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Greeks gift us a buying opportunity

Greek crisis turns to riots

I am pretty sanguine about the Greek crisis and the panic that engulfed the market this week.

Newsflash – stocks don’t go up forever! If they did the FTSE would be even less affordable than UK houses. We’d need a dodgy mortgage from Lloyds or RBS just to buy their shares.

I understand the fears of contagion from the Greek crisis, the position of the Euro, the risk of the solvency of European banks, and so on.

But none of this is new. Not even Europe’s dithering – that’s business as usual. As a result, I think it’s just nervous investors throwing their toys out of the pram as they periodically do.

And that’s an opportunity for brave investors buying well-diversified UK and US stocks to profit from stock market fear.

The fact is, the more solvent states have bailed out the financial sector and supported their citizens through the recession by taking on massive public debts. Classic Keynesian stuff. Governments in these countries understand they need to at least reign in spending, even if they’re too cavalier about the longer-term debt they’ve built up over decades.

As for the basket case countries like Greece and Ireland, they aren’t canaries in the coal mine so much as dead parrots.

Ireland has taken the high road out of the mire. But then, its citizens pay taxes, its politics is not bifurcated between communists and shipowners – and its Government didn’t cook the books.

It’s extremely likely that Greece will eventually default. But I don’t believe the ECB would let the same happen in Italy or Spain. Push comes to shove, it’ll print money and wheel out quantitative easing to buy Government bonds, which it’s so far avoided.

Of course there is a cost, which as ever is the potential for inflation as well as higher Government borrowing costs in the long-term. That’s why I can’t get excited about cash or gilts (though I might finally buy some index linked certificates with my spare cash). It’s why I like stocks.

My disdain for sovereign debt on today’s low yields is such that I’d prefer stocks even if the US and the rest of the world wasn’t bouncing back into a strong recovery. But it is – companies have been knocking earnings out of the park, and yesterday we saw signs that US unemployment is turning.

Inflation risk and global growth? Stocks please.

Of course, I could be wrong about the Greek crisis. Remember, I’m no genius – you make your own decisions.

{ 4 comments… add one }
  • 1 ermine May 8, 2010, 12:55 pm

    the old Dead Parrot sketch tickled me 🙂 I’m intrigued as to why you feel Ireland is a basket case compared to, say the UK. And while I’m chuffed about the paper appreciation of my UK shares ETF, I’m less chuffed about the 30% depreciation in the currency. I piled in from April to September, and my current 18% gain is getting canned by the inflation I am experiencing (20% in road fuel, for instance, and significant amounts on food). With the depreciation of the pound from QE, I fear inflation ahead and asset deflation eroding my real net worth over time, basically to prop up the majority in the UK who are debtors and need asset deflation to erode their debts.
    .-= ermine on: what can you do to preserve capital these days =-.

  • 2 The Investor May 10, 2010, 1:47 pm

    I don’t see the pound recovering strongly anytime soon, which is one of many reasons I’m so bullish on the FTSE 100. (I took a little risk off this table with my sales last month, but have since re-bought BHP Biliton and Pearson in the falls!)

    I don’t think it’s a crisis – the pound has just been overvalued for years.

    Agree with your fears over inflation, which is one reason I don’t own gilts at today’s very low yields. Still, who knows? Time will tell!

  • 3 ermine May 11, 2010, 12:32 pm

    You’ve got a point in the £ being overvalued for years. I guess my slackness in getting it into foreign assets means my real net worth is taking a 30% haircut.

    The Greeks do seem to be a car crash in slow motion. As the Economists Buttonwood put it, since when is more debt the answer to debt…

    Hope your back gets better soon!
    .-= ermine on: we can generally have anything we want, we can’t have everything we want =-.

  • 4 2million May 12, 2010, 9:13 pm

    Agree – I finally put some additional money to work during the recent hiccup.
    .-= 2million on: Baby 2million Turns One – My How Time Flies =-.

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