Global stock markets got beaten up overnight and the carnage continues here in the U.S.
By the time they rang the closing bell, the Dow Jones was down 350 points. That’s just under two percent. That was the biggest point loss of the year. The Nasdaq was down 122 points. On a percentage basis, I think that was closer to two-and-a-half percent.
The real interesting story, though, happened in the foreign exchange markets. The news that sparked the sell off was the Gr-exit—the potential now being maybe 50-50, maybe more, that Greece is going to exit, that the Greek citizens are not going to accept the terms necessary to qualify for the bailout.
About a week ago, there was all sorts of optimism that a deal was done. That fell apart over the weekend. They announced the closure of Greek banks. I believe they will remain closed. There were photographs on the Internet of long lines at ATM machines across Greece.
Hey, by the way, take a good look at those images, because that’s coming to an ATM machine near you one day—except it won’t be as civil. I expect to see a lot more unrest, maybe a lot more fighting breaking out on those long lines—not the civility that we saw over there in Greece.
All of that initially sent the dollar rising. The euro got down last night, when I looked at it near the lows, the euro was down near 1.09 to the dollar, so an initial sell off of two cents because people were worried. Oh, Greece is going to leave the eurozone; this is bad for the euro.
I’ve been saying all along that I think the best thing that could happen to the euro is a Gr-exit because I think Greece is dragging everybody else down. Not that there’s no more dirty shirts in that hamper, but the whole idea, or the fear, is that when Greece goes it’s going to be some sort of domino effect—that Portugal and Spain are going to go. I think it might have the opposite effect. I think it will scare the rest of Europe straight. They’re not going to want to live through what the Greeks are going to have to endure, and so they might want to get their economic house in order.
But also, you’ve got the old trading adage of buy the rumor, sell the fact. People have been buying dollars and selling euros for so long now based on worries that a Gr-exit, that when it finally happens you take profits—you go the other way. And that’s what happened.
Now Puerto Rico has announced it cannot pay its debt. What does Puerto Rico debt mean for the United States? Tune in to the full podcast episode above and listen to more episodes of Peter Schiff Radio here at Truth In Media.