The next phase of the Greek crisis here...I’m hope it gets worse.
Earlier this morning the main page of Yahoo Finance said, “World markets are plunging as Greek voters say ‘no’ to new austerity measures.”
They’re right in that while Americans were out buying discount mattresses and attending “Tent Events” and Toyotathons, Greek voters went to the polls and sent an overwhelming “No” vote on Eurozone bailout by a 61% to 39% margin.
They’re wrong in the “plunging” though. Sure, Greece is getting slammed. The Global X FTSE Greece 20 (GREK) is off 8% as I write. But the main indices in Japan, Germany, and England were down 2.1%, 1.4%, and 0.6% respectively.
The only major casualty outside of Greece has really been oil. It’s down about 5% today to right around $54/barrel. We’ve said was too high for months, so it’s hard to put all the blame on Greece though.
Despite all that though, let’s be realistic though. The situation in Greece and the Eurozone is not good. But it could -- and hopefully will -- get much worse.
Uncertainty = Opportunity
The vote over the weekend has sent the probability of Greece’s exit from the Eurozone soaring.
As you can tell by the market’s reaction (not the media’s reaction) the odds of a “Grexit” from the Eurozone are still pretty low.
According to oddsmakers at Betfair.com, a European betting agency that’s taking bets on this and all sorts of things (note: they have Hillary with a 50% chance of winning in 2016 and Trump at 2.5%), the odds of a Grexit have increased dramatically today.
At the start of the year, a Grexit before this year is out was paying $5 profits for every $1 wagered.
After the referendum, the Grexit payoff is down to $1.50 profit for every dollar bet.
Conversely, the payoff for Greece staying in the Eurozone is still a relatively low 57 cents profit on every dollar bet.
So, judging by the stock market’s actions and the betting market, the odds are still greatly in favor of Greece staying in the Eurozone.
That’s good news for those expecting Greece to stay in the Eurozone. It’s even better news for those of us hoping this all drags on even further.
The one thing we know without a doubt in all this is the Greece mess is creating a lot of uncertainty.
I mean, there are so many variables to the situation.
Alexis Tsipras, the Prime Minister of Greece, surely feels his hand has been strengthened by the vote results. He now has popular support of three out of five Greek people to push back against the rest of the Eurozone. And he knows Germany and the top Eurozone powers do not want Greece to leave.
The Eurozone has made it clear they don’t want to deal with him or his demands for a better deal for Greece. And they still have the power to plunge Greece into further financial turmoil by not extending some emergency funding this week.
There’s also a number of real wildcards too.
In a bit of political theater, Tspiras spoke to Russian President Vladimir Putin today. He would love a close relationship on the mainland and the rest of Europe would hate it.
There’s also a “nuclear option” in dealing with a troublesome national leader for Europe too.
Back in 2011, when Italy was where Greece is today, Eurozone leaders took action to get the deal they wanted done.
Silvio Berlusconi, the Prime Minister of Italy at the time, was ousted and Mario Monti was appointed the new Prime Minister. No vote. Just an appointment.
Monti was a Eurocrat through and through. His biggest resume bullet was he was a major string-puller in establishing euro as a common currency in the late 90s.
Greece: How to Win Either Way
In the end, there’s just too much going on here to know exactly how it will play out.
It could go one of two ways:
1) Greece exits the Eurozone and panic ensues. The type of panic which sends Greece stocks as much as 40% to 50% and the rest of Europe down 10% or more.
2) Greece stays in, but the ongoing negotiations causes more sell-offs in the days ahead.
Either way it’s an opportunity for patient investors.
Uncertainty has been rising for months. This situation is just the latest event which still has the potential to send stocks down across the board whether.
That’s where the opportunity comes in and it will drive what we’re doing here.
Throughout the rest of the week we’ll look at opportunities with a high degree of certainty in a market where uncertainty is soaring.
You’ll see what I mean. And if you can look beyond the nonsensical headlines and past the next couple of weeks, you’ll like what you see too.