Picture3-150x150The Greek government, EU, IMF and ECB agreed to new terms for a third bailout.

As I see it, there are two very important items for markets today. The Greek government will be selling assets to pay down debt and re-capitalize the banking sector. Creditors essentially accessed the Greek collateral they were seeking. In return, the European Commission will provide Euro 35 billion in investment to help with economic reform and modernization. This would seem to be preferred to a Euro 30-35 billion debt concession that IMF reports and European Summit participants indicate as necessary.

Up front, the EU will provide about Euro 7 billion to Greece in order that they make overdue payments to the IMF of about Euro 2 billion and then a payment to the ECB on Monday of Euro 3.5 billion. The ECB will also provide Greek banks short term funding of Euro 900 million so they may re-open. But, remember, these loans just prevent the “immediate” default on financial obligations and, likely, accompanying exit from the currency union.

Along with the monetizing of assets and the European investment in Greece mentioned above, there are 2 additional items that lower the probability of an eventual Greek default. Greece has promised, by October, to pass pension reform. This eases the fiscal burden. The Greeks have also promised product, labor and energy reform. A freer economy should do this on its own. Let’s hope this is not just rhetoric or a government directive, but a promise for a more liberated economy with more responsibility and obligation for itself. Perhaps, but not assured, Greece eventually returns to a self-sustaining equation.

Proxies for tail risk subsided this week. The can has been kicked. Now…, if the bankers and politicians could only divine their preferred happy ending to the Greequel, we would certainly have a global economic boom ride in for the rescue.

 

Some of the Proxies for Tail Risk

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vix

 

Will Forward Earnings’ Expectations Improve? Will Equities continue Leadership?

earnings growth lei 12 mo fwd

earnings growth by sector

stocks bonds

 

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For information on Alhambra Investment Partners’ money management services and global portfolio approach, Douglas R. Terry, CFA is reachable at: dterry@4kb.d43.myftpupload.com

This material has been distributed for informational purposes only. It is the opinion of the author and should not be considered as investment advice or a recommendation of any particular security, strategy, or investment product. Investments involve risk and you can lose money. Past investing and economic performance is not indicative of future performance. Alhambra Investment Partners, LLC expressly disclaims all liability in respect to actions taken based on all of the information in this writing. If an investor does not understand the risks associated with certain securities, he/she should seek the advice of an independent adviser.