Greece, Greece and more Greece!

Tuesday 30th June 2015

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The world is certainly focused on this small country.

It appears that it is the centre of the universe just now.

Every news bulletin, every newspaper, every website has a view.

Here is mine. It is just as likely to be right or wrong as any other.

Facts

The Greek economy cannot produce sufficient funds pay their bills.

Austerity will NOT fix the problem.

· Debt forgiveness will not fix the problem.

· The Debt burden is far too large.

· The international community has fed it the worst of all drugs, debt.

· It is a hopeless addict now.

· The people in Greece feel aggrieved, embarrassed, humiliated and angry.

· The World’s “Money Men“ have fortunes simply doing enough to keep the ship afloat and to move risk. The deals that have been done and the massive fees paid may return to haunt some parties.

· If a club creates rules and a member breeches them publicly, the club must take steps to remediate/discipline that party or simply expel them. Ongoing breeches simply weaken the organisation and allow others to follow the delinquent behavior.

· Greece is a small player by world standards, population of 11 million, GDP US$242B, debt to GDP 180%.

Who is winning?

Those advisors/financiers who are making big fees.

· The politicians from other countries who are not in the spotlight, and who can blame their failures on the “Greece crisis“.

· The parties who have taken positions in various markets that have benefited from this (they may be long or short positions).

· The IMF because they gain more airtime and appear to be important.

· The media, because it is a great topic to speculate on.

Who is losing?

Those countries who have played by the rules but who have been dragged into the mess by agreeing to buy bonds, provide lines of credit, etc.

· Anyone who is holding Greek assets.

· All Greek businesses, as no one wish to enter a contract with a party who may not be able to perform. Most will chose other companies to do business with.

· The whole European Union as they appear impotent.

· The world as we are become risk averse in decision making, hence economic growth stalls.

What will be the outcome?

They will be a “Problem Child“ for a long time.

· International Investment Banks will assist and they will make significant gains.

· There will be a significant transfer of wealth to parties who can offer solutions, particularly ready cash.

· Competitors of the EU, and the West, will seek ways to take advantage, e.g. Russia, China, various Middle East countries.

· The Greek people are hurting and the youth are angry. There is a real chance of significant civil disorder (terrorism).

· There will be a number of chapters to be played out yet. There will be significant volatility.

Eventually, Greece must have some debt forgiven and they must accept the need for change.

They will eventually see benefit in being separated from the EU, and masters of their own destiny.

They will have a currency that is not linked to strong economies, as they can never create a competitive economy with the Euro.

Greece may serve as a lesson for all small countries that join large economic blocks, in that they are very vulnerable.

If they do not have strong diversified economies and when they have structural weaknesses that need to be addressed, they will not have the ability or power to use monetary, fiscal and exchange mechanisms to cope better with the pain that accompanies required structural change.

There is also a lesson to be taken from this, for countries that are small and relatively economically undiversified, that sign free trade agreements with large much stronger economies. They too are at risk when they face financial trouble and need to make structural changes, which may impact on the terms of the free trade agreement and this has the potential to limit them to implement change.

What Does This Mean for NZ Investors?

The major factor is nobody knows how this will unfold. Everyone is speculating on various outcomes. As a result, many people will lose money.

The best thing for investors, is to work out what they want from their investments.

If you want stability, make sure your investments can stand this period of instability.

If you want income, make sure the income is sustainable in this period.

If you are looking for growth, make sure you have assets that are positioned to take advantage of this turbulent times.

We are seeing many investors simply holding assets that they have previously invested in.

Reviewing your portfolio and reweighting it to your current circumstance is a critical part of being a smart investor.

Being in a growth or an income or a conservative asset is acceptable at any time of the cycle. The key factor though is, is it right for you, and is the asset actually what it appears.

Reviewing and understanding your assets, their characteristics and their attributes, is one key to constructing a portfolio. Understanding your objectives and risk appetite is the other.

Do not hold on to an assets that were growth or income because of history.

Make sure it is meeting your intended purpose now.

If in doubt speak to your advisor.

The Future

The only thing we know about the future is that it is coming.

The best thing for all of us is to be prepared.

We are not telling you to buy or sell anything (your portfolio may be ideal for you).

Just take some time to read articles, speak to parties and to take good quality advice.

We are in interesting times. Risk and opportunity will abound.

Hold assets that will give you the outcomes that you desire from them.

Enjoy the next few months, this is going to be a roller-coaster ride.

Expect the unexpected!

Happy Investing

Brent King

Managing Director

Investment Research Group Ltd

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