Great question... I'm not an economist of any sort, but my gut reaction is that it would be bullish for stocks worldwide. My .02 on this.. I agree that a Grexit is the best decision for the Greeks, especially if they default on their debt at the same time (which they obviously would)..
It seemed to work for Iceland, which refused to bail out it's bloated banking system and that economy appears to be stabilizing.
But Greece is just the land of corruption.. On their own they are going to have serious long-term difficulties until they change their ways..
The primary worry about Greece are the longer-term impacts. IF there's a Grexit, how long will it be until Spain, Italy and other countries find themselves under pressure to do the same thing?
And if Greece defaults, the ECB has Greek debt that cannot be "hair-cut", which means, if I've read correctly, all the other EU gov'ts are on the hook to pay it back to the ECB..
There is so much leverage in the European (and US) financial systems right now, I can only imagine if this domino effect gets underway..
Btw, let me throw this at you and see what you think.. Since interest rates in most developed countries are at NIRP, and ZIRP, holding debt is basically the same as holding cash, right?
But if interest rates go up, then bonds will decline in value, while deposited cash will receive a higher interest yield rate. It also puts a brake on economic activity, although the rate hike may be due to defending confidence in the currency, or Central Bank policies towards rate normalization (whatever that means now)..
So.. with ZIRP, are we not already (technically speaking) at the point of seeing the bottom of currencies? They can either take rates higher, meaning the currency strengthens (eventually), or they can go further into NIRP and chase that money out of the banks and into some other asset.
The Fed may now think they need to keep rates low, but if we see more bond routs/flash crashes, they may have to raise rates to follow the market. And if rates go up, currencies will eventually follow.
Hawk |
