On the Greek Fix

"Oh My", That's my first thought after having read what the deal the Troika & IMF just reached on Greece.

I say "Oh My..." not to be sarcastic, not to be dramatic, I say it because it's so ridiculous that it puts even the G-20 forced "Leveraging of the EFSF" to shame in how plainly obvious it is that they weren't looking for a real solution, it appears more like they were looking to get home before supper time. I say it because I truly feel horrible for the Greek people.

The deal reached (one of many) is to lower Greek Debt to GDP to 124% by the year 2020. Just setting aside that Greece has missed every target set forth for them and has had to come back for more bailouts, more time,  has sought to and has changed terms numerous times (the Greek bond-holder's haircut is a prime example) and is generally incapable of hitting any target set that isn't set below instead of above, this deal is unbelievably naive and that's probably why the market isn't going to buy it in my opinion; it may serve as the catalyst for the head fake move outlined a few posts back, but this is not going to be the last meeting and deal on Greece by a LONG shot.

Eurozone finance ministers and the IMF have reached a deal to cut about 20% of Greek debt (details here are sketchy), but the idea is they are making it easier for Greece to reach the target of 124% debt to GDP by 2020.

Whether the IMF and EU stick to their side of the agreement, whether Greece sticks to its side of the agreement so the Troika doesn't have to have these meetings to decide whether or not to disburse the next tranche of Greek aide is totally irrelevant in this case.

Even with the goodies that were just thrown in, Greece would have to grow their GDP by nearly 28% by 2020 to hit the 124% debt to GDP, that's $51 billion dollars and the Greek economy or rather GDP would have to put in one of the most amazing reversals of all time (they better discover teleportation to replace their shipping sector to do this). Here's what the reversal of Greek GDP would have to look like EVEN WITH this deal...

To the left we see actual Greek GDP trending lower in 2010 from about $222 bn Eur to what is projected to be $184 bn Euro before their GDP turns upward and moves to the projected $235 bn Eur GDP by 2020. Considering all the cuts to their jobs/economy in the name of austerity, can you imagine Greece putting in this kind of reversal this fast?

And if you are wondering how the track record for the IMF's previous forecasts for Greece has fared so far, take a look...

I see 5 ever-more optimistic forecasts and each one has seen a dramatic miss, but this one above is going to be the one they actually got right?

It's no wonder the Euro's initial enthusiasm has turned a bit choppier...

On this 1 min chart of the EUR/USD the party lasted all of about 35 minutes before some serious doubts and reservations crept in to trade.

It should be an interesting overnight session. I think sometimes keeping the market guessing is better than a bad answer.