Looking at Greece

So all eyes are on Greece this morning, only this is a June 16, 2015 blog entry, not a May 2010 one, nor a July 2011 one, nor a May 2012 one, nor a December 2014 one. Google any of those four months along with the search words, “Greece worries markets,” and see what comes up.
As I type today the market is up 100 points, but down 450 points from recent all-time high. Is recent market volatility a by-product of Greek drama? It’s as good an explanation as any. And is Greek uncertainty the reason for the back-up in bond yields, pushing Germany back to 1% on their 10-year (from a negative yield) and pushing the U.S. 10-year above around 2.4%? I would say pretty confidently it is the largest reason. So yes there is fear, yes, there is volatility, and yes, there is uncertainty. But if Greece is potentially about to default or even leave the Euro, why are markets not in real freefall? Consider the following:

Greece Chart_1 06-16-2015

Source: Bank for International Settlements, June 2015

The threat to the European banking system of a total collapse if Greece hit the fan was severe in 2012. Two years of monetary accommodation, bank recapitalizations, and other such preparatory work, and the bond market seems to be saying this is a low-contagion scenario.

Greece Chart_2 06-16-2015

Source: Bank for International Settlements, June 2015

 The European economy is fragile and not in the mood for a GREXIT drama, but that is quite different from saying it would create Armageddon. For many market participants, exhausted by this ongoing anti-reform charade, a GREXIT may be a cause for relief. I still doubt an actual GREXIT will happen because I believe the Greek voters would throw out the Marixst party leadership they elected earlier this year before that happens. However, I see no signs from the IMF, the ECB, or the general Eurozone leadership that they are going to capitulate.
My best guess is that Greece will default but not exit the Euro, and that summer 2015 will join the summer of 2010, 2011, and 2012 as a summer of can-kicking on the way to Greece eventually being out of the Euro. By the time it actually happens, I think the market might be begging for it.
With regards,
DLB Signature
David L. Bahnsen, CFP®, CIMA®
Managing Director/Partner
Chief Investment Officer
The Bahnsen Group, HighTower
www.thebahnsengroup.com

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The Bahnsen Group is registered with HighTower Securities, LLC, member FINRA and SIPC, and with HighTower Advisors, LLC, a registered investment advisor with the SEC. Securities are offered through HighTower Securities, LLC; advisory services are offered through HighTower Advisors, LLC.

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About the Author

David L. Bahnsen

FOUNDER, MANAGING PARTNER, AND CHIEF INVESTMENT OFFICER

David is a frequent guest on CNBC, Bloomberg, and Fox Business and is a regular contributor to National Review and Forbes. David serves on the Board of Directors for the National Review Institute and is a founding Trustee for Pacifica Christian High School of Orange County.

He is the author of the books, Crisis of Responsibility: Our Cultural Addiction to Blame and How You Can Cure It (Post Hill Press), The Case for Dividend Growth: Investing in a Post-Crisis World (Post Hill Press) and his latest, Elizabeth Warren: How Her Presidency Would Destroy the Middle Class and the American Dream (2020).

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