In today’s post, I’m not going to write a lengthy post about the recent events in Greece and speculate on what will happen next. Each day, I receive about 25 pages worth of data and analysis about what is happening in Greece and it keeps my mornings entertaining, but that’s about it.
Newspapers have found their perfect story for a calm period. Since there isn’t much going on the market these days, the Grexit phenomenon arrives as a savior to generate more clicks and newspapers sales. Still, is it really worth it? Are we on the verge of crashing the market again? Let’s recapitulate briefly what is happening in a few points:
#1 Greece can’t repay its existing debt and wants a new deal
Fair enough; the country is in the deep hole: unemployment rate is at 27% and the economy reduced by 25% since the first Greek drama. The population has nothing to lose and voted “no” to more cutting budget measure in exchange of a few gasp of oxygen in the meantime.
#2 Germany feels the weight of the world on their shoulders
Germany has the “superman syndrome” lately as it has to save every single European country one by one with more accommodating debt structures. This country wants the hard line against Greece. Surprisingly, this line of conduct is supported by smaller countries with debt problems such as Portugal, Spain and Ireland. To be honest, they just don’t want to see Greece succeeding in having a better debt restructuring deal than they had a few years ago.
#3 Grexit is nothing but the new buzz word
Thinking Greece is going out of the Eurozone is pure speculation and a ridiculous scenario for both parties. I’m not saying it won’t happen as ridiculous moves happen all the time. Yet, if there is a Grexit, this means the Euro fails in its process of uniting all European countries. Worst, Greece will be stuck with hyperinflation and even bigger debt problems. Printing their own money won’t put them back on the map. The country as very limited resources to export and about 20% of its economy is linked to tourism. Who will want to visit a country in the middle of such important changes?
Don’t bring the Argentina story as an argument. This country was just super lucky to default on its debts right before the oil boom. Argentina is a big producer of oil and got out of its trouble mainly because they could sell lots of resources and avoid the worst. Greece won’t be able to export shish kebab as Argentina sold oil!
What happens in Greece will stay in Greece
Remember that simple number: 2%. This is bigger than what Greece represents in the European economy. Having Greeks saying no to the current deal was the equivalent of my 10 years old telling me it won’t put the garbage bin on the road on garbage day. It’s annoying, but the situation will be quickly resolved and life will move on. The bulk of Greek debt is held by institutional lenders (IMF and ECB) along with Greek Banks. Therefore, contagion risks among other countries are not what there are used to be.
Do you think Canadian bank will blink if Greece defaults? Nope, they have very limited interest in this country if any.
Do you think Johnson & Johnson (JNJ), Procter & Gamble (PG), Wal-Mart (WMT) or Coca-Cola (KO) will sell less if Greece defaults? Nope, the Greek economy is not big enough to influence consumer products market.
Do you think Caterpillar (CAT), Lockheed Martin (LMT) or 3M (MMM) will lose contracts overseas? The answer stays at… NO
In other words: what happens in Greece will stay in Greece.
What you can do as an investor
As a small investor, such situations open the door to buying opportunities. I’ve made a list of 10 dividend growth stocks all trading at a 10% discount or more earlier this week. If you want to play safe, you can even focus on more domestic companies that will have nothing to do with what happens outside of their countries.
Utilities, Canadian banks and Canadian telecoms won’t be affected by what is happening in Greece. Most companies related to oil either (they have other problems thought). You can also find interesting companies in the railway sector since trains will continue to ride across North America without blinking.
Over the long haul, this is just a small dip in the market and pretty much any solid company will bounce back once the issue is resolved. My opinion on the situation at the moment is that Greece will be able to push its problems further away but won’t solve it. The country is stuck with real economic problems and a new deal is not the long term solution.
Disclaimer: I own shares of JNJ, KO, LMT, WMT