Greece and the Markets

The Greeks do seem to like being at the centre of attention. Just when we thought the finances were back on the straight and narrow, Greek Prime Minister George Papandreou has gone off at a tangent and announced a Referendum on the austerity measures demanded by the EU if Greece’s finances are to be rescued.

Markets don’t like shocks, surprises or the unknown and this news fits into all of those. Since the low point for the FTSE index of 4944 on 4th October, the index had risen to 5714 by 27th October, a healthy gain of 15.6%. The German based DAX index hit its low point of 5072 on 12th September, and had grown by an even bigger 25.1% to 6346 by 28th October.

With this latest Greek news, the FTSE has fallen back to 5422, while the DAX is now on 5835. Even with the bad news though, these numbers still reflect a positive return of 9.7% for the FTSE and +15.0% for the DAX since their recent lows. Still not bad for a few weeks growth, but nothing is guaranteed and in the current uncertainty they could easily fall the same amount again.

How does this affect you? Well, volatility is a benefit for regular savers, especially in an environment of generally upwards growth such as we have seen recently.

For existing investors, we have to remember this is a short term problem that will eventually be solved, and over the long term investments in the stock markets generally give better returns than cash, or indeed inflation which is creeping back into the picture worldwide.

For new investors, being so close to a recent low is a benefit as new money now is buying you more shares than if you wait for the market to grow another 20% to 30% before you feel confident enough to invest.

Papandreou’s actions here remind me very much of UK Prime Minister Ted Heath’s action of calling a General Election in the middle of the 1970s miners’ strikes. His gamble was that unpalatable choices had to be made and he would have more clout to push them through if he had a recent mandate from the people to support him. He lost, and a few years later the IMF had to be called in to rescue the UK economy.

I suspect the Greek PM is thinking the same way. With terrible riots going on for some time now, he may be thinking that if he gives his people a stark choice, more people might come around to the politicians’ way of thinking and end the disturbances. His strategy may be to try to bring the people into the decision making process, and making them focus on the alternatives to the EU rescue deal so that they see that, in reality, what he has managed to get for them is a lot better than what will happen if Greece doesn’t accept the deal – quite possibly the ejection of Greece from the EU.

Yes, it’s a gamble, but the people of Greece are in denial and need to come back to reality. Perhaps a referendum – and all the analysis and discussions that would precede it – will help the Greeks see the wood from the trees, and put a end to the support for the rioting.

At the moment, a lot of opportunistic elements are indulging in a frenzy of destruction, just because they can. The communists are fighting the fascists, and the anarchists are fighting everybody. A lot of ordinary Greeks are just not getting involved, but while the tacit support for the rioters point of view exists, it is hard to put an end to the rioting.

Will the markets see things this way? Maybe, but first of all they want to make some profits from the volatility. The end of the year is fast approaching, and they have their eyes on their year end bonuses – what happens next year isn’t their problem for the most part.

For you as an investor with Grether MacGeorge, remember your investment strategy is focussed on the long term, not on what happens in the next few weeks, or on any individual news story.

The markets are still up on their lows, economic signs of recovery are beginning to show tentatively here and there. For example, higher US construction, manufacturing and consumer spending, plus higher property prices in the UK, and in little snippets here and there.

This entry was posted in Investments and tagged , , , . Bookmark the permalink.