Market Summary

It now appears that a Greek default is imminent and that the banks that hold Greek debt/bonds will now have to write down that debt on their balance sheets. Greece has recently imposed a new property tax in addition to other austerity measures in order to qualify for the distribution of a second portion of a bailout package put together by the European Central Bank (ECB), the European Union (EU), and the International Monetary Fund (IMF). If Greece does not receive this second tranche of the bailout package it will be unable to pay its pensioners or interest on its debt which is currently 57% on a two-year note. From my reading German and French banks are most at risk however the contagion risk could spread to the global financial markets. Among the safe havens are gold and US Treasuries. As foreigners convert their currencies to US dollars in order to buy US Treasuries the dollar rises in value and that is what we are seeing. The chart below shows the Euro bank notes falling below the 1.40 level and to the lowest level in the past six to seven months and headed towards the 1.20 level. We see a series of lower highs and lower lows over the last three years which is bullish for the US dollar. As the Euro falls the US dollar rises which makes it more expensive for foreigners to buy US goods. This hurts exports and the stock market. The S&P 500 futures are currently at 1138 well below the 1150 support area and most likely headed to the next level of support at the 1100 area. Click on chart to enlarge.