It appears the Greeks of today will only find glory the same as their Spartan ancestors: through intense conflict and ultimate death. In modern terms that means default, austerity and depression. In reality, this means little to the global economy as Greece wouldn’t even be one of the largest cities in California. The problem is a contagion. Much like what happened in the US with Lehman Brothers. It wasn’t that Lehman was so important on their own, it was that everybody was tied to them in some way.
This has led Moody’s and Fitch to announce that a restructuring of Greek sovereign debt would be considered a default and lead to further destabilization across Europe, stating that, “A Greek debt default would hurt other peripheral Euro-zone states and could push Portugal and Ireland into junk territory.” While the Greek government has moved to accelerate sales of state assets to raise 6 billion Euros, the leader of the main opposition party in Greece, in true Greek fashion in a hopeless fight to the death, has stated that he would oppose the latest round of austerity measures. Prepare for glory!
This has become so important to us at home in the US for 4 reasons:
1. As bad as things seem in the US, they’re worse across the pond! This leads to…
2. …A stronger dollar. The Euro problems accompanied with the end of QEII will push the dollar higher. I discuss this in my commentary a few weeks ago “QE Mini-Me, The Dollar and Inflation.” And of course, a stronger dollar…
3. …Has led to lower US stock prices, at least in this Fed stimulus bull market. However, there is one stealth issue which is that…
4. …No news is bad news. Now that we are now past earnings season and there is no more good news for stocks to push them higher until the next earnings releases start to pop up.
All of these issues are creating strong headwinds for stocks, but very good for bonds.
To read Investor Strategy click here