The Guest Blog

Farrell: An Olympic Effort to Save Greece


Big brother and big sister came to the rescue—sort of—and said they would throw in 60 billion of Euros—maybe—if Greece needed it.

If they need it?

Greece will try to sell some short-term T-bill-type paper on Tuesday and if successful will look to peddle the real stuff over the next few days and weeks. Apparently, if they can't, the rescue package gets implemented. What the Euro community is hoping is that, by saying they will, they won't have to.

Let's hope so, but I have nothing but bad feelings about this.

I read that Greek hairdressers can retire at age 52 since they work with dangerous chemicals. I figured that it was a joke but I'm told it's for real. If Grecian society (get it? Grecian, like Grecian formula for men!) has that level of entitlement ingrained, I would fear that it will take a near miracle to change attitudes.

The Parthenon in Greece
Scott E. Barbour | Getty Images

60 billion Euros won't be enough.

The can is kicked down the road IF the money is allocated under whatever criteria are the triggers for drawing it down.

I am probably completely wrong, but I can't see Angela Merkel with a regional election in May agreeing to bail out a profligate nation.

The spin would be the German cost of funds would be below the interest rate charged the Greeks, so that would have a positive carry. I thought the European community had a no bail-out clause in their constitution. I guess it sounded good when they drew the papers up. We have not heard the last of this of this drama and, remember, Greece has been in default 50% of the time since 1800.

Aren't they overdue?

The London Financial Times says Greece's debt is 120% of GDP. The US government debt is 63% of GDP, according to Monday's Wall Street Journal, and rising. It will reach 90% by 2020, says the non-partisan Congressional Budget Office, assuming the end of the Bush tax cuts don't impeded growth rates. Higher taxes—whether needed or not—do slow growth. Federal spending is almost 25% of GDP versus the longer-term average of 21%. The budget deficit as a percent of GDP is almost 10%.

The WSJ quoted a report by the Tax Policy Center, another non-partisan group, that calculates: to lower the deficit to "a sustainable 3% of gross domestic product, the government would have to find an average of half a trillion dollars a year in new revenues (or spending cuts)." To raise the cash would require the tax rates on the top two brackets "roughly $209,000 in family income... to go from 33% and 35% to 72.4% and 76.8%." Almost half of US families pay no Federal income tax now as it is, and to think that we can pay for our programs by taxing the top 1% or 2% of incomes is naive at best. Broad-based tax increases are coming since there is no political will on either side of the aisle to cut spending.

Watch for a lot of talk starting now about a VAT tax and the wonderful benefits it provides.

I read in Barron's over the weekend that a major Wall Street firm is guessing that "consumers will start spending at a faster clip, businesses will hire more workers, and private credit demand will return sooner than expected...(and) Treasuries will be crowded out at a time the government is selling massive amounts of debt."

This firm's gurus see the ten-year Treasury going to a 5.5% yield by the end of this year. It's about 3.85% right now. The US is expected to sell over $2 trillion in debt this year, so it makes sense that yields could rise, but this is not news. The market has known this and it has long been factored into the market. I would guess we will see 4-4.25% on the ten-year as the year goes on. I can't see that robust a consumer when we have very high unemployment, abnormally high debt levels relative to disposable income, and a savings rate that is too low to give the average family a margin of safety.

Neil Herman has just joined the Soleil platform and is recommending Nuance Communications (NUAN, rated Buy, recent price $17.46). Nuance is a leader in the voice recognition field and offers "complete solutions to call centers and the healthcare industry as well as technology through partners in the mobile and automotive industries." Neil believes the company is positioned to deliver 19% top-line growth the next two years. His target price is 16 times his 2011 estimate of $1.33, or $21.

Vincent Farrell, Jr. is chief investment officer at Soleil Securities Group and a regular contributor to CNBC.