The Tragedy of Greece (Part one)
It seems that the Greek tragedy is coming to a head. The word tragedy itself has different sources, ranging from Aristotle who suggested it came from an ancient Greek hymn sung in honor of Dionysus the god of wine, where the chorus of satyrs was referred to as the song of goats. Jane Ellen Harrison suggested the term came from the ode to the fermentation of barley (or spelt) for beer, and was most recently changed to the production of wine as Greece became gentrified. In any event the meaning seems to fit what we are seeing in Athens.
At the same time we are seeing cack-handed negotiation attempts, the politics of the Mafia or of the playground; – ‘if you don’t give me your money then whatever evil arises will be all your fault’-. It cannot be allowed to work.
It is my belief that we are headed -at last- for the correct decision and one which has been long overdue. Greece should leave the Eurozone where it should never have been in the first place. This will indeed be difficult for the Greek people. They elected an inexperienced political party who promised that they would be relieved from the pressures caused by past governmental incompetence and corruption. Despite Mr. Varoufakis’ game theory and Mr. Tsipras’ bluster, the newly elected government was unable to deliver and only served to make matters worse.
The Greek people are to be asked this weekend whether they would like to accept the European offer, with the clear recommendation from the current government that the answer should be no. The reality is that the answer to this referendum will in all likelihood be whether the Greek people wish to stay within the monetary union. One has to assume (or hope) that a pro-Europe vote will also mean the resignation of the present government. A negative vote won’t leave scope for renegotiation; it will simply bring on the Greek exit from the monetary union.
The wealthier Greeks have already moved themselves and their money out of the country; it is only the middle and working classes (in so far as they actually have work) that will bear the brunt of tax increases and cutbacks.
Investment markets do not like uncertainty. Therefore all unusual changes are met with a brief and sometimes hefty sell-off as the inexperienced 16 year old traders (or perhaps the computer generated trading programs) reduce their investment positions. The markets outside Athens will rapidly recover their poise; presumably it was part of the Varoufakis game theory that such volatility would frighten European leaders. Now is however time to increase investment in Equities. There has already been a flight by investors to government, especially German, bonds. This is perhaps understandable as an attempt at a flight to quality. Government bonds however don’t yield anything; their yields are likely to move very soon into negative territory.
The near, middle and long-term investment future lies in Equities. The European markets -outside Greece- have some outstanding profitable companies giving strong returns to investments there. The United States of America is also seeing growth, albeit not as strongly as in Europe. Those investors capable of analyzing companies themselves can clearly do so, the rest of us must depend on the skills of the many, very efficient fund managers and their companies.
Recommendations:
1. Don’t allow the Greek government to unsettle you. Other markets are strong and should bounce back quickly.
2. Now is the time to invest in Equities, especially in Europe and (more carefully) in the US.
3. Avoid the fixed income bond markets; they will sell off as quickly as they rose. Remember a 10 year German Government bond will lose 7% in its price for every 1% increase in yield.
Past performance is no guarantee of future profitability.
John Townsend advises clients on their investment portfolios for Matz-Townsend Finanzplanung. He is a fellow of the Chartered Institute for securities and investment in London (Townsend@insure-invest.de)