David Moenning

About the Author David Moenning

David Moenning is a the Chief Investment Officer at Heritage Capital, which focuses on active risk management of the U.S. stock market. Dave is also the proprietor of StateoftheMarkets.com, which provides free and subscription-based portfolio services. Dave began his investment career in 1980 and has been an independent money manager since 1987. Thus, Dave has been live on the firing line and investing for a living for more than 25 years.

Greece Says “No” But Will It Matter?


Although it would be nice to be able to move on to other important issues, the bottom line is that Greece clearly remains the focal point for traders from a short-term perspective.

Not surprisingly, Greek citizens voted “no” in resounding fashion on Sunday to the question of whether or not to accept the current deal on the table from the Eurozone and the country’s creditors. Greece’s PM Alexis Tsipras and his radical left-wing cohorts managed to convince the country that voting “no” would force creditors to re-evaluate their position. In short, Greek officials now expect to be able to renegotiate the terms of the country’s debt.


In a televised address on Sunday night, Greek PM Tsipras basically took a victory lap and praised Greek voters. The PM said he was ready to return to negotiations with creditors and added that his government’s immediate priority was to reopen the banks.


On the topic of the banks, the key thing to watch going forward is whether or not the ECB raises the ELA (emergency liquidity assistance). The bottom line is that banks have remained closed in Greece and will remain closed for the foreseeable future unless the ECB ups the level of capital it will commit for emergency funding.


Citing officials familiar with the matter, Reuters is reporting that the ECB is likely to maintain its ELA for Greek banks at its current restricted level. The article cited a source who said that the “no” vote is unlikely to prompt immediate action from the ECB. The article did note however that the ECB is due to meet today to discuss the Greek banks. The meeting is in response to Bank of Greece’s formal request last night to the ECB to provide additional liquidity.

Whether or not the ECB ups the ELA levels remains one of the key areas to watch in terms of renewed negotiations and whether or not a “Grexit” will occur. According to Louka Katseli, who is the head of the Hellenic bank Association, ATM machines in Greece are likely to run out of cash within hours of the vote.

While Tsipras continues to talk tough with regard to renegotiating the country’s debt, The Telegraph is reporting that the Greek government is taking steps in case ECB doesn’t upgrade the ELA. The report indicates that top government officials are considering what can be considered “drastic steps” in order to boost liquidity and shore up the banking system. Apparently Athens is preparing to issue parallel liquidity and California-style IOU’s in order to keep the country running in the near-term.

As for the prospects for a new deal with creditors, the ECB, and the Eurozone, Tsipras appeared confident on Sunday after the vote, saying that he expects a deal withing 24-48 hours. The PM continued to demand that any deal should include debt relief, invoking a report by the IMF released last week which said Greece’s debt is unsustainable without a 30% haircut.

However, the Germans, Austrians, and Fins are less than impressed at this stage. While Chancellor Angela Merkel did say on Sunday that the wishes of the Greek citizens must be respected, Germany does not appear ready to bend to demands being made by Tsipras.

In an article, the FT cited Steffen Seibert, the head of staff for the German Chancellor, who said that Merkel sees no basis for negotiations over a new rescue package for Greece following the clear rejection of reform plans in the referendum. “With regard to yesterday’s decision by Greek citizens the pre-conditions for entering into negotiations over a new aid programme do not currently exist,” he said. Seibert added that while the door for talks was “always open,” he insisted that Berlin was waiting to see “what proposals the Greek government places on the table.”

In addition, German finance ministry spokesman Jaeger said today that the basis for any new negotiations was the ESM treaty. The spokesman added that there were no grounds for a debt restructuring given that Greece has yet to provide fresh proposals for financial aid.

Then there is the small matter of the legality of writing off debt owed to the ECB. In a report this morning, Dow Jones, cited the ECB’s Noyer who said the central bank cannot restructure the Greek debt it holds, as it is banned from doing so. The article noted that Greece is due to pay €3.5B to the ECB on 20-Jul. And should Greece miss this payment, the ECB could cut off emergency funding to Greek banks altogether.

Separately, ECB’s Nowotny said that a new aid program for Greece could take time and that it is an illusion it can be done within two days.

However, it appears that talks will continue this week between the EU and Greece. Reports indicate that German Chancellor Merkel will travel to Paris on Monday for talks with French President Hollande “to jointly assess the situation after the Greek referendum and to address the continuation of Franco-German close cooperation in this matter.” At the same time, EU President Tusk has confirmed in a statement that a special Euro Summit will be held Tuesday to discuss the situation with Greek after its referendum.

And so it goes. While the vote is now over, it is safe to say that the drama is not. The good news is that so far at least, markets are not in panic mode. Yes, bourses in Europe are lower and stock futures are suggesting a weak open on Wall Street. However, stocks in Europe and the futures here in the U.S. are off their worst levels, providing hope that cooler heads may prevail.

S&P 500 Index – Daily


From a chart perspective in the U.S., a meaningful decline could give the bears the edge from a short-term perspective. However, the 200-day and the 2040 level on the S&P 500 (which is about where futures project the venerable index will open) are likely to be key levels of support to watch today.

The Global X Funds (NYSEARCA:GREK), an ETF indexed to the wider Greek stock market, is currently down 8.94% to $9.88.

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