by-monkeys-again-2015-06-25?link=mw_home_kiosk

The dumbest simple index will beat the smartest guys on the Street...The average hedge fund has produced a worse investment performance in the first half of this year than a portfolio consisting of a savings account at your local bank and a random collection of stocks picked by a blindfolded monkey. Stop me if you’ve heard this one before. According to the benchmark HFRX Global Hedge Fund Index, tracked by Hedge Fund Research Inc., the average hedge fund has earned its investors just 2.4% so far this year net of fees. By contrast, the average stock in the MSCI World index of the developed countries’ equity markets is up 7.7%.

Hedge-fund defenders object that it’s not fair to compare funds directly to the stock market, because hedge funds are “managing risk” and so on. You have to compare them to an overall balanced portfolio of stocks, bonds and cash, right? OK. A few years back a study conducted on behalf of the endowment of Cambridge University’s Clare College found that, historically, the best risk-managed simple portfolio for a long-term investor had usually been a balance of 80% stocks and 20% cash (or equivalent, such as Treasury bills), rebalanced once a year. You can play around with simple portfolios but this will do as well as any. It’s about as simple as you can get. Someone who put 20% of their money in a federally insured bank savings account, and the other 80% in a random collection of stocks from around the world, picked by monkeys, would be up about 6.2% so far this year. (And that’s assuming for the sake of simplicity that you earned 0% interest on the savings. In reality, you could have done slightly better) In other words, they would still have earned more than twice the returns of the average hedge fund.

Gosh, the money and effort that goes into those hedge funds really paid off, didn’t it? Makes you glad your golf-club buddy got you an “in” to the P.T. Barnum Proprietary Algorithm Super Alpha Beta Gamma Buy Me An Omega Global Risk-Managed Wowza Fund, doesn’t it? Just think of all those math Ph.D.s they hired! Just think of how hard they’re working! Up before dawn, home after midnight, lunch-is-for-wimps, running on their treadmill desks, popping pills for the blood pressure.

Work, work, work.

“Ripping the markets’ face off.”

“Pulling the trigger” on deals.

Yeah, baby! Real men! Real trading! Real bonuses!

Meanwhile, over here, a bunch of monkeys and a bank account.

Oh well.

This is nothing new. Last year, according to Hedge Fund Research Inc., the average genius hedge fund lost 0.6%. Meanwhile stocks picked by monkeys, plus 20% in the bank, gained 2.3%. The year before, the average hedge fund earned 6.7%. The monkeys and the bank account did three times better, earning 21%. In 2012 the monkeys and cash beat the hedge funds by nearly four to one, earning 13% compared to 3.5% for the funds....It shouldn’t really surprise us. It costs a lot of money to run a great hedge fund — in salaries, bonuses, and all the rest. (Just think of the health-insurance costs when the traders have heart attacks) Those costs have to come out of investors’ returns. So even if the hedge funds did as well as the overall market, before fees, investors would lose out on a net basis. Your typical hedge fund charges around 2% of the assets as a basic fee, plus 20% of any profits. Do the math. If the average investment portfolio earns 6% a year, your hedge fund manager has to earn 9.5% before fees before you even break even. In other words, the manager has to beat the market by about 60%. Per year. Good luck with that. This is the point where we should add that these hedge-fund indexes flatter the industry’s performance, because they are weighted heavily towards the funds that survive and report data.

With all this dismal performance, investors are fleeing hedge funds, right? Sure, why not. According to a recent report in the Wall Street Journal, investors instead have been piling in. According to data supplied by Barclays, about $2.5 trillion is invested in these hedge funds worldwide. Wall Street. The only place on Earth where the lambs lead themselves to slaughter, to the sound of turkeys cheering for Thanksgiving.

stuff?

Doug Adams betrays his jingoism....I am confident that Snowden is living an activist, creative life in the safety of the Russian motherland. Dilbert could, too, even off grid, if he chose. It just takes a little imagination and flexibility, and the ability to socialize.

http://www.nakedcapitalism.com/2015/06/wolf-richter-panicked-hedge-funds-now-praying-for-a-miracle-in-greece.html

What sort of miracle, now, that’s the question

After chaotic emergency meetings, this weekend culminated, for this Greek banking system, with an ECB press release that contained this harmless-sounding but deadly line:



It meant no more cash for Greek banks from taxpayers of other countries, no more cash for Greeks depositors to withdraw and stuff under the mattress. Banks were now illiquid. They’ve been insolvent for a long time. Only the fresh cash, recently supplied on a daily basis, has kept from toppling altogether. What has been rumored since June 18 has become reality: the banks are toast. Greek Prime Minister Alexis Tsipras got on TV and announced that his government decided to close the banks for over a week, impose capital controls, and close the stock market for as long as banks are closed. When – or if – they reopen on Tuesday July 7, it will be to a different world. He blamed everyone but his inept government and the silly game theory or whatever they’ve been pursuing. Tsipras also appealed for calm and tweeted this Cyprus-like promise:



On Monday, the US-listed Greek ETF (GREK), a substitute measure for the closed Athens stock market, plunged nearly 20%, an indication of where the already battered Greek stocks might be headed. The ETF was started in crisis-year 2012, as part of the early hype to invest in Greece. It’s down 61% from its peak in March 2014. Greek bonds too plunged in value, with the 10-year yield shooting up over four percentage points to 15.1%, the highest since 2012. Jean-Claude Juncker, back on May 19, 2014, when he was “campaigning,” as he said, for the presidency of the European Commission, gave a speech in Athens, where he proclaimed: “I take it as a call for the new Commission President to reunite Europe after the crisis.” The crisis was long over, and now it was time to move forward under his leadership.

He then tweeted: “I say to all who bet against Greece and against Europe: you lost and Greece won. You lost and Europe won.”

But by that time, hedge funds were already betting on, not against, Greece. With ceaseless hype during 2013 and 2014, they inundated the media with their buy-Greece meme, how Greek markets would rally as the reforms would push the economy forward, how banks, stuffed to the gills with more bailout money, would get back on their feet, and how Greeks would somehow become confident that their banks were solid. This hype about Greek stocks, bonds, and a myriad other “opportunities” become so deafening that the ultimate smart money started believing it themselves.

Now, as the New York Times reported, they’re panicking….



During peak hype a year ago, there were perhaps 100 hedge funds plowing what they thought was fertile financial soil. But when things began to curdle again in late 2014 and in 2015, many of them bailed out, selling what they could. But 40 or 50, according to local broker estimates, kept their bets and hopes alive that it would all get worked out somehow, that the ECB or Germany or whatever would swoop in and allow them to make a killing, as they’d done with Greek bonds in 2012. So these funds have about $11 billion stuck in these shut-down Greek markets. The Times:



Now Greece’s financial system is shut down to control the chaos. Parts of the economy are shut down with it. Greek banks had already been reduced to penny stocks before the bank holiday, confounding these hedge funds that had invested in them. Now, they’re cutoff from the lifeline that has kept them from toppling. “People are freaking out,” Nicholas Papapolitis, a corporate lawyer in Greece who has led some of the largest hedge-fund deals in the market, told the New York Times. He was working through the weekend, comforting and cajoling his frantic hedge-fund clients. “They have made some really big bets on Greece,” he said. They weren’t betting on Greece, however. They were betting on the ECB, the European institutions, and taxpayers – as they’d done in 2012, when they’d made a killing – to shovel money their way. Only this time, it didn’t happen, leaving the ultimate “smart money” to twist in the wind.

But here is the thing: the Greeks could have solved the crisis on their own, if they’d wanted to. Or did they know something that others didn’t? Read… If Greeks Did This, the Terrible Crisis Would Be Over NEXT POST

http://wolfstreet.com/2015/02/26/whats-wrong-with-our-dear-greeks/

The Greeks – the poor, downtrodden, Troika-tortured Greeks – yanked €12 billion out of their own banks in January alone to send this moolah out of the country or hide it in their fridges, culminating waves of capital flight that started years ago. Greeks have been busy siphoning their wealth out of Greece in other ways too, buying homes in Berlin and London, and investing their money elsewhere in a myriad ways. The Greeks trust their already bailed-out but still putrefying banks as far as they can throw them. To keep them from toppling, the ECB is propping them up via the Emergency Liquidity Assistance (ELA) program, providing many billions in cash so that Greeks can continue to yank their own money out and send it for safekeeping somewhere else.

Greeks at all levels are notorious for not paying their taxes. Successive governments tried to levy new taxes to make up for taxes that Greeks simply refused to pay. They tried to crack down on select groups of tax cheats, going variously after the small fry or a few trophy rich. But to no avail. Greeks simply don’t like to pay their taxes. In that respect, they’re the same as the rest of humanity. They’re just better at it. And it wouldn’t even occur to Greeks to buy Greek government bonds, though the government needs to sell bonds desperately to exit the debt crisis, move the economy forward, and finance the government’s profligate ways, sandwiched between capital flight and tax evasion. So for years, the theme has been to shanghai taxpayers in other countries to pick up the tab, mostly those in Germany (on the hook for the lion’s share), but also in France (second in line), as well as other Eurozone countries, along with taxpayers in all countries that participate in the IMF, including our underpaid and overtaxed Americans. None of them have been asked, but all of them have been roped into paying and guaranteeing what the Greeks themselves simply refuse to pay.

So Greece – the government, not the people – is still bankrupt even though it already gave the remaining private-sector bondholders a high-and-tight but “voluntary” haircut in 2012. About 77% of Greek government debt is now held by taxpayers of other countries through various institutions. But only a minuscule amount of Greek government debt is actually held in Greece. Japan is in much, much worse fiscal shape. It has been borrowing nearly half of its entire budget, for years. Its gross national debt is headed for the ignominious level of 250% of GDP, far above Greece’s 150% or so. But there is no debt crisis in Japan. Japanese institutions and individuals have always bought Japanese government debt and own almost all of it. Only a sliver of about 5% is owned by foreigners. It would never occur to the Japanese government to go begging to Germany or anywhere else for a bailout. Whatever fiscal fiasco the Japanese are facing, they will deal with it themselves. Abenomics is now defining who exactly gets to bear that cost. But it won’t be the Germans, the French, and the hapless Americans. It will be the Japanese.

Instead of stewing in their own misery, Greeks need to repatriate their money into Greek banks, all of their money. They need to clean out their bank accounts in Switzerland, Luxembourg, and London, and deposit this money into Greek banks. Hundreds of billions of euros. That would immediately solve the bank-run crisis. They need to pay taxes on this money. And they need to pay their taxes for the last 20 years, all of their taxes, including penalties. They need to do so pronto, and with a smile. This is about Greece after all, the country they’re so proud of, and that needs them in this hour of duress. Knowing this, they’ll gladly stop cheating on their taxes from now on, at all levels, from the fruit seller on the street or the doctor that takes cash for her services or even the oligarch. Budget crisis solved! Greeks need to sell their homes in Berlin and London and elsewhere, and they need to liquidate their investments in other countries and repatriate this wealth and build homes and factories and shopping malls and internet companies in Greece. They need to spend some of this money in Greece on consumer goods. They need to splurge on Greek food and booze. They need to invest this money in companies that design and build cool motorcycles in Greece, install solar panels on every roof, invent the next iPhone or rather a still-to-be-envisioned gadget…. And they need to pay their workers properly. Economic crisis solved.

And they need to stand in line and jostle for position to buy 100-year Greek government bonds that the new government would be all too happy to issue once there are enough buyers lined up to bring yields down to 2%. And these Greek buyers should do so with a patriotic, proud smile; they’re investing in their beloved Greece for the long run. The proceeds from these massive bond sales should then be used to redeem all government debt that public institutions in other countries now hold, thus taking their taxpayers, including Americans, off the hook. The government then needs to pay its arrears to suppliers, healthcare providers, to every business it owes money, and it needs to pay its current bills with lightning speed. This would allow those businesses to pay their suppliers, and it would set in motion a tsunami of money getting handed from one business to the next. It would stop bankruptcies in their tracks.

Debt crisis solved!

It would be a proud moment in Greek history. The Greeks would know that they’d done it on their own! Greece would pull out of its funk in no time. And to heck with the Troika.

But if Greece still can’t pull out of its funk, or if some corrupt government or banking cabal or oligarchs siphoned the money back out of the country for their own purposes, or if it’s wasted on boondoggle projects in murky deals worked out between cronies, the government then needs to convert the euros remaining in Greece into drachmas over a holiday weekend and start printing more drachmas to fund its ways, like Japan prints yen. Debt crisis solved once again.

And if the Greek people see this as an unpalatable scheme and don’t fall for it?

Well, um, that begs the question: why should taxpayers in other countries then be stupid enough to fall for it? Something the new Syriza government should contemplate strenuously.

http://www.nakedcapitalism.com/2015/06/sec-hits-private-equity-kingpin-kkr-for-29-million-including-10-million-in-fines.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+NakedCapitalism+%28naked+capitalism%29

The SEC has taken action against a major private equity firm, KKR, slapping it with close to $30 million in charges, consisting of $10 million in penalties and nearly $19 million in disgorgement and interest. We’ve embedded the SEC order at the end of the post. The agency had described widespread lawbreaking in the industry over a year ago, in a surprisingly forceful speech by its now former head of examinations, Andrew Bowden. Critics had pointed to the disconnect between the fact that Bowden said that more than half the firms examined had engaged in what amounted to stealing or other serious compliance violations, yet the agency was entering into only penny ante settlements and orders against small players.

The settlement with KKR is not as much of a departure from this practice as it might appear. While it’s a step in the right direction to see the agency take on one most powerful firms in this industry, these fines are nuisance level to a player as large and profitable as KKR. The scam is straightforward: KKR incurred what are called “broken deal expenses” for transactions that were not completed. For the funds in question, totaled $338 million over from 2006 to 2011. KKR had so-called “flagship” funds, which were marquee funds, and co-investments in these funds, where preferred parties invested in particular companies in these funds without paying the same fees the limited partners pay. Co-investors are in a preferred position, effectively investing alongside the general partner. The co-investo here included KKR executives and consultants (almost certainly from its captive consulting firm, KKR Capstone).

The SEC found that KKR had been making the preferred status of the co-invesors and KKR itself too preferred, by virtue of allocating virtually all the broken deal fees to the chump limited partners when 20% should have been allotted to the co-invests. The amount of the misallocation was $17.4 million. Amusingly, the order describes how KKR tried to get out in front of the SEC by refunding investors $3.26 million in broken deal expenses for 2009 to 2011 while the SEC was examining KKR’s expense allocations. In other words, KKR looks to have been making remedies only as a result of the SEC showing up, and then presumably to forestall fines and other penalties. The basis for the fines and disgorgement was that KKR had breached its fiduciary duties and had failed to implement written policies on this matter until 2011, when it was obligated to do so when it became a registered investment adviser in 2008.

It’s hard to tell if the fines are adequate since we can’t tell how egregious the conduct was (the fact that KKR suddenly tried to shape up when the SEC started its exam suggests they were plenty aware). But more important, we have no idea if the SEC is being as serious about going after private equity misconduct as the Bowden speech last year says they ought to be or whether the agency will revert to its practice with CDOs, of hitting each major market participant with a case on one particular deal to get the headline value, when all of the big CDO sponsors pumped out lots of toxic product...

http://www.counterpunch.org/2015/06/29/putin-gobsmacks-uncle-sam-again/

Here’s the scoop: Two days before the swaggering Sec-Def touched down in Germany, Gazprom announced that it was putting the finishing touches on a massive deal that would double the amount of Russian gas flowing to Germany via a second Nord Stream pipeline. The shocking announcement made it look like the clueless Carter had no idea what was going on and that his efforts to isolate Russia were a complete flop. And, make no mistake; the deal is huge, big enough to change the geopolitical calculus of the entire region. Robert Morley explains what’s going on in a recent article at The Trumpet:



Yep, Ukraine is out and Germany’s in, which means that Washington’s plan to extend US hegemony by driving a wedge between Russia and Europe is down the plughole. Judo expert Putin has done it again; he waited until the eleventh hour to pull the rug out from under the blustery Carter, and now he’s sitting back enjoying the show. Is it any wonder why Carter’s been running around Europe with his hair on fire? Here’s more from the same article:



Talk about sour grapes! The author would like you believe that US motives in Europe are pure as the driven snow, but are they? Is Washington really afraid of Russian aggression or are they trying desperately to keep the unipolar model intact by separating Germany and Russia? Isn’t that what the sanctions are all about? STRATFOR CEO George Friedman summed up it up perfectly in a recent speech he gave at The Chicago Council on Foreign Affairs. He said:



Bingo. This is Washington’s strategy in a nutshell, preventing German industry from linking up with Russia’s vast natural resources. That’s the lethal combo that will lead to an integrated Eurasian free trade zone that will dwarf US GDP and put an end to the empire. So don’t believe the baloney about “Russian aggression”. What Washington really cares about is an economic rival that could leave it in the dust. And that’s exactly what’s going to happen when Germany becomes Moscow’s biggest gas station...

NOT TO MENTION RUSSIA WOULD THEN HAVE A GOOD CHOKE CHAIN LEASH ON THE GERMAN GOVERNMENT...MUCH BETTER THAN ANYTHING GOLDMAN SACHS HAS SET UP....

http://www.reuters.com/article/2015/06/29/us-eurozone-greece-fed-idUSKCN0P928F20150629?feedType=RSS&feedName=businessNews

THAT'S WHAT THEY'D LIKE YOU TO BELIEVE...OR MAYBE THEY ARE JUST TRYING TO FOOL THEMSELVES.

The fuse may be lit for a Greek exit from the euro zone but the fallout in the United States is expected to be modest and not enough to throw the Federal Reserve's likely September rate hike off course, said former Fed officials and outside analysts watching the latest turn in Greece's crisis.

Major U.S. stock indexes closed down about two percent on Monday following sharp declines in Europe and Asia, while yields on Treasury bonds fell as investors piled into U.S. debt, as is typical in times of overseas stress. But the gyrations in the markets were not dramatic enough to waylay the Fed, analysts said.

"They don't have to raise rates tomorrow morning," said Roberto Perli, a former Fed staffer and now head of global monetary policy research at consulting firm Cornerstone Macro. "We will see how the economy does, and if it does not look like this is going to be a big deal then it is squarely up to U.S. data."

Michael Cloherty, head of U.S. rates strategy at Royal Bank of Canada's RBC Capital Markets unit in New York, said events in Greece did not significantly change the outlook for the Fed.

"This isn’t a ‘watch Greece’ situation...While we have chaos in Greece, there are no signs of dramatic contagion yet, and that’s why it doesn’t change the Fed’s tone,” he said.

Talks between Athens and its creditors broke down over the weekend after Prime Minister Alexis Tsipras called a surprise referendum on the austerity cuts in an aid package proposed by Greece's creditors. The crisis in Greece has been such a long-running saga that the financial system has had time to buffer itself against the worst. When the possibility of a Greek exit from the euro zone first arose in 2010, it conjured the possibility of another global meltdown - with banks throughout Europe and the world on the hook through their holdings of hundreds of billions of dollars in potentially worthless Greek bonds. In the intervening years, much of that debt has been rolled into loans from the International Monetary Fund and other European nations, with much of the remainder already discounted heavily through a negotiated writedown with private creditors.

According to the latest figures from the Bank for International Settlements, U.S. banks have a modest $12 billion invested directly in Greece. Direct trade relations between the countries are also small, and years of recession in Greece have already taken their toll on any U.S. exporters dependent on the country...A White House spokesman on Monday said U.S. exposure to Greece was small and that the crisis did not pose a threat to the U.S. banking system. The Fed declined to comment on developments in Greece...

Perli and others said the Fed will closely watch changes in the value of the dollar, a running theme in Fed commentary for several months now. The run-up in the dollar over the last year nicked U.S. exports to an extent that surprised the Fed, and any new surge in the currency could mean another hit to exports and to jobs. The U.S. employment report for June will be issued Thursday, ahead of the long Fourth of July holiday weekend. As long as that and other upcoming reports show continued strong job creation, well above 200,000 per month, the Fed would likely proceed with an initial rate increase in September, analysts said. The confusion in Greece could, however, make the mechanics of any Fed rate increase trickier, if flows of capital into U.S. markets begin to spike or if an actual Greek exit pushes the euro zone economy back into recession.

The Fed may not delay its rate hike plans because of that, but it could make the management of markets more difficult, and cause longer-term bond yields to behave in unexpected ways - falling because of the inflow of capital, for example, at the time the Fed is trying to push them up. That just highlights the risks of one central bank diverging towards higher rates when the rest of the world is struggling, something the Fed will need to prepare for.

"Somebody up there has a kind of playbook of the two or three possibilities and the ramifications of them, so they can follow a decision tree," said former Richmond Fed president Alfred Broaddus. "They don't want to be caught off guard...They want to be ready for whatever flow effects to the U.S. economy might be."

IN OTHER WORDS, STILL TRYING TO CREATE OUR OWN REALITY...THE EMPEROR HAS NO CLOTHES!

http://www.marketwatch.com/story/us-investors-are-dumping-stocks-for-the-wrong-reason-2015-06-29?siteid=yhoof2

There are many legitimate reasons why the stock market is vulnerable to a serious decline. But the Greek debt crisis is not one of them. Because I’m a contrarian, I have to take issue with the market’s big drop Monday in the wake of this past weekend’s breakdown of Greek debt negotiations and the possible default of its government debt on Tuesday. After all, investors can hardly be surprised by Greece’s debt difficulties, which have dominated the news for over five years now. The prospect of the Greek government defaulting on its debt, along with the country possibly leaving the eurozone, have been among the most exhaustively discussed of any financial question in modern history. And even if the markets were dominated by Rip Van Winkles who have been asleep for the past five-plus years, it’s hard to see how Greece’s difficulties will actually derail the world’s stock markets.

According to the International Monetary Fund, Greece’s gross domestic product in 2014 amounted to only 0.26% of the total world GDP — one quarter of 1%, in other words. Countries whose GDP is larger than Greece’s include global economic “powerhouses” such as Bangladesh, Kazakhstan and Iraq. You read that right: Even war-torn Iraq, in the middle of a civil war, has a larger GDP than Greece.

Still not convinced? Consider the stock market’s reaction to the four sovereign debt crises prior to Greece: Mexico’s in 1994, the Asian “contagion” in 1997, Russia’s in 1998 and Argentina’s in 2001. Each of those crises was at least as important to the world markets as Greece’s is today. Yet notice from the accompanying chart how the stock market, on average, performed in the wake of those crises, along with its performance since the Greek debt crisis first erupted five-plus years ago.

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None of this is to discount the real hardships that Greek citizens are suffering. But it’s also important to put this crisis in perspective. And it’s perspective that investors are sorely lacking. In the U.S., for example, we have a stock market that, depending on the metric, is either significantly or extremely overvalued, coupled with an already anemic earnings growth rate that is dangerously dependent on an unsustainably high corporate profit margin. And the market’s internals have been weakening for some time now, such as the remarkable divergence between the Dow Industrials and the Dow Jones Transportation Average. And, yet, investors have been ignoring that toxic situation for months now. Why all of a sudden become freaked out by what is a far smaller issue and which, in any case, has been on everyone’s radar screen for years?

A correct assessment is crucial for determining when the risk-to-reward situation for equities once again becomes favorable. If you were to think that the market’s big drop was because of Greece, you would be eager to jump back in at the first sign of some compromise or short-term bailout deal between Greece and the rest of the eurozone. But if equities face more serious and intractable problems, it would take a lot more time for the market to be healed.


THERE'S ALSO THE FACT THAT GREECE IS THE STRING ON A KNITTED SWEATER...PULL ON IT (GREECE) AND THE ENTIRE EUROZONE AND PROBABLY NATO UNRAVEL...

US MARKET WOES ON THE OTHER HAND, WOULD THEY BRING DOWN THE REST OF THE WORLD? OR JUST THE REST OF THE GLOBAL ELITE? (EXCLUDING RUSSIANS, ASIANS, AFRICA AND INDIA, OF COURSE).