The staying power of the Greek tragedy that has been unfolding in Greece is amazing. While this may have pleased Homer, it may also be what causes the start of the great crash of 2015.
The ongoing drama in Greece, which has captivated the world stock markets, is looking like it could worsen even more. Under recently elected Prime Minister Alexis Tsipras, the country has toyed with its lenders and failed to achieve a debt resolution prior to its June 30th payment. The deadline has passed and now the country will stage a surprise national referendum on July 5 to allow its citizens to vote on whether to accept the austerity terms of its lenders.
The fact that Greece couldn’t even come up with the roughly $1.8 billion to make its June payment is astounding. The country had to borrow funds from its International Monetary Fund (IMF) emergency funds for its obligations in May. The continuing saga has probably caused stock market losses of hundreds of billions of dollars around the world. Investors could have chipped in to pay the Greek payment in June to allow the country more time to beg for money.
Why Greece May Drive the Great Crash of 2015
The Greek payment due is less than what is lost in a session sell-off on the NYSE. The situation is unbelievable and could drive a financial crisis in the eurozone and the rest of Europe.
The government has shut the doors to Greek banks for the time being, as there are simply not enough funds in the vaults and the IMF has stopped sending funds to prop up the banks. The ATMs are opened, but limited to daily maximum withdrawals of about 60 euros (just over USD$65.00).
The heavily traded National Bank of Greece S.A. (NYSE/NBG) sold off 30% on Monday. Moreover, the main Athens stock exchange in Greece will be closed for the week.
Failure to achieve a deal could inevitably see a credit and stock market crash in the country. This could very likely spread throughout Europe and across the global economy.
Greek Referendum Outcome?
The question is: will the government listen to the outcome of the referendum? The majority of Greeks could vote “no,” as they don’t want the continued hardships. Of course, this would lead to the withdrawal of Greece from the eurozone. The country would then likely go and find its old “Drachma” money plates and print money. Greece would also have to raise capital through extremely high-risk debt, which would make junk bonds seem quite safe.
Now, if the referendum results in the “yes” side winning and the government adheres to this, then we could see some stability return for now. I bet we will see an encore presentation of this Greek tragedy again in a few years.
Unless this is a bargaining ploy by Greece, we could be set for the country to exit the eurozone. This would cause a negative ripple effect in Europe and the stock markets around the world.
As a hedge against the Greek eurozone crisis, I would be looking to add some gold, such as the SPDR Gold Trust (NYSEArca/GLD). Don’t forget about the bubble brewing in China, where the Shanghai Composite Index has corrected 22% from its peak, officially putting it in a bear market.
Other than gold, the use of put options always makes sense as a hedge against downside risk.