Merkel, Hollande, Poroshenko, and Putin signed some documents in Minsk, the Minsk 2.0 ceasefire, which should come to force on Saturday (mid)night. After some doubts, the Novorussian Armed Forces seem ready to respect it, and so should Yatsenyuk's government.
However, Dmitry Yaroš just announced that the Right Sector will keep on fighting after Saturday night, anyway. I guess that NAF will defend itself and if the Right Sector will be the only foe fighting NAF, I would bet that the Right Sector might be neutralized rather easily. We will see what will happen.
On Tuesday, I wrote a text on Greece and Ukraine. Things look somewhat rosier now, three days later. The world markets have jumped – thanks to the Minsk 2.0 agreement but also partly due to good economic news from Germany and the EU in general. (Sub-percent deflation in Germany really, really didn't hurt anyone or anything; it's a good thing.) Dow was back above 18,000 and close to the all-time record, DAX in Germany jumped above 11,000 for the first time in the history, S&P set a new record above 2,000, and NASDAQ is back to levels approaching 5,000 last seen in 2000, before the dotcom bubble burst.
This excitement may be exaggerated because it isn't necessarily the case that Ukraine will be doing fine now. The long-term conflict hasn't really been solved yet – to solve the main long-term problem, America must recognize that its sphere of influence or NATO simply can't expand this close to Russia. And concerning Greece, the progress has been negative.
As I expected, there has been no Greek-European deal on Wednesday, on the first crucial meeting. I am not certain about it but I expect no deal next Monday, either. The gap between the two sides seems too deep. That could mean that the ECB funding will stop on that day, according to an ultimatum. No new funding from next Tuesday. However, ECB preemptively pumped €5 billion of extra cash to Greek banks today.
That extra cash could mean that Greece may postpone its financial collapse by many months. Meanwhile, it may try to find new sponsors in the U.S., China, Russia, or among the extraterrestrial aliens who may be ultimately more likely to fund their wonderful ultracommunist experiment.
Concerning the world markets, I am rather impressed how calm they are. Two or three years ago, I still had a feeling that all the prices and stocks were driven by irrational people who read tendentious scary stories in the media. I no longer have the feeling today. It looks like the market realizes that this event or another event isn't a big deal for most stocks or currencies, and so on.
Well, it's plausible that most of the small investors and similar folks are still irrational. But the hedge funds and others may have restored the efficiency in the markets. Please, I don't want to be proven wrong soon! ;-) So if some stocks are being hysterically sold by lots of emotional and irrational small investors, even though there is no good reason for their price to get down, it's plausible that the hedge funds or someone else immediately exploits the opportunity to buy at a discount.
Thanks to the hedge funds and similar traders, the market prices aren't a simple weighted average of the opinion of investors and traders. If a hedge fund is convinced that everyone else is wrong, it may decide to completely compensate all their effect on the price!
But it's also possible that nothing like that is needed for an explanation of the different behavior now and 2-3 years ago. After all, even the media no longer seem hysterical about this particular "threat to the world economy".
My main point is the same one that Standard and Poor's announced on Wednesday. The risk of contagion from Greece is low. The negotiations between Greece on one side; and Germany, rest of the eurozone, rest of the EU, IMF, and ECB on the other side are probably only deciding about the future of Greece (and of course, about the indestructibility of the Eurozone – but that's not a big deal). They are not deciding about the future of the world and the markets began to understand this point.
Economics is a fuzzy social science affected by human moods and idiosyncrasies which is why it may be affected by self-fulfilling prophesies. If most people believed that the contagion risk were high (like they did years ago), they could immediately start to hurt the price of all other "potentially risky" assets such as the bonds of other PIIGS or even FIPIGS countries and almost all emerging-market stocks, among others. And by doing so, they could cause real problems to these countries and companies etc.
So what investors believe actually does help to determine what will happen! And irrational beliefs may do lots of harm that wouldn't occur otherwise. But my feeling is that these irrational fears have largely evaporated.
It's popular (or it was popular?) among economists to talk about the domino effect. Even e.g. Václav Klaus would like to talk about it. I think that this effect is wildly overestimated and it's a part of some collectivist ideology – and even transnational collectivist ideologies whose goal is huge redistribution at all levels. All of us depend on everyone else, the story goes, so we effectively share everything and we must help everyone else to avoid a crisis affecting us as well.
But that's nonsense. It's very important for the functionality of the human society that people, companies, and nations should be responsible for their fate in general and for their finances in particular. Sometimes, problems of a particular company or country may affect its business partners. But the effect on the business partners is usually much weaker because the troubled subject is usually not the only partner – or the only possible partner. And the affect on the partners of partners is even smaller and may be pretty much neglected.
If you get e.g. from Greece to some really generic people in Europe outside Greece, well, their assets contain (much) less than 1% of those linked to Greece (Greece's economy is 1% of the EU and thanks to Greece's being a largely isolated land, this still massively overstates how many Greek assets and contracts exist outside Greece), so their loss if Greece were erased from the map of Earth would be (much) less than 1%, too. That's why it would be irrational for the stock indexes in other countries to drop by many percent or even 10% or 20% just because a meteoroid (called Syriza) plans to turn Greece (but no one else) into one big crater. It's sad for this cradle of the Western civilization but it's largely inconsequential for everyone else.
Concerning the stocks that rose in recent two days, I think that people should be led to understand the correlation of this "purely financial" dynamics with the observation that "the world became a somewhat better place". The rise of markets and the improvements of the world are not "quite" the same thing but they are rather similar things. They are strongly positively correlated.
If people were owning many more stocks from various other countries and regions in the world (and I mean for them to be long, not short), I believe that the world would be a much more peaceful place because people would simply enjoy (and they would be motivated to enjoy) more if someone else is doing fine. I am surely not ultrarich etc. but I do own something linked to the value of stocks of very many types and associated with very many regions, and so should many more people in the world.
That's my recipe for the world peace. Now follow me and feel free to recommend me for the Nobel peace prize, too. ;-)