FYI | Jul 08 2015
By Peter Switzer, Switzer Super Report
The final act
The Greeks are some of my favourite people and I go to their islands regularly, but they are living in the past, which is great for holidaymakers but not for creating a competitive economy that one day might be able to beat its debt obligations.
Unfortunately, the Greeks have been lied to by their Prime Minister, Alexis Tsipras, who said he would have a new debt deal within 48 hours. But the European lenders have to make Greece pay for not playing ball with their debt obligations or else Portugal, Spain and Italy might try the same “we can’t pay up” stunt, if it proves painless.
Right now the Greek Government is trashing its best export — tourism with ATM queues, etc – which brings in about 30 billion euros a year in export income. I know the EU have imposed tough, maybe too tough, austerity rules on Greece but the Greeks have not done enough changing, with tax evasion still crippling the budget bottom line and the fiscal integrity of the country.
I wish the Greeks well and going onto the drachma, which will lead to them copping an economic kick in the pants, is probably the best outcome from this referendum. However, there has to be pain and I expect it, and we will share it.
So what will the costs be? Well, stocks will fall this week and the Yanks will delay their first rate hike if this Greek drama ends up spooking stock markets for longer than what I expect.
This will delay the fall in our dollar and slow up our stock market rebound but it won’t permanently stop it.
How to play
So how will I play this Greek annoyance? First, my safest play is to buy the banks as a group of four. They are paying nice dividends and when you look at their all-time highs there’s a lot of easy money to be made over the next year. If Westpac can take out its previous high over the next two years there is about a 25% gain when you add in dividends. I think the new CEO and an improving Aussie economy, with a dollar at 70 US cents or lower, should make this possible.
The dollar won’t directly help Westpac but it will bolster growth and our banks will share in better future economic activity along with higher interest rates!
My riskiest play is to buy great companies such as BHP Billiton, Rio and Woolworths. They all have industry specific challenges and their current share prices look attractive but they do have hard-to-ignore issues. I think Woolies could have the biggest obstacles to success with Aldi set to expand strongly over the next year.
My best play remains an ETF for the S&P/ASX 200 index. I can’t believe we wont see 6,000 this year, so if we make 500 points on 5,500 that will be 9% and plus 4% for dividends (which is conservative), there’s 13%!
Sure it will take time to happen but I reckon there will be a Santa Claus gift to stock players who maintain the faith, with pre-election years in the US historically good for stocks.
With the US economy on the rebound, there looks to be sufficient reasons for having confidence in Wall Street setting a good lead for our market.
Another play I like is the European ETF called IEU as I think Europe — away from Greece — is doing better than expected and the European Central Bank will be going out of its way to make up for Greece’s potential negativity for stocks and the broader EU economy.
The big lesson since the GFC has been ‘”don’t fight the Fed” and the ECB is playing a Fed-game and these are more reasons to keep me positive on stocks for 2015 and 2016.
The opportunity
This week, and possibly next, will create a buying opportunity for those who believe in central banks, quantitative easing and the economic recovery in the US, as well as the fledgling improvement of the European economy.
.I would have loved the Greeks to vote yes for the sake of stocks worldwide, for the sake of Europe generally and for good sense but that is so un-Greek nowadays.
Certainly the lenders have imposed too austere debt repayment obligations but the Greeks have not changed enough, so combined it’s a double negative for Greece.
I bought a T-shirt in Lemnos that summed it up:
“The Greek Crisis: No money, No job, No worries.”
That has to change but it will take time and a whole lot more harsh lessons for my beloved Greeks.
It’s time for tough love. I hope they are up for it!
Fortunately, I can’t see this Greek tragedy having long and enduring implications for stocks and so it actually creates a money-making opportunity.
Ah, the mad, mad world of money!
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Peter Switzer is the founder and publisher of the Switzer Super Report, a newsletter and website that offers advice, information and education to help you grow your DIY super.
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