Tuesday, 8 May 2012

Why the Greek election is good for PHL

Business Mirror
AMERICAN songwriter and performer Kris Kristofferson wrote a song in 1969, “Me and Bobby McGee.” Part of the lyrics were:  “Freedom’s just another word for nothing left to lose, Nothing ain’t worth nothing but it’s free.”
Global bankers and the European Central Bank (ECB) discovered over the weekend that the most dangerous people in the world are those who have nothing left to lose and are free to vote.

National elections took place in Greece and France. Why should we in the Philippines even care? Over the weekend and into Monday, we were more engaged with the results of the Mayweather-Cotto fight, awaiting a decision in Tulfo versus the “Santiago Tag Team” match, and preparing for another round of the People versus Corona versus Malacañang rumble.

In Europe it was the sovereign people versus the banks. The people won and the outcome of that contest is going to directly impact the Philippines.

France turned out its incumbent and somewhat conservative President Sarkozy in favor of socialist candidate Hollande.

France has been in a bind. It needs to reduce its budget deficit and put in place some “austerity” measures. It is really not austerity but some minor changes to their government giveaway programs—like raising the retirement age by a couple years. The other side of the rock and a hard place is that Germany expects France to go along with using French money to bail out the banks that loaned money to loser nations like Greece and Spain.

Hollande’s election slaps Germany in the face because he has said that he has no intention of honoring Sarkozy’s agreements with Germany on bailouts.

Greece is truly the country with nothing left to lose. Furious Greeks punished the two parties that have dominated politics for decades. No party has a majority of seats and the two-party coalition that brokered the bailouts was brutally hammered in the election. Further, two “extreme” parties, the ultra-nationalist New Dawn party and the ultra-leftist Syriza gained a combined total of nearly 25 percent of the vote.

The Greek government is broke. The Greek people are broke. Unemployment is well over 20 percent. The ECB Bank wants to loan Greece more money that they can’t ever pay back in order to protect the mainly French, German and American banks that loaned money to the Greece in the first place.

The ECB position on Greece is: “Your government borrowed a lot of money from the banks. The government wasted it. But you have to pay it back, otherwise those banks are going to be hurt badly. Instead, you people must now be hurt badly. Tough luck.”

The answer the Greek people gave to the ECB by its election is, “No way.”

On this news, stock markets across Asia fell. Crude oil dropped below $100 per barrel. The Euro currency depreciated against the dollar.

The potential fallout from these two elections has great implications.

The ECB has not pursued the same policies as the US Federal Reserve in loaning large amounts of money at virtually zero interest rates directly to the banks. Instead, the ECB has been increasing its lending and guaranteeing new loans to countries like Greece. These countries, in turn, have been using the bailout money to pay on their loans.

However, if Greece and perhaps Spain next, refuse to take the loans, then the ECB must do what the US Fed has done, bail out the banks directly.

Now we will have both the US dollar and the euro as being inflated currencies and an extended period of near-zero interest rates.

The problem is that the ECB has said again and again that they will not do this and the major stock markets responded negatively yesterday in fear of a banking collapse. The drop in the markets is in support of current ECB policy. But everyone knows that the ECB policy will not save the banks if Greece refuses the loans. The ECB, too, will turn to Fed Reserve-style money printing and the lowest possible interest rates.

You think all this recent positive publicity about the Philippines and others is mere coincidence? Not a chance.

The global financial press and media are controlled by large financial institutions. Anticipating the French and Greece election outcomes, they must find alternative countries to place clients’ funds. No one wants to invest in the European stock markets with the high uncertainty. No one wants to buy Spanish government debt at 6-percent interest.

Therefore, all this recent buildup of these alternative investment destinations like the Philippines is to condition their clients that these institutions have everything under control.

Foreign money will be pouring even faster into the Philippines in the weeks and months to come. Mark my words.

E-mail to mangun@gmail.com, Website is www.mangunonmarkets.com, and Twitter @mangunonmarkets. PSE stock market information and technical analysis tools provided by COL Financial Group, Inc.

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