The Greece Debt Crisis: Back in Four Short Months

Greek Debt CrisisThis past Friday, we got news of Greece’s debt extension. The headline at the Financial Post said it all: “Greece and its EU paymasters reach accord to keep bailout funds flowing for four months.” (Source: Financial Post, February 20, 2014.)

With the news, the Dow Jones Industrial Average, which spent most of the day flat, jumped 157 points to a new record closing of 18,140. Yes, the Dow Jones is now trading at a price/earnings multiple of 17, while the S&P 500 trades at more than 20 times earnings.

Greek Debt Crisis Far from Over

To understand the ludicrousness of this, we don’t need to look too far. All Greece got was a four-month extension…it got a four-month extension on paying back money it can never repay.

A government that was elected with the promise to stop austerity and to renege on the 240-billion-euro bailout package it got from the 19-member eurozone just puts the inevitable off for another four months and the stock market rallies?

And what happens in four months?

One of two things happens: the new Greek government bails on its promise about stopping austerity (it won’t be the first political party in history to lie to its citizens in its effort to seize power); or Greece tells the eurozone it can’t pay back the loan package and it won’t go along with Germany’s austerity push (also highly likely).

So for now the drama is put off for four months. But one thing is for certain: in four months, this will be front-page news again for the simple fact that if any country leaves the euro, it is game over for the currency and for the region.

What Will Happen If Euro Fails

And that means the overvalued U.S. dollar will push higher in price, because it will be cemented as the supreme currency; half the S&P 500 countries that get revenue outside the U.S. will suffer; and gold will boom. There are plenty of interests that do not want these three events to happen.

Greece is a member of the very weak euro currency. Greece will run out of money to pay its bills unless it taps loans and bailouts from other countries in the eurozone. Greece can never repay the money it has borrowed from other eurozone countries. But the stock market rallies because Greece has just thrown its can down the street for another four months?

We have the stock market rallying on an “I can’t repay my debt” extension. This doesn’t make sense. And when stock prices rally when things don’t make sense, you know we are at a market top.