Europe, of course…and China. Will Greece secede from the Union? Who wins on June 17? And why do we care anyway. Greece’s GDP is not even close to that of Walmart for heck’s sake. But Greece does matter. Why…because there is no real way for them to exit gracefully. Already billions of Greek Euros have exited the country. And will continue to do so. Maybe they will just squirrel away all those Euros, default on their external debt and call it a day. The “New Drachma” emerges, they do it very hard for a while…say a year or two…but get back on their feet with no debt and a devalued and competitive economy.
And why not? Iceland did it, Russia did it, Argentina did it. Governments do it all the time…in fact that’s they’re very good at it. It’s probably the one thing they do consistently well. But what if the Greeks do it? Will not the Irish say enough with their responsible austerity and punt for their good old Punt again. What about those folks in Portugal…it might be tempting to them too?
Contagion is obviously an issue but an unmitigated Euro wide bank run is the real fear.
Germany has been the biggest beneficiary of the Euro by far. They have made a fortune from a level currency playing field in Euroland. But nothing is good forever and now they too are facing the music…and it’s beginning to sound like a funeral dirge. What to do Angela, what to do? Should you agree to installing a Europe wide equivalent of the FDIC…and how exactly does one do that? It worked in the US to help maintain people’s faith in the banks in the dark days of late 2008. Maybe it will work in Euroland? But wait…how exactly do you guarantee every deposit in every bank throughout the Eurozone. With Eurobonds perhaps? But who’s going to back those Eurobonds…who has the financial capacity to do that? France? Hmmmm…OK their ratings are still respectable but have you seen how much they spend on their government and programs…not pretty. Italy…ditto for France unless you could get their “shadow economy” to cooperate. Spain? You’re kidding me aren’t you? No…it really all comes back to Germany. They are the only country with any credibility remaining in Euroland. Time to pay the piper Angela! The Euro federalists (those who would like to see a truly unified Europe…ala the good ol’ US of A) must be salivating right now. As the current Chicago mayor (and former Presidential insider) is want to say…”never let a crisis go to waste”. It’s a mess for sure…but whether it’s a Machiavellian contrived mess to bring about a truly united Europe remains to be seen. An FDIC equivalent would be a strong indicator that it is.
Meanwhile…on another part of the globe…the Middle Kingdom is surely slowing. And that’s another (but somewhat related) story altogether.
What does all this mean for us as investors? Well…clearly we are bearing that old Chinese curse of “may you live in interesting times”. Interesting times indeed…and somewhat terrifying they are too.
At Craven, however, we relish interesting times. Terrifying times are even better. Why? Because iteresting times bring heightened emotional responses to those twin drivers of the markets…fear and greed. We know what stocks we like and we know the prices we like them at. We will keep watching and waiting…with our patient capital…positioned to profit from the opportunities that a nervous market always provides. We suggest you do the same.
