Greek Update

Monday 06/29/15

The events over the weekend led me to postpone the post on student loans until next week. Over the weekend, Greece imposed capital controls and declared a bank holiday. The situation escalated quickly and unexpectedly as it now appears that Greece will not be able to make its IMF payment at the end of the month. A Greek exit from the Eurozone is also a real possibility now. If the Greek situation weren’t enough on its own, Puerto Rico also stated that its debts were unpayable. This situation is still evolving rapidly so I will just provide a quick overview of some of the highlights. In case you missed it, you may also want to read the post on Greece from the beginning of the month.
The next big event will be the Greek referendum on July 6th. The Prime Minister of Greece, Alexis Tsipras, had decided to allow the Greek parliament to vote on the current proposal. However, the ECB was not happy about this and pulled funding which led to the current crisis. Without an extension Greece will not be able to pay the IMF on June 30th.
Greek banks are closed Monday and will remain closed at least through July 6th. ATM withdrawals are capped at €60 per day for Greek citizens. Supposedly tourists will be allowed to withdraw more, but I wouldn’t count on that if you’re planning to travel there. Greek wages and pensions will also continue to be paid, but it is unclear how long that can last. Money had been flowing out of Greek Banks at a much faster pace in the last few months, but after seeing what happened in Cyprus I would not be too keen on keeping any money in a Greek bank either.
The euro dropped sharply on the Greek news, but thanks to the Swiss National Bank it has almost recovered all of its losses. When the euro dropped the Swiss franc also surged which prompted the Swiss National Bank to buy euros on the open market to help weaken its currency. Figure 1 shows the Swiss franc relative to the dollar. In the long run, if Greece leaves the euro it should strengthen the currency, but in the near term the euro will likely be weak as speculators bet on further easing and a general climate of uncertainty fills the air.
Tensions have been running high and the market will likely be chaotic today as various EU politicians give speeches and European headlines cross the wires. Figure 2 shows a tweet from Tsipras that highlights the current mood in Greece.
In addition to Greek headlines, Puerto Rican bonds are also falling after the Governor said they cannot pay their debts. This is not a major problem in the same way that Greece is, but it could cause headaches for those with money in municipal bond funds (I will have a more detailed post on this in the future).
Last night Chinese stocks entered a bear market (down 20% from highs) after further intervention failed to halt the equity selloff. At the beginning of the year I made a guess that Chinese stocks would form a huge bubble and then selloff all within 2015, it appears that prediction was correct.
Overall this was a weekend filled with bad news, but if you live in the United States there is nothing to really panic about. It will most likely be a risk-off environment this week, but with stocks at all-time highs, a small correction would not be the end of the world.
Index Closing Price Last Week YTD
SPY (S&P 500 ETF) 209.82 -0.98% 0.9%
IWM (Russell 2000 ETF) 127.5 -0.72% 4.22%
QQQ (Nasdaq 100 ETF) 109.27 -1.29% 3.82%

Figure 1: EUR/CHF

Eurchf

This chart shows the Swiss franc relative to the euro.

Alexis Tsipras

Tsiparas

This tweet shows the current mood in Athens..Defiant.