Big Fat Greek Bailout

How Greece is Mocking the Rest of the World

Simon Maierhofer

It all started in June 2009. On June 23, Greece's finance minister Yannis Papathanassiou stated: 'The rate of growth for the Greek economy in 2009 is expected to slow more than forecasted. Specifically, it will range around zero and only return to growth in 2010.' The disclosed budget deficit at the time was $3.1 billion.

On October 22, 2009, Fitch lowered Greece's rating from A to A-. On October 30, Moody's placed Greece's A1 rating on review for a possible downgrade. So far it all sounds pretty innocent. The rest of the story is described simply in headlines:

December 17, 2009: 'Greek woes hit Euro'

December 21: 2009: 'ECB member says no bailouts for Greece'

January 18: 'Two EU ministers: No bailout for Greece'

January 19: 'Greece tackles statistics trouble' (hmm, the numbers just didn't add up despite all the financial alchemy)

February 9, 2010: 'Bulls run on Greece news' (over rumors about a bailout)

February 11, 2010: 'European Union throws a big fat Greek bailout'

February 22, 2010: 'Debtors bet Greece won't spill'

February 27, 2010: 'Athens, Berlin spar as bailout takes shape (talks about $41 billion)

March 4, 2010: 'Is Greece's crisis over?'

April 24, 2010: 'Greece asks for $60 billion bailout'

April 27, 2010: 'Greece contagion fears unfounded'

May 3, 2010: 'Greece gets $146 billion rescue'

May 3, 2010: 'Wall Street up sharply on data, Greece package'

May 8, 2010: 'Stocks tumble on faulty quotes, Greek concerns'

June 14, 2010: 'Greece's government bond ratings cut to junk by Moody's

July 5, 2010: 'Greece upbeat on bid to exit from crisis'

December 17, 2010: 'IMF approves $3.3 billion for Greece amid impressive fiscal adjustment'

Risk Determined by Perception

Did you notice how the perception of Greece's debt problems was also subject to the ebb and flow of human emotion? Investors were giddy about stocks in April 2010. The April 27, headline touted that 'Greece contagion fears are unfounded' and on May 3, Wall Street was up sharply on news of the Greek bailout package.

The $146 billion bailout package that sent stocks rallying and investors hoping for better times was approved just three days before the 'Flash Crash.'

Unlike the media, the ETF Profit Strategy Newsletter wasn't so positive on stocks. The April 16 issue painted this picture: 'The message conveyed by the composite bullishness is unmistakably bearish. Despite the market's resilience against any sort of pullback, there has rarely been a more pronounced sell signal.'

... Wait, There is More

Deception and naive reporting are as intertwined with the evolution of European dept woes as Feta cheese is to Greek culinary culture. Rarely has this become more obvious than just recently.

Luxembourg's Prime Minister didn't beat around the bush: 'When it becomes serious, you have to lie.' You be the judge whether it is more 'honorable' to omit, deceive, obstruct, misconstrue, or lie (purposely or unintentionally). There are plenty of examples so we can make an educated decision.

You shouldn't throw stones if you are sitting in a glass house. This is the case with the United States. The administration has engaged in all kinds of maneuvers and financial alchemy to obstruct the truth and prevent free market forces from expressing themselves.

QE2 is the most famous example. Mr. Bernanke is caught in his very own web of financial engineering side effects. Preaching on one hand that QE2 was supposed to inflate assets and create a wealth effect but denying that QE2 has caused wide spread food and energy inflation.

Another example is the 'adjustment' of accounting rule 157, demanded and sanctioned by Congress. The 'new and improved' rule 157 allows banks (NYSEArca: KBE - News) and financial institutions (NYSEArca: XLF -News) to omit hundreds of billions of toxic assets in an off balance sheet bucket that doesn't affect earnings results.

The Track Record Speaks Volumes

Based on this track record, financial institutions and government officials have established a cracked foundation of trust. Many officials in charge have catapulted themselves outside the circle of trust.

Is there reason to believe the information dispensed by the Federal Reserve, ECB or IMF? Who can you trust?

How about the market itself? Even though the Dow Jones (DJI: ^DJI), S&P (SNP: ^GSPC), Nasdaq (Nasdaq: ^IXIC), Russell 2000 (Chicago Options: ^RUT) and the likes have been influenced by QE2, they will be the first ones to know when the gig is up. The same is true for international (NYSEArca: EFA), emerging (NYSEArca: EEM - News) and European (NYSEArca: VGK) markets.

The Market Language

In order to communicate with anyone, you need to speak the language. If you want to be a computer programmer, you need to learn C++, html, BASIC, etc. If you want to understand the market's signals you need to become more fluent in the language of technical analysis.

This terminology includes Fibonacci support/resistance, candle stick formations, trend lines and trend channels, pivots, SMAs, breakout targets, etc. This sounds like a lot of work, but it's worth it.

Using technical analysis the ETF Profit Strategy Newsletter identified 1,369 as major resistance and 1,255 as major support back in April.