Greece is no closer today to an agreement with its creditors than it was yesterday. Overnight, Greece-IMF talks failed to make any progress on a bailout deal, putting a temporary stop to negotiations. But you wouldn’t know there were differences between the parties if you’ve been getting your information from Bloomberg lately.
On Wednesday Bloomberg was telling its readership that a deal between Greece and its creditors (Germany) was imminent. Supposedly the Germans were willing to allow access to bailout funds, as long as Greece made one economic reform demanded by creditors. Considering that creditors demand several reforms from Greece, this seemed like a compromise that could break the deadlock over the tense negotiations.
This news came courtesy of two Bloomberg sources that reportedly had close knowledge of German intentions.
Yet, by Thursday, official reports completely dismissed any such notion of a deal taking place.
IMF spokesperson Gerry Rice stated that differences between the two parties remained across ‘most key areas’. That’s not a ringing endorsement for the talks, is it? And that rhetoric makes it even harder to believe how these ‘close sources’ managed to get their bearings so wrong.
But perhaps we shouldn’t be so surprised. The gravity of the situation in Greece weighs heavily on the markets. That’s what makes it so attractive to traders who see an easy way to make money. Let me explain.
Markets lift on news of an ‘imminent deal’
Like fish to water, the markets took the bait. European and global stocks surged on the back of the ‘positive’ news.
Yet, as we’ve seen, not a day after it was assumed that the Germans were ready to accept a compromise, the deal now looks further away than ever.
We can draw a few conclusions from this.
The first is that some people may have made a lot of money trading around this story — possibly on the back of their own leak. It appears that whoever disclosed the information had ample time to short their position, knowing that stocks would fall today once the truth about the state of the negotiations got out.
Secondly, the markets’ appetite for any news indicating the deal going one way or another remains robust. That wouldn’t be such a problem if this was the first time the markets took the bait. But it isn’t. We’ve seen this play out before. Think back to the number of times you’ve heard about a looming bailout deal in the last few months. And then consider where we are now — nowhere closer.
A source claims that a deal is imminent, the markets surge. The truth comes out that differences remain between the parties, and the selloff starts. Rinse and repeat.
It’s a great way to make money if you know what you’re doing. Dupe the markets to believe something, watch them load up on stocks, then take the opposite position.
And that leads us directly to the final point.
We can surmise that, because it took over a day to quash the rumour, there was a lot of selling in the markets. If it was a quick selloff, we would have heard something within hours of Bloomberg floating the story.
Needless to say, once the truth about the actual state of negotiations got out, markets took a hammering. The German DAX was down by 106 points within half an hour, closing the day on 11,332. The S&P 500 was also slightly down, closing on 2108.86.
In Australia, the ASX200 is down 21 points this morning at 5535, handing back some of its gains from yesterday.
So where does that leave us on a Greek-IMF agreement? Creditors are now giving the embattled nation until 18 June to accept the terms of a bailout. But don’t be surprised if traders take another opportunity to make some more easy money.
Contributor, The Daily Reckoning
PS: The situation in Greece threatens to derail global stock markets. If Greece doesn’t reach a deal with creditors, it will send markets into a frenzy.
The ASX200 is already down 1% since the start of February, losing $29 billion of its value. In fact, falling stock valuations already point to a much larger collapse soon. Greece could prove the catalyst to send markets over the cliff.
The Daily Reckoning’s Vern Gowdie believes we’re going to see a catastrophic crash in stocks. Vern is the award-winning Founder of the Gowdie Family Wealth advisory service. He’s been ranked as one of the Australia’s Top 50 financial planners. And he thinks the ASX could lose as much as 90% of its $1.8 trillion value.
That’s why Vern’s written ‘Five Fatal Stocks You Must Sell Now’. In this free report, Vern wants to help you avoid the coming wealth destruction. He’ll show you which five blue chip Aussie companies could destroy your wealth. And you almost certainly own one of them. To find out how to download the report, click here.