Ok, I thought I would revisit this topic. Some time ago, I made a terrible calculation regarding the GREK stock index, expecting a profound jump once the political resolution was evident. My financial cacluations were actually correct; but I terribly miscalculated the political process and ineptness of European leaders. My bad.
My last recommendation was two fold, when it became evident the process would be painfully longer than imaginable, to look out 6-12 months, for the intermediate term; and that GREK (the Greece stock market index tracker) would outperform both European and US stock markets.
This has, in fact, been absolutely true so far. All major European markets have been obliterated and the US market is down about 10%, having recovered a bit off the lows in extremely volatile trading. The GREK index is down about 3% only, trading around $10 and down from when I made my call at $10.33.
I still hold onto this conclusion. In fact, given the uncertainty in western markets, GREK provides a good hedge. If markets recover, it will outpace western stock indexes. It is the only stock index I would recommend right now. But keep in mind this is a 6-12 month call, and volatility (up and down) will occur.
Some interesting notes regarding the political process in Greece. New elections are coming next Sunday and the same leftist Syriza party will win. The Greek finance minister was forced to resign by European leaders in exchange for the bailout, after the referendum vote. More recently, the prime minister, Alex Tsipras, I also believe was forced out by European leaders in exchange for the final deal (which is still in limbo). I don’t believe he resigned of his own accord.
An interesting story with a high probability of truth came out shortly after the referendum. It had been widely rumored, with major elements of truth, that Greece was seeking assistance from Russia – an expansion of the gas pipeline deal – to allow Greece to reduce dependence on Europe. Russia was interested for political and economic reasons. It allowed control of a EU member state which could influence sanctions against Russia. And economically, the pipeline allowed alternate routes besides through Ukraine, whom they are at war with, creating dependency and uncertainty.
Prior to the referendum, the Greek leaders had started making plans to possibly reject the European bailout terms which had clearly been strangling their economy. Russia had verbally agreed to a deal with Greece. But on the night of the referendum, Putin changed his mind and notified Tsipras, leaving Greece with no alternative but to accept the heavy handed German led bailout terms. My theory is that German intelligence most likely found out about this agreement and forced Russia’s hand, perhaps threatening more severe economic sanctions in response.
In the end, things are not always as they seem. We live in a convoluted world. And politics is the nastiest game in town. Predicting political outcomes is equally dangerous.
Germany’s goal with these punitive austerity measures and control over these bailout countries is indeed intended to be punitive in order to prevent others from making these same mistakes again, and thus requiring more German taxpayer’s dollars.
As I’ve said before, perspective is interesting. You can see both sides of the argument, even if only one side is correct for long term European success and stability. Germany’s vision is only partly correct.
The lesson learned here (more of a painful reminder), is to never discount the powers that be, and the power of money; or rich nations’ control and influence over the weaker ones.