If all we get from the Fed is 'patience' then the interpretation might be 'dovish'

Outlook:

The Greece story is developing rapidly, with a hot new element in the form of Russia sticking its nose in and at least some eurozone officials disapproving a change to reform with the freezing of the privatization of one state asset, the port of Piraeus. Dijsselbloem will have his work cut out for him on Friday. This is two young Turks and let’s see if the lack of experience is harmful. We don’t know whether the rise in gold has anything to do with Greece or other factors, like central banks everywhere pulling back, equities being downtrodden yesterday, or some other thing, including geopolitical messes (Ukraine, Israel/Lebanon). As noted yesterday, so far we are not seeing contagion to other southern tier countries but it’s hard not to imagine a number of people holding their breath, like Italy’s Renzi.

Martin Wolf in the FT lays out the case for cutting Greek debt in half and also cutting in half the required budget requirements, something recommended by a former IMF official, in return for real reform. The bailout loans already made were bad loans with delusional forecasts about the pace and size of the economic response (Krugman’s observation). A very big chunk went to pay creditors, not to rebuild. Europe was not generous to Greece. Quite the opposite. The bailout “went overwhelmingly not to benefiting Greeks but to avoiding the writedown of bad loans to the Greek government and Greek banks. Just 11 per cent of the loans directly financed government activities. Another 16 per cent went on interest payments. The rest went on capital operations of various kinds: the money came in and then flowed out again. A more honest policy would have been to bail lenders out directly. But this would have been too embarrassing.”

Wolf says conditions in Greece are truly catastrophic. The world should step up and face that Greece needs an entirely different bailout, bigger and longer-lasting, and structured properly this time. If not, the EMU is just a currency union and one that should be exited. Wolf can sometimes go overboard but this time he has a compellingly constructed story. The implication is that the troika, far from being passe, needs to gear up again, with leadership from the IMF.

The big event of the day, barring any surprises, will be the Fed statement and there just about everyone expects to hear the word “patience”—and nothing else. As noted above, Morgan Stanley has a bold new forecast that we don’t get the First Rate Hike until March 2016, but any other forecast is equally plausible. We wish the Fed would be more forthcoming. When Yellen was at the San Francisco Fed, she was the most straight-shooting of the regional Fed presidents. Since becoming chairwoman a year ago, she has lost that touch.

If the consensus is right that all we get is “patience,” the interpretation will be “dovish.” Yields will retreat again, the dollar could lose traction, and oil and commodities will resume the downdraft. The winners are the equity guys.