The Other McCain

"One should either write ruthlessly what one believes to be the truth, or else shut up." — Arthur Koestler

Bank Run in Greece = DJIA Rises?

Posted on | May 16, 2012 | 25 Comments

Back in 2009, I started saying that U.S. economic policy was so far into uncharted waters that we’d reached that part of the medieval map where it says, “Here Be Dragons.” There was no precedent for what the Fed and the Treasury were doing, and any attempt to predict what came next was pure speculation because such bizarre conditions had never previously occurred in all human history.

Buy gold. Or maybe buy more ammunition. Maybe it didn’t matter, but the key point was that an awful lot of dung was being flung around, and sooner later, by the Law of Large Numbers, some of it would hit the fan. Anyway, today at Memeorandum I saw these headlines:

Greeks withdraw $894 million in a day:
Is this beginning of a run on banks?


As Bank Withdrawals Surge,
Athens Relies More on ECB

Wall Street Journal

Plug-pulling in Athens
Financial Times

My first thought: What’s the Dow Jones Industrial Average doing? So I glanced over at the TV in my office and the Dow was . . . +25? WTF?

Evidence of a bank run in Greece, and investors aren’t pulling back? Or (alternate theory) European investors are buying U.S. stocks as a hedge?

Another theory: The zany inflationary policy at the Fed is so out of control that people are dumping dollars to buy stocks, figuring that at least stocks represent part of some tangible worth?

Who the helll knows anymore? “Here Be Dragons,” indeed!

UPDATE: Still watching the Dow. As of 2 p.m. ET, it was still around +13, defying what would seem to be normal economic logic. But again, I’m not any kind of expert. I just know a few common-sense basics. It would seem obvious that if Greece is on the verge of a final meltdown, with untold consequences for the rest of the Euro zone, there is at least a risk this could trigger a global financial crisis.

Given such a risk, one would think that investors would seek security, and nothing is more secure than gold. Perhaps the gold market has already calculated in that risk, however. Maybe investors are trying to snag the last few dollars of earnings before the crash hits.

Lots of possible explanations, but none of them make sense to me.



25 Responses to “Bank Run in Greece = DJIA Rises?”

  1. jwallin
    May 16th, 2012 @ 1:09 pm

    No, No. It’s “Here Be Doubloons”!!

    Wall street; making millions off of other people’s suffering. 

    Unless they’re bankers who bundle bad mortgages or J.P. Morgan Inc. who’re too big to fail. Even when they do.

    Why are we bailing out these gamblers and high rollers?

  2. robertstacymccain
    May 16th, 2012 @ 1:47 pm

    I’m just saying that I don’t undestand what the market is doing. We’ve seen a boom on Wall Street the past two years that cannot be explained by anything I know about economics, except the possibility that all this currency-pumping is leading to inflation in stock prices. That is to say, stocks aren’t actually gaining value; instead, the higher dollar price of stocks in fact reflect the declining value of the dollar.

  3. PAcon12
    May 16th, 2012 @ 1:52 pm

    Also, gold is down, and has been dropping sharply for the past week or so. I know, because I bought gold about 2 months ago. Been dropping like a rock ever since.

  4. Abc
    May 16th, 2012 @ 1:54 pm

    Perhaps Wall Street has already factored it in and hence the slide of the last month? And now the direction is more settled? Is not the Greek economy about the size of West Virginia’s and all the brouhaha a little much?

  5. OCBill
    May 16th, 2012 @ 1:57 pm
  6. Pathfinder's wife
    May 16th, 2012 @ 2:15 pm

    Gold buying has been passe for quite a few years now (the prices have been crazy high for the last few years, time to buy precious metals was way prior)…ammo, garden seeds, canning equipment, material, and a sewing machine are where it’s at now (and maybe, if you can logistically swing it thanks to rampant zoning laws gone amuck, some laying hens and milk goats)!

  7. ThePaganTemple
    May 16th, 2012 @ 2:27 pm

     I’m just saying that I don’t undestand what the market is doing.

    I think you call it Pump And Dump. We just haven’t reached the Dump stage yet, but give it time.

    It might help to look at where all the gains are. I’m guessing probably the energy and maybe transportation sectors, with probably some slight gains in medical technologies and pharmaceuticals, and even entertainment. Even food producers could see some gains, until it becomes clear the inflation based rise in prices is unsustainable, at which point the dumping begins. Then everybody suffers.

  8. Adjoran
    May 16th, 2012 @ 2:53 pm

    Gold and oil are falling because the dollar is strengthening as investors look at Europe and say, “Well, maybe we’ll come back later on.” 

    Markets are up because of stronger-than-expected housing starts and building permits in April.  They weren’t all that great, and the housing market is nowhere near real recovery until all the foreclosures work their way through, but it doesn’t take a lot of volume to move the market when the individual investors are staying out.

    Also, remember the raw numbers on DJIA, SPX, and NASDAQ are somewhat misleading:  you have to figure in the lower value of the dollar since 2008, and when you do that, they aren’t “up” in any meaningful way.

    The only reason gold remains as high as it is is the Fear Factor – Iran and Greece make it more attractive than it should be.  As Pathfinder’s wife mentioned, it’s past the high.  Think of it like a roller coaster which slowly cranks up to the top.  Part of the fun is you don’t know exactly when it is going to take that huge plunge – but you do know it’s coming, so don’t try to stand up, mmmkay?

    As for Greece:  they are soon going to have to take all the deposited euros in their banks and exchange them for new drachmas.  “Here be inflation fiercer than any dragon.”  If you had money in one, what would YOU do?

    Or if you had money in Italian or Spanish banks, would you leave it in them?  Are you freakin’ nuts?

  9. Charles
    May 16th, 2012 @ 2:58 pm

    The leading party in the May 6 election got less than 19%. That’s some serious none of the above voting.

  10. Adobe_Walls
    May 16th, 2012 @ 3:09 pm

    Those looking to keep their money from vanishing in a puff of smoke buy our bonds even though they probably loose money due to inflation being higher than the interest rates. If one is looking for profits and not just safety it’s got to be drugs, arms or securities.

  11. Adobe_Walls
    May 16th, 2012 @ 3:13 pm

    And the anti-austerity parties will do even better in June.

  12. Adobe_Walls
    May 16th, 2012 @ 3:17 pm

    How does Greece get out from under short of just repudiating their debt. All of their debts are denominated in Euros. In the twenties the German reparations were denominated in marks so massive devaluation worked.

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  15. Adjoran
    May 16th, 2012 @ 4:45 pm

     Greece will default.  It’s been evident for over two years, when even the first bailout (which they STILL haven’t complied with) was based on them collecting taxes they hadn’t been able to collect since the military government, and cutting public employment and spending.  Was never going to end with anything but total default.

    The Euro-banks sought to kick the can down the road to keep the mess off their bottom lines and pass the losses onto German and French taxpayers if possible.  It’s the end of the road, the bill is due, and there is no money in the till.

  16. K-Bob
    May 16th, 2012 @ 5:57 pm

    I’m guessing it’s nothing more than the typical, “flight to quality.”   You have to put your money somewhere.  May as well put some of it in Apple, Exxon, and Boeing.  (Remember, there’s only 30 stocks in the DJIA.)

    Besides, +13 isn’t much.  Whoa.  It’s now -33.

    Volatile much?

  17. K-Bob
    May 16th, 2012 @ 6:05 pm

     Wow.  Want to read a business article that seems like it must have been written by Axlerod himself?  Over at USnooze, the headline of the article is:

    Happier Days Are Here Again. So Says One Economic Indicator.

    The indicator? The “Consumer Distress Index,” which indicates that people who have lost everything, pretty much have no worries.  That’s not how they interpret it, though.  They seem to think that having walked away from your underwater mortgage, and losing your big car and giving up on your small business, you can now probably afford to buy a house on that Wal Mart “greeter” income.  And that makes your household economic situation look a helluva lot better, doesn’t it?

    Well, doesn’t it? Dammit! Work with us here!

  18. Dave
    May 16th, 2012 @ 9:41 pm

    What’s the problem?  Teh Bernank will just print more greenbacks!

  19. Bob Belvedere
    May 17th, 2012 @ 7:59 am

    There’s nothing backing that green.

  20. Pathfinder's wife
    May 17th, 2012 @ 9:03 am

      Even if they were to put heavy austerity packages into place, it would likely not keep them from defaulting.

    While it’s easy to blame the Greeks for running such a disasterous debt up, it has to also be remembered that the EU pretty much looked the other way from the real truth of Greece’s economic liability/condition when they accepted them in (and coincidentally hooked them to a euro they couldn’t devalue like they could the drachma, and which really benefitted Germany).
    It should also be remembered that Goldman Sachs had a huge hand to play in applying window dressing and cover for Greek debt prior to entry into the EU — and the 1 bil. euro debt negative swap that they shorted on was kinda shady don’t you think?

    I always like to bring that up: ain’t nobody innocent here (except for the poor slobs who will be dining on turnip greens and potato peelings).

  21. creeper00
    May 17th, 2012 @ 12:22 pm

     (late to the party)  Stacy, I’ve had that same feeling every time my mutual fund statement arrives.  The economy is in tatters but that fund continues to rise.  The only conclusion possible is that the market is being manipulated to such an extent that it no longer reflects reality. 

    Now, if someone would just tell us when to get the heck out of the market life would be good.  But I don’t see that happening. 

    If one were inclined to paranoia one might think this is a setup of Americans…create a booming stock market at a time when investments elsewhere are returning 1%.  Suck John Q into it and then let it crash.  Destruction being the order of the day for this administration I don’t find that terribly difficult to believe.

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  23. Tennwriter
    May 17th, 2012 @ 1:08 pm

    Well, it is actually a good thing that the couple you talk of faced economic reality, and went bankrupt.  Not that they’re going to have tons of money to spend now, but I think some mass bankrupticies would probably be good

  24. K-Bob
    May 17th, 2012 @ 4:30 pm

     Well, that’s how a hard-nosed analyst would put it, and so would any decent poker player.  So you’re correct.

    But people who remember prosperity are tough to entertain with bread and circus, government programs.

  25. Econocat
    May 20th, 2012 @ 7:43 am

    What’s happening is there are two conflicting forces at work at present in European economics. There’s the unwinding of the huge borrowing we had in the past ten years – deleveraging and deflation as people save and try to pay back their debt. Markets tend to consolidate as the outlook for growth is poor. But these forces are crashing into an erratic series of bailouts, cash injections and special funds like the ESM. This makes things very unpredictable, and is the reason JP Morgan lost a lot of money recently. They forgot that it’s not only the US who is printing money like crazy.
    It’s important to realise these bailouts aren’t for the Greek people; they’re for the French and German banks who lent money to the Greeks during the good times. Unless the Greek national character has suddenly changed in the last decade, it was reckless to lend to them in the first place. But the risk is not falling back to the banks, it’s being borne by the European taxpayer, who is being told they have to do this to maintain the credibility of the Euro. All this while the ECB prints more money, undermining the very credibility they crave.