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The Bank Run Is On!

Friday, June 19, 2015
Money and Markets
YOUR BEST SOURCE FOR THE UNBIASED MARKET COMMENTARY YOU WON’T GET FROM WALL STREET
You can also access this issue on our website.
Greek Bank Run Accelerating; Is It "Game Over" Soon?
Market Roundup
Dow -101.56 to 18,014.28
S&P -11.53 to 2,109.71
NASDAQ -15.95 to 5,117
10-YR Yield -0.084 to 2.267%
Gold -$1.40 to $1,200.60
Oil -$0.98 to $59.47

By Mike Larson

When the money dries up, it’s “Game Over.” And that’s what Greece is facing now that bank runs are accelerating rapidly!

Consumer and business depositors have reportedly yanked 1.85 billion euros from the Greek banking system in just the last two days. That’s more than 115 million euros PER HOUR, assuming two eight-business-hour days.

More than 2% of all the private money held in Greek banks has now vanished in just the last week. The only thing standing between banks and insolvency is the European Central Bank, which is providing them with emergency liquidity assistance (ELA) since they can’t raise money in the private capital markets.

Unfortunately, their needs are rising at an ever-increasing rate. Case in point: The ECB just raised its ELA limit by 1.1 billion euros on Wednesday. But because so much money fled the banking system, it had to raise that limit again today (though by less than the 3 billion euros Greece requested).

The ECB is standing between Greece and insolvency.

If we’ve learned anything from this whole sorry process, it’s that policymakers will obfuscate, clam up, or outright lie about what they’re doing or saying behind closed doors just to keep people calmer than they would otherwise be. But that wall of silence is now breaking down.

Reports emerged yesterday that European officials are openly wondering whether Greek banks can open their doors on Monday. Capital controls – such as strict withdrawal limits – may be required within days, just as they were in Cyprus when that country’s banking system collapsed.

Despite all of that, Greek Prime Minister Alexis Tsipras is still spouting happy talk. He said today that he’s optimistic euro-zone officials will cut him a deal when they meet for an emergency summit Monday. The summit precedes by a few days the expiration of Greece’s 245 billion euro bailout program on June 30, and a required 1.54 billion euro payment due to the International Monetary Fund.

Me? I wonder what he’s been smoking! It seems like the Greeks have badly overplayed their hand, not realizing that Europe is fed up at this point. They seem much more ready to just cut Greece loose, come what may in the markets or the economy. That’s because private banks, hedge funds, and other market players have literally had years to prepare for a Greek default.

My recommended course of action remains the same: Take some profits. Maintain a healthy cash cushion. Avoid long-term government bonds.

“Market players have literally had years to prepare for a Greek default.”

Then focus on stocks and sectors that have already been beaten down dramatically, like energy. They are so cheap they have some insurance against further Greece-driven declines. Pair those with other stocks that are the “cream of the crop” in strong sectors, from aerospace to consumer non-durables to health care.

Then buckle up and see what happens over the weekend and early Monday – and stay tuned here for the latest guidance on what to do next!

While we all wait, let me know what you think about the Greek bank run. Are depositors going to be lined up 100 deep on Monday at ATMs around the country before long? Or will Greece manage to wrangle a last minute deal out of Europe and the IMF? What kind of spill over impact will we see here in U.S. markets? What steps are you taking to prepare yourself, if any? Hit up the website and let me know ASAP.

Our Readers Speak

The Greek situation is coming down to the wire, that’s for sure. But the Fed’s actions this week also spurred a hefty amount of discussion at the website.

Reader Frebon said rising rates would actually help the economy by drawing global funds to our shore – money the politicians could then spend! The comments:

“If the Fed finally comes to their senses and lets rates normalize, they wouldn’t have to worry about the national debt. Almost all the money in the world would flow here seeking the higher rates, which would allow the politicos to spend even more money — especially in an election year. Inflation would rise well above the Fed’s target, which would have them raise rates again and repeat the cycle.”

Reader Fred1 said not to read too much into short-term market moves in the wake of “Fed days.” His take: “It seems the market always goes up for a couple of days after the Fed utters their nonsense. I would not put much into it. Besides, they are always looking at data that is from last month, last quarter, last year, whatever. They look backward.”

Reader John noted the Fed is purposefully conducting “open mouth” operations because it wants to avoid taking real actions. His view:

“The Fed is ‘talking’ a good fight – something smart Fed Chairs have done for a long time. That is because getting any kind of result by ‘talking about it’ beats actually taking actions, which often have the potential for unpleasant consequences. So fighting the battle with words is eminently the more intelligent way to go. And Yellen seems to be doing a good job of it – which IS her job.

“As far as inflation goes, that danger has been on the horizon for some time. I don’t think anyone at the Fed fails to understand that the danger of inflation has been shadowing monetary policy due to actions taken in response to the financial crisis of 2008-09. A lot of people are in denial about the danger of inflation because they claim that ‘they don’t see any’ looking at the numbers.”

Lastly, Reader Chuck B. said the Fed’s easy money ultimately will drive inflation higher here – but not as much as in the past due to global wage competition. His opinion:

“The money the Fed has printed has been tied up in the banks. But it’s slowly working its way into the economy, with resulting price inflation.

“However, it is doing so in the face of an economy that is hamstrung by the decline in American production, due to the politicians forcing production overseas with their harsh economic policies. That is why we are on our way to second, or even third world status among nations.”

Good observations all around, and I appreciate you sharing them. The Fed has definitely had less impact on the real economy with all its pump-priming in this economic cycle. But given how much easy money it has thrown at the system, the consequences of the eventual unwinding process are likely to be much more severe than in the past. That’s why we should all expect much more volatility going forward.

If you want to add more to the Fed discussion over the weekend, here’s where you can do so.

Other Developments of the Day

BulletChinese stocks have been incredibly volatile over the past several weeks, and this one was no exception. The Shanghai Composite Index plunged more than 6% Friday alone, bringing its weekly loss to 13.3%.

That was the worst week for Chinese domestic shares since October 2008, the midst of the global financial crisis. But the bubbleicious market has still more than doubled in the past year.

BulletSpeaking of China, the country’s entry into the World Trade Organization 14 years ago helped eliminate anywhere from 1 million to more than 2 million U.S. factory jobs. So say economists at the Federal Reserve, Yale University, and MIT. Studies like these help show why the Trans-Pacific Partnership votes are facing so much opposition from Democrats in Congress.

BulletThe IPO of fitness band company Fitbit (FIT) went well yesterday, surged 52% from its sale price of $20. The deal allowed the company to raise $732 million, making it the third-biggest initial share sale this year. We’ll have to see how it faces up to competition from Apple and others over the next couple of years.

BulletClergy, police, and citizens in Charleston are still struggling for answers in the wake of the arrest of Dylann Storm Roof, 21. He allegedly murdered nine churchgoers in a racially motivated hate crime at a historically significant African-American church.

Have you invested in any of the recent crop of IPOs? What do you think of China’s market turmoil? Anything else I haven’t covered here that has you ready to sound off? Then here’s the website link where you can share your comments.

Until next time,

Mike Larson

(P.S. Don’t miss Dr. Weiss’ three new videos — click here to tune in now! In these important messages, Dr. Weiss details what he believes is the ultimate wealth building strategy for today.)

Mike Larson
Mike Larson graduated from Boston University with a B.S. degree in Journalism and a B.A. degree in English in 1998, and went to work for Bankrate.com. There, he learned the mortgage and interest rates markets inside and out. Mike then joined Weiss Research in 2001. He is the editor of Safe Money Report. He is often quoted by the Washington Post, Reuters, Dow Jones Newswires, Orlando Sentinel, Palm Beach Post and Sun-Sentinel, and he has appeared on CNN, Bloomberg Television and CNBC.
The investment strategy and opinions expressed in this article are those of the author's and do not necessarily reflect those of any other editor at Weiss Research or the company as a whole.

For more information and archived issues, visit www.moneyandmarkets.com.

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