World View: Stocks Plunge in Greece as its Financial Crisis is Renewed

This morning’s key headlines from GenerationalDynamics.com

• Wild stock market swings could signal coming Wall St plunge
• Stocks plunge in Greece as its financial crisis is renewed
• The price of oil plummets along with stocks

Wild stock market swings could signal coming Wall St plunge

A trader watches the screen at his terminal on the floor of the NY Stock Exchange on Wednesday (Reuters)

The Dow Jones Industrial Average briefly fell over 450 pointson Wednesday, before cutting losses and ending the day “only”173 points down. Traders were influenced by a welter ofbad data — a retail sales index and a manufacturing indexfalling significantly more than economists had predicted.

European stocks fell to a ten-month low, with index values falling2-3% across the board. For the past few months, Europe has beenincreasingly in a deflationary spiral, with the inflation rate nowbelow 0.1%.

Traders are also concerned that the Ebola crisis will harmthe global economy.

Possibly more significant are the wild swings that have characterizedthe stock market during the last couple of weeks. Economist RobertShiller, appearing on CNBC last week on Friday, said that he wasconcerned about the wild swings, and that they happened in 2008, 2007,and 1929, just prior to the crash. So if, for example, stocksgain 500 points tomorrow, then it would be cheered as good news,but in fact it would just be a large swing upwards. The nextone might be a downward swing of 1000 points.

At the very least, the wild swings signal a time of danger.Generational Dynamics predicts that we’re headed for a globalfinancial panic and selloff. The S&P 500 Price/Earnings index isaround 19, much higher than the historical average of 14, indicating ahuge stock market bubble. A crash has to happen sooner or later, andit’s possible that these wild swings are signaling that this is thetime. Reuters and Bloomberg and Telegraph (London)

Stocks plunge in Greece as its financial crisis is renewed

Greece’s Prime Minister Antonis Samaras sought to restore public calmon Wednesday, as stocks on the Athens Stock Exchange plunged 6.25%.Socks have fallen 23.24% since January.

Even more significant, the yields (interest rates) on Greece’sten-year bonds spiked sharply upward to 7.73%. This means thatif Greece wants to borrow money on the open market, Greecewill have to pay 7.73% interest, which is not affordable.

Long-time readers will recall the drama of the various Europeanbailout events of Greece in the 2010-2012 time frame. See, forexample, “28-Nov-12 World View — Europe’s new charade in Greece’s bailout announcement”, inwhich Greece was given a new 44 billion euro bailout loan, and Samarassaid:

“A very grey, a very dark period for Greece officiallyended yesterday and it has ended for good. We Greeks were made fortough times, and when the going gets tough, it brings out the bestin us.”

Promises like this were never going to be kept, as I said repeatedly,and as pretty much everyone basically knew. Underneath the “toughtimes” rhetoric was a Pollyannaish assumption that Europe and theworld would return to the “growth” of the mid-2000s decade credit andreal estate bubbles, when anyone could borrow money to do anything.That was never going to happen again, but it was this fantasticalassumption that led to the rosy predictions that Greece’s dark dayswere over.

It was always just a matter of time before Greece’s bailout wouldfail, and it appears that the time is now. Greece is facing both aneconomic crisis and a political crisis. The radical left-wingpolitical party Syriza is becoming increasingly popular in the polls,with the result that the government may collapse in the next fewmonths, forcing new elections, bringing far-left communist politicsback to the European political stage.

Syriza wants to renege on the bailout money that Greece owes toEurope. This would push Greece’s government into bankruptcy, and pushbond yields up well into double or even triple digits, making italmost impossible for Greece to borrow money. Kathimerini (Athens) and AP and Business Insider

The price of oil plummets along with stocks

The price of a barrel of West Texas Intermediate (WTI) oilfell 5% on Wednesday to $81.84, well below the $100-120 rangeof the past few years. Two reasons are being given for thestartling collapse in oil prices.

First, the supply of oil is surging. In the U.S., shaleoil production (“fracking”) has been growing rapidly. Non-OPECcountries have been exporting more oil. Canada has replacedSaudi Arabia as the largest source of imported oil.

Second, the demand for oil is falling. Sluggish economies around theworld mean less oil is need, and even China’s demand is softening.

Generational Dynamics predicts a global deflationary spiral, and thefalling price of oil is part of that. Countries like Russia, Iran andSaudi Arabia, which depend on income from oil sales, will be sufferingeconomic woes that will translate into a general global slowdown.CNBC and Fortune and Forbes

KEYS: Generational Dynamics, Dow Jones Industrial Average,Ebola, Robert Shiller, S&P 500 Price/Earnings ratio,Greece, Antonis Samaras, Syriza, West Texas Intermediate,Canada, Russia, Saudi Arabia, Iran
Permanent web link to this article
Receive daily World View columns by e-mail