Historical Lessons on the Greek Crisis

Lior Alkalay - INO.com Contributor - Forex

For many investors, this will feel too much like déjà vu by a half; the Greek woes are here yet again. And again, the Greek government is attempting to negotiate a new bailout deal with the Troika, even as European leaders debate whether or not to accede to that request. And, yet again, the question of a possible collapse of the European Currency Union emerges. However, unlike the last time, markets are reacting relatively calmly to the news of the breakdown of the current Greek bailout agreement. In part, that can be attributed to the lingering impact of the ECB’s Quantitative Easing program which was recently announced but it is also in part due to the broad belief that Greece would not likely exit the Eurozone. It seems investors’ two burning questions, i.e. will Greece leave the Eurozone and if it does, can the Eurozone survive, may be hard to disassemble. Nonetheless, it is a fact that, quite often, events in history can teach us as much about the past as about the future and it is those lessons which can help us disassemble those important questions.

Not the First Time for Greece

While the notion of Greece being the E.U.’s Achilles heel might sound like a story of only a few years past, the truth is it goes much farther back. This is the not the first time in relatively modern history that Greece has played a “spoiler” role, and since the Latin Monetary Union no longer exists, it’s not difficult to guess how the first saga ended. In 1865, the Latin Monetary Union became a framework of agreed currency exchanges set by its member states, e.g. Switzerland, Italy, France and Belgium; Greece and Spain joined a few years later. The monetary exchange system, which relied on the value of Gold, basically counted on each country to produce a coin at a specific gold weight that would be matched by all members, thus insuring a de facto single or one monetary currency. Continue reading "Historical Lessons on the Greek Crisis"

Get me to the Greek

George Yacik - INO.com Contributor - Fed & Interest Rates

OK, so it’s not the most original headline. But it reveals the thinking of some savvy investors, and I think they have a good point.

Baron Rothschild, the 18th century British nobleman and member of the Rothschild banking family, is credited with saying, “The time to buy is when there’s blood in the streets.”

I haven’t heard that there is actual blood running in the streets of Athens or other Greek cities, but it’s pretty close, financially speaking, which means it may be time to be buying Greek bonds.

We all know by now that after taking the most seats in the January 25 parliamentary election, the left-wing Syriza party formed a coalition government with the small right-wing Greek Independence Party. The one thing the two have in common is opposition to anti-austerity measures imposed on Greece by the European Central Bank and European Union as conditions for earlier financial bailouts and more in the future. There is also the fear that the Syriza-led government wants to secede from the EU, although that seems unlikely to happen.

Not surprisingly, investors have fled from Greek assets in droves and pulled their money out of Greek banks.
The Athens Stock Exchange General Index, or ASE, has tanked more than 40% since last March, nearly 13% since the election. Government bond prices have likewise plummeted, sending yields soaring. The yield on the 10-year bond jumped more than 200 basis points after the Syriza win and now yields more than 11% as of Friday. Continue reading "Get me to the Greek"