Bad Signs for Greece

The latest days’ news wire has been full of bad signs for Greece. While you have to infer a bit and see implications to developments in order to say so, it’s not too far a reach to see what could be stewing for Greece this winter is not a warming trend.

Our founder earned clients a 23% average annual return over five years as a stock analyst on Wall Street. "The Greek" has written for institutional newsletters, Businessweek, Real Money, Seeking Alpha and others, while also appearing across TV and radio. While writing for Wall Street Greek, Mr. Kaminis presciently warned of the financial crisis.

Relative tickers: NYSE: NBG, NYSE: OTE, NYSE: CCH, NYSE: TK, NYSE: NM, NYSE: NNA, NYSE: NMM, NYSE: TNP, NYSE: OSG, NYSE: ISH, NYSE: EXM, NYSE: SB, NYSE: SEA, NYSE: GNK, NYSE: DSX, NYSE: DAC, NYSE: TNP, NYSE: SFL, NYSE: NAT, NYSE: SSW, NYSE: GMR, NYSE: DHT, NYSE: MPX, Nasdaq: DRYS, Nasdaq: TOPS, Nasdaq: EGLE, Nasdaq: SINO, Nasdaq: PRGN, NYSE: KSP, Nasdaq: ESEA, Nasdaq: SBLK, Nasdaq: ONAV, Nasdaq: VLCCF, Nasdaq: TBSI, Nasdaq: GLNG, Nasdaq: XSEAX, Nasdaq: ACLI, NYSE: DB, Nasdaq: ITUB, NYSE: STD, NYSE: WBK, NYSE: UBS, NYSE: LYG, NYSE: BCS, NYSE: CS, NYSE: AIB, NYSE: BLX, NYSE: BAC, NYSE: C, NYSE: GS, NYSE: JPM, NYSE: MS, NYSE: EEA, Nasdaq: VEURX, NYSE: PEF, NYSE: EKH, NYSE: GUR, NYSE: EPV, NYSE: VEA, NYSE: DFE, NYSE: DEB, NYSE: IEV, NYSE: RNE, Nasdaq: SERAX, Nasdaq: SERBX, Nasdaq: FEUFX, Nasdaq: FIEUX, Nasdaq: IERAX, Nasdaq: PBEUX, Nasdaq: UEPIX, Nasdaq: PEUGX, Nasdaq: RYAEX

Greece May Yet Default

The latest omen came last week, when negotiations broke off between the Greek government and private bondholders. The effort is geared to liquidate about half of Greece’s private debt or 100 billion euros worth at the cost of the bondholders. It’s a lesser evil choice for the bondholders, which is only acceptable because it may help preserve the remaining portion of their investment in or loans to Greece.

This very important effort for Greece’s recovery is now also a critical step for its short-term survival. This is because it must be accomplished in order for Greece to qualify for its next tranche of aid funding from the international community. Representatives of the bondholders stated that they were stepping away in order to “pause for reflection.” The quandary is created because of math and capital markets, as the Greeks are really seeking more than the 50% cut discussed, because the effective market value of the bonds will likely drop immediately when the bond swap takes place. That said, if Greece recovers, the contract value should be approximated by market interest.

Clearly, if Greece defaults, bondholders will be left with empty hands, so Greece does have some negotiating power. However, the bondholders also know that Greece wants to avoid default and that they are needed for that process. It seems to me that whatever will satisfy the IMF is what should be adopted at this point.

Compounding the problem, Greece just reported that its budget deficit expanded in 2011 by 0.8%, to 21.64 billion euros. It was a bit better than the government’s revised forecast, but its details reflect fundamental obstacles to Greece’s economic and fiscal recovery. Despite all the government’s new taxes to lift revenues, and its expense reduction efforts, the budget still widened. That was because personal income tax collection actually softened and its ordinary budget revenue generation fell by 1.7%. Meanwhile, despite its cost cutting efforts, spending rose by 2.8% on the significantly increased debt service costs that plague the embattled nation. There should be no surprise here for readers of my column, as I’ve argued readily against the logic of harsh short-sighted austerity.

The budget deficit is supposed to have shrunk to a smaller portion of Greece’s gross domestic product. How you get there with GDP declining and the deficit rising defies my understanding. Maybe it’s European math. In any event, there’s very little here to reassure the troika nor the capital markets that Greece is making progress, and so the pressure remains.

It seems to me, given Standard & Poor’s sovereign debt slashing of much of the euro zone Friday, that it is hedging if not forecasting Greek default or some sort of unsavory result. Nine countries were downgraded in total, with the most damage done to France and Austria, which lost their top grades. Germany was spared, with its constitutional construct cited as a safety against its government’s potential for making poor decisions.

This coming week, the IMF resumes debt talks with Greece, sending a “mission team” to Athens as part of the review process. All the above discussed matters will be reviewed. Perhaps the presence of the IMF and renewed understanding of the criticality of “private sector involvement” will bring a conciliatory and cooperative tone and progress for Greece. However, the signs are bad.

Editor's Note: This article should interest investors in National Bank of Greece (NYSE: NBG), Hellenic Telecommunications (NYSE: OTE), Coca-Cola HBC (NYSE: CCH), Teekay Corp. (NYSE: TK), Navios Maritime Holdings (NYSE: NM), Navios Maritime Acquisition (NYSE: NNA), Navios Maritime Partners L.P. (NYSE: NMM), Tsakos Energy Navigation Ltd. (NYSE: TNP), Overseas Shipholding Group (NYSE: OSG), International Shipholding (NYSE: ISH), Excel Maritime Carriers (NYSE: EXM), Safe Bulkers (NYSE: SB), Claymore/Delta Global Shipping ETF (NYSE: SEA), Genco Shipping & Trading (NYSE: GNK), Diana Shipping (NYSE: DSX), Danaos (NYSE: DAC), Tsakos Energy Navigation (NYSE: TNP), Ship Finance Int'l (NYSE: SFL), Nordic American Tanker (NYSE: NAT), Seaspan (NYSE: SSW), General Maritime (NYSE: GMR), DHT Maritime (NYSE: DHT), Brunswick (NYSE: BC), Marine Products Corp. (NYSE: MPX), DryShips (Nasdaq: DRYS), Top Ships (Nasdaq: TOPS), Eagle Bulk Shipping (Nasdaq: EGLE), Sino-Global Shipping (Nasdaq: SINO), Paragon Shipping (Nasdaq: PRGN), K-SEA Transportation Partners (NYSE: KSP), Euroseas (Nasdaq: ESEA), Star Bulk Carriers (Nasdaq: SBLK), Omega Navigation (Nasdaq: ONAV), Knightsbridge Tankers Ltd. (Nasdaq: VLCCF), TBS Int'l (Nasdaq: TBSI), Golar LNG (Nasdaq: GLNG), Claymore/Delta Global Shipping (Nasdaq: XSEAX), American Commercial Lines (Nasdaq: ACLI), Deutsche Bank (NYSE: DB), ITA (Nasdaq: ITUB), Banco Santander (NYSE: STD), Westpac Banking (NYSE: WBK), UBS (NYSE: UBS), Lloyd’s Banking Group (NYSE: LYG), Barclay’s (NYSE: BCS), Credit Suisse (NYSE: CS), Allied Irish Banks (NYSE: AIB), Banco Latinamerican (NYSE: BLX), Bank of America (NYSE: BAC), Citigroup (NYSE: C), Goldman Sachs (NYSE: GS), JP Morgan (NYSE: JPM), Morgan Stanley (NYSE: MS), European Equity Fund (NYSE: EEA), Vanguard European Stock Index (Nasdaq: VEURX), Powershares FTSE RAFI Europe (NYSE: PEF), Europe 2001 (NYSE: EKH), S&P Emerging Europe (NYSE: GUR), Ultrashort MSCI Europe (NYSE: EPV), Vanguard Europe Pacific (NYSE: VEA), Wisdomtree Europe SmallCap (NYSE: DFE), Wisdom Tree Europe Total Div (NYSE: DEB), iShares S&P Europe 350 (NYSE: IEV), Morgan Stanley Eastern Europe (NYSE: RNE), DWS Europe Equity A (Nasdaq: SERAX), DWS Europe Equity B (Nasdaq: SERBX), Fidelity Europe (Nasdaq: FEUFX), Fidelity Europe (Nasdaq: FIEUX), ICON Europe A (Nasdaq: IERAX), Pioneer Europe Fund (Nasdaq: PBEUX), ProFunds Europe 30 (Nasdaq: UEPIX), Putnam Europe A (Nasdaq: PEUGX), Rydex Europe 1.25x (Nasdaq: RYAEX).

Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.

Stock Apocalypse Now - Updated Technical View

Since our 2012 technical forecast was issued earlier this year, S&P prices have closed right at key resistance of 1292. Apart from the further maturation of the current rally, not much else has changed.

Figure 1 below divides intermediate Elliot Waves into sub-waves in order to illustrate further the maturity of the current rally:

• Intermediate Wave 1 down, shown with black dotted line, consisted of five sub-waves (i) through (v), each of which is depicted with a red dotted line


• Note that sub-wave (iii) down was the largest in magnitude


• Countertrend rallies consist of three-wave movements, in this case shown
  as A through C, and depicted with blue dotted lines


• Sub-wave C can be further subdivided into 5 smaller waves (not shown)

It would appear that the S&P is completing the fifth of five sub-waves within wave C of intermediate Wave 2. Note that daily stochastics are overbought at 94% and that S&P prices closed right at key resistance of 1292.

Once this move is complete, Intermediate Wave 3 down should begin. According to Elliot Wave theory, the magnitude of this wave will exceed that of Wave 1 down, which featured a 300 point drop.

I believe investors should consider taking trading profits from this recent rally to avoid the coming “stock-apocalypse.”

This article should interest investors in SPDR Dow Jones Industrial Average (NYSE: DIA), SPDR S&P 500 (NYSE: SPY), PowerShares QQQ Trust (Nasdaq: QQQ), PowerShares Short Dow 30 (NYSE: DOG), ProShares Ultra Short QQQ (NYSE: QLD), ProShares UltraShort S&P 500 (NYSE: SDS), iShares Russell 2000 (NYSE: IWM).

Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.

Mortgage Activity No Reason to Rally

Seasonal influences are still at play in the weekly mortgage application data produced by the Mortgage Bankers Association (MBA), but soon, we should see real improvement. That said, the latest reported increase is no reason to get giddy about a real estate recovery.

Our founder earned clients a 23% average annual return over five years as a stock analyst on Wall Street. "The Greek" has written for institutional newsletters, Businessweek, Real Money, Seeking Alpha and others, while also appearing across TV and radio. While writing for Wall Street Greek, Mr. Kaminis presciently warned of the financial crisis.

No Reason to Rally

Over the course of the last several weeks, we’ve continuously pointed out the seasonal noise we see in the data produced within many economic metrics. One of the data points we’ve keyed on has been the MBA’s Weekly Applications Survey. Activity dropped off significantly in the weeks of December, as Americans were too busy shopping, preparing their homes, visiting with friends, baking and cooking to spend time applying for a mortgage. Even despite the lowest mortgage rates of the year, they kept from refinancing, and certainly there were some refinancing opportunities created by those historical troughs.

However, now that we’re fully immersed in 2012, the data should begin to reflect economic value adding opportunities like those offered in the mortgage market. The latest period, reported today, still included the New Year’s Day holiday, and so is not clean of noise. For the week ended January 6, though, the MBA’s Market Composite Index (of mortgage activity) picked up 4.5% on a seasonally adjusted basis.

Besides discussing the seasonal influences on data in recent weeks, we’ve also discussed the imperfect work of seasonal adjustment, especially in dynamic periods like the current times. You can see just how hard it must be to make this adjustment based on historical data by simply looking at the unadjusted change, which this week marked a 34.4% increase against the week just prior.

We’ve noted that three-day holidays likely give adjusters a problem because they fail to fully account for the soft business activity that occurs the day before the weekend begins and the day after the holiday. There is certainly a slacking of business activity during those crossover periods as people prepare for the holiday and also return from a tiring or relaxing weekend and reenter into “work mode.”

Alas, all that noise will be going away over the weeks ahead, and the market should begin to take advantage of low mortgage rates, though depending upon weather now. Many strategists, economists and housing specialists are pointing to a true spring selling season this year, given supply rundown and employment improvement (so called). I’m a skeptic with regard to labor, again due to seasonal ringers in the data and other issues described in my labor market work.

Rounding out the most recent week’s data for financial sector and housing enthusiasts, the seasonally adjusted Purchase Index increased 8.1%. Remember, the Purchase Index measures activity tied to the purchase of a home. Homebuilder investors will likely add this news to their lists of reasons to rally the industry’s shares, but it’s not a solid data point to build on in that regard. Filling in the rest of the data, the unadjusted Purchase Index increased 41.9%. The MBA’s Refinance Index increased 3.3% from the week before.

Take note now, dear smoke and mirror crew, because what is useful here is the year-to-year comparisons. In that regard, the Purchase Index was severely lower against the prior year period, down 17.9%. That doesn’t sound like a reason to buy homebuilders to me, but you won’t find that information in the current frenzied flurry of news on the industry, except from me. I’ll have more to say on the homebuilders specifically in the near future, so stay tuned.

Homebuilders are up again today despite insight like this, with the SPDR S&P Homebuilders (NYSE: XHB) up 1.4% in late afternoon trading Wednesday. The shares of K.B. Home (NYSE: KBH) and Hovnanian (NYSE: HOV) are up near 13% on the day, with shares of Lennar (NYSE: LEN) up 6.1% partly on its own news. Financials are not missing a beat either, with big home financer Bank of America (NYSE: BAC) up 3.3% and the Financial Select Sector SPDR (NYSE: XLF) up 0.8%.

Be warned though, because the latest days' rise has been driven more by greed than by reason, in my view. Don't label me as a perennial pessimist though, because I suggested investors get into homebuilders last year. I see the latest move as indicative of subtle signs for housing, ample hope for investor profit and complete ignorance of the importance of Europe to the U.S. economy and the growth of emerging markets.

Editor's Note: Article should interest investors in Bank of America (NYSE: BAC), Freddie Mac (OTC: FMCC.OB), Fannie Mae (OTC: FNMA.OB), Goldman Sachs (NYSE: GS), Morgan Stanley (NYSE: MS), Wells Fargo (NYSE: WFC), Toronto Dominion (NYSE: TD), BB&T (NYSE: BBT), CIT (NYSE: CIT), Bank United (NYSE: BKU), First Citizens (OTC: FCNCA.PK), Synovus (NYSE: SNV), United Bankshares (Nasdaq: UBSI), Hampton Roads Bankshares (Nasdaq: HMPR), WesBanco (Nasdaq: WSBC), City Holding (Nasdaq: CHCO), Sandy Spring (Nasdaq: SASR), First Citizens (OTC: FCBN.OB), SCBT Financial (Nasdaq: SCBT), Wilmington Trust (NYSE: WL), WSFS Financial (Nasdaq: WSFS), Southside Bancshares (Nasdaq: SBSI), Stellar One (Nasdaq: STEL), Union First Market (Nasdaq: UBSH), Eagle Bancorp (Nasdaq: EGBN), First Bancorp (Nasdaq: FBNC), Ameris (Nasdaq: ABCB), The Bancorp (Nasdaq: TBBK), First Community (Nasdaq: FCBC), Capital City (Nasdaq: CCBG), Financial Institutions (Nasdaq: FISI), National Bankshares (Nasdaq: NKSH), Citizens & Northern (Nasdaq: CZNC), Charter Financial (Nasdaq: CHFN), Seacoast Banking (Nasdaq: SBCF), TIB Financial (Nasdaq: TIBB), American National (Nasdaq: AMNB), United Community (Nasdaq: UCBI), Middleburg Financial (Nasdaq: MBRG), Heritage Financial (Nasdaq: HBOS), Zions Bancorp (Nasdaq: ZION), East West Bancorp (Nasdaq: EWBC), City National (NYSE: CYN), Bank of Hawaii (NYSE: BOH), SVB Financial (Nasdaq: SIVB), Westamerica (Nasdaq: WABC), Cathay General (Nasdaq: CATY), Umpqua (Nasdaq: UMPQ), Glacier Bancorp (Nasdaq: GBCI), Pacific Capital (Nasdaq: PCBC), PacWest (Nasdaq: PACW), Western Alliance (NYSE: WAL), First National Alaska (OTC: FBAK.OB), First Interstate Bancsystem (Nasdaq: FIBK), Nara (Nasdaq: NARA), West Coast (Nasdaq: WCBO), TriCo (Nasdaq: TCBK), Territorial (Nasdaq: TBNK), Washington Banking (Nasdaq: WCBO), Bank of Marin (Nasdaq: BMRC), Hanmi (Nasdaq: HAFC), PNC Bank (NYSE: PNC), J.P. Morgan Chase (NYSE: JPM), United Bankshares (Nasdaq: UBSI), Bank of New York Mellon (NYSE: BK), MB Financial (Nasdaq: MBFI), Astoria Financial (NYSE: AF), New York Community (NYSE: NYB), Hudson City (Nasdaq: HCBK), People’s United (Nasdaq: PBCT), First Niagra (Nasdaq: FNFG), Capitol Federal (Nasdaq: CFFN), Washington Federal (Nasdaq: WFSL), Investor’s Bancorp (Nasdaq: ISBC), Northwest Bankshares (Nasdaq: NWBI), Sterling Financial (Nasdaq: STSA), Ocwen (NYSE: OCN), Flagstar (NYSE: FBC), Provident (NYSE: PFS), Colombia Banking (Nasdaq: COLB), Kearny (Nasdaq: KRNY), Brookline (Nasdaq: BRKL), Dime Community (Nasdaq: DCOM), Flushing Financial (Nasdaq: FFIC), Danvers (Nasdaq: DNBK).

Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.