This communiqué is being ‘penned’, or more accurately tapped out, in the Plaka with the Acropolis literally hovering over the roof top pool area of our hotel. To the naked eye, as we drove in, nothing has changed in Athens and that probably says it all.
After being in Abu Dhabi where the airport is like a small city and is being made bigger and better, the International Airport of Athens looks like Alice Springs! Yet, my FT newspaper leads its FTfm (FT fund management) section with “One-third of investors expect a Grexit.”
Dodgeball
Those suckers held up their 300 million euro payment last Friday, for political, and not money reasons, to make one big payment at the end of the month. If this money does not come then, it may have to kiss goodbye to its badly needed 7.2 billion euro bailout money.
The country used what is called the Zambian option to dodge the Friday payment and delay it, based on what Zambia did to the IMF in the 1980s!
But how could a tin-pot country such as Greece potentially rattle global stock markets and knock around our portfolio of stocks?
According to a survey from Swiss fund group GAM of 78 significant institutional players, “One-third of investors expect Grexit” from the Eurozone. Note how a newspaper such as the FT takes the negative spin, totally missing the reality that two out of three are optimistic that Greece will make it and stay with the euro.
My driver — a laboratory assistant at a Greek hospital — whose salary has been reduced because of the country’s austerity program linked to their bailout program, told me if “we leave the Eurozone it would be a catastrophe”.
She might have read, as I have, that deposit withdrawals in recent weeks have been big enough to see experts say a full blown bank run can’t be ruled out. Over one month, 4.9 billion euros was withdrawn from bank accounts but over five months, 12% of the systems deposits have been withdrawn and have not come back!
On Friday, the Athens bourse tumbled 5% and the National Bank of Greece lost 11% in a day but the Piraeus Bank topped that slumping 14%.
Meanwhile, in Athens the Greek Party in Government is playing hardball with its PM, Alex Tspiras, who is being criticized by his own MPs for being too concessionary to the EU/ECB/IMF negotiators.
The guy I was hoping to interview, rock start Finance Minister Yanis Varoufakis, seems to have been sidelined, following criticism of his appointment to the IMF of a Greek American female. It seems she was not seen to be sufficiently left-wing by his colleagues. I have not been knocked back for the interview so far but it does not look promising.
In reality, I could be seen as relatively unimportant given the task these suckers face right now. I think the creditors are playing too-hard ball with the Greeks as they have got their budget into surplus, they have raised their GST from 18% to 23% for many items but their austerity is killing economic growth.
The big drama that will play out over June and will put a dampener on stock markets will be what if Greece exits? Would Portugal or Italy say enough is enough and follow suit? I doubt Italy would but a general election could see Socialist-like parties like the Syriza Party, which now runs the Greek government, win in Portugal and even Spain, which could really rattle stock markets.
The US effect
Against this negativity — you get a lot of that reading the financial press all around the world — the US powered into positivity territory on the back of great job numbers. Unemployment did rise to 5.5% but it was because more Yanks went looking for work, which is a good economic omen. Some 280,000 jobs were created in May, which was a lot more than the 215,000 tipped by economists.
The US recorded a negative 0.7% growth rate for the first quarter, which was cold weather affected. Negative types were weather deniers but this May jobs number has hit them out of the park.
The Yanks might get some average growth numbers but the reality is that Americans are finding work, wages are rising and the stock market is in all-time high territory. The good news is so good that September is becoming more favoured as the month when US rates will rise.
This is both good and bad news for our stocks, as the market has to deal with this first rate rise. Bond yields are also on the rise right around the world and the good US news is to blame. The German 10-year Bund yield was at 0.84% on Friday, which was double what it was at the start of the week! That’s huge.
My copy of the FT says there are three risks to stocks — a Greek default, the first US rate rise and a surge in bond yields — but a Chinese stock market bubble is thrown in as an extra curve ball to worry about!
Wall of worry
In the financial press, good news like 280,000 new jobs is dismissed for what might go wrong, not what might go right and in a sense this defines the wall of worry that all bull markets have to climb.
President of the ECB Mario Draghi warned us last week to get used to volatility and he was criticized in some quarters for being realistic. However, it totally makes sense with some stock markets in Europe in all-time high territory and Chinese stocks doubling over the past year. As economic readings improve, even in the Eurozone, you simply can’t expect markets to avoid volatility. In fact, I think it means we are moving back towards normalcy, which is a good thing.
If you are a regular reader you know I have been regularly warning that we are in a dip-buying time but the good times could be post-September.
We did not get a big sell-off in May, it has waited until June, but as the old saying goes “…come again on St. Ledgers day” and I think this will usher in some interesting stock-buying days.
John Stopford, the co-head of multi-assets at Investec said this to FT: “Once we have got through summer, we are quite confident that markets can rally and economies can recover.”
I have argued consistently that when the Yanks either raise rates, or it seems imminent, the market could sell-off. But value hunters will buy on this dip ahead of another big ride up on the back of a strongly recovering US and an increasingly improving Europe, China, Japan and Australia too.
It explains why I want to remain 100% invested on stocks until some time in 2016 but I could end up extending my stock positivity until 2017. That’s a story for another time. Until then, watch this space.
One final point, our dollar will eventually fall to low 70s or even lower, so getting positioned for overseas growth is a sensible strategy, as Charlie Aitken keeps rabbiting on about. And I think he is right.
My goal in coming weeks is to show you the best way to position yourself for market growth abroad and a lower dollar. Simple conclusion? Greeks and the Fed could cause some short-term worrying market fluctuations but the US and its recovery will ultimately be good for stocks.
Important: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Consider the appropriateness of the information in regards to your circumstances.
