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DEUS EX MACHINA

1: A god introduced by means of a crane in ancient Greek and Roman drama to decide the final outcome

2: A person or thing (as in fiction or drama) that appears or is introduced suddenly and unexpectedly and provides a contrived solution to an apparently insoluble difficulty

• Merriam Webster 

The term “never-ending saga” is overused and blown-out of proportion. However, in this case, the Greek debt drama does not go far enough in explaining how excruciating and long it has been. The notion that a deal will be done in the best interest of everyone is waning quickly. If there is a last second miracle, it will not be ghost in the machine or actors hanging from a crane. In fact, it will be very sobering and angry creditors who have simply had enough.

It appears negotiations have taken a turn toward honesty, treating a new deal with the reality Greece is bankrupt. This means fresh cash must not only come with reforms, but it also must come with collateral.  I am not talking the Parthenon; it is upwards of €50 billion in Greek assets placed in a fund, and eventually privatized. This would be part of a plan for short-term financing, although it is unclear where that cash will come from. The European Stability Mechanism (ESM) has the ability to raise 500 billion by selling bonds to the financial markets.

ESM Funders:

• Germany 27%
• France 20%
• Italy 18%

In addition, collateral creditors are said to be looking for ratification of reforms by the Greek parliament by Wednesday. Those reforms are going to bite just one of the meanings of the euphuism “ambitious,” sought on pensions and the labor market. And to be sure these reforms are not just giving lip service, representatives for the creditors will be on the ground in Athens to oversee draft legislation. Many are saying this has become a good old-fashioned debtors-in-possession negation.

That’s a good thing, but there will be no ghost; it is just a frightening nail-biter to the bitter end.

Iran Nuke Deal

Speaking of the bitter end, today could see an agreement between Iran and P5+1 (six world powers), which would give Ayatollah Khamenei everything he wants:

• Lifting economic sanctions
• Lifting UN arms embargo

This is a horrible deal. It will increase the specter of geopolitical risk and hasten the development of nuclear weapons by Iran.

Market Reaction

Stocks were down overnight, mostly on the news out of Greece. Perhaps we could see domestic developments take center stage via corporate earnings with big names such as Google (GOOG), J P Morgan (JPM), and Honeywell (HON) posting results along with the latest on retail sales.                                                                                                                                                  

Today’s Session

The major equity indices reversed higher this morning after European officials were able to craft a deal for Greece. Provided that the country is able to reform its economic policies, Greece will receive a conditional $95 billion over the next three years from creditors. Domestically, there are not many economic data releases scheduled or earnings reports being released today to move the market.