1,896 Days Ago, Greece Was a Mess

Greek fears aren't quite as old as these buildings, but they aren't new. Photo by Yorgos Karahalis/Bloomberg Finance via Getty Images.

It has been 1,896 calendar days since we first documented Greek woes on December 18, 2009. Since then, we've frequently reminded investors small economies and markets often zig while the world zags, particularly those with big, entrenched competitiveness issues and Ottoman-style bureaucracies. Yet fearful headlines keep stoking concerns over Greece. Folks, if Greece didn't quash the bull when it was new news, it isn't likely to now.

Consider some recent history: There have been five privatization ministers^[i], four governments, three institutional creditors badgering them^[ii], two debt defaults, and probably a partridge in a pear tree.^[iii] Countless arguments with the troika; austerity debates aplenty; headline after headline shrieking Greece threatens the euro and, hence, the world. Greek fears were at the center of one correction (2010's) and added to two others. Athenian jitters occasionally stoke other blips and volatility, too. Which brings us to a forecast: I have no expectation that the latest proposal from the Greek government, which amounts to a U-turn^[iv], provides a quick fix or an all clear. Fearful Greek headlines will likely return, probably no later than 3.5 months from today.

Greece's issues have no quick fix. An interesting New York Times op-ed by Aristos Doxiades, published yesterday, echoes points we've long made: The reforms needed to mend Greece are all long-term. Microeconomic! Overturning troika-mandated austerity won't fix Greece. Dumping the euro surely won't. Restructuring debt? Nope. Here is a cogent section of Doxiades' analysis^[v]:

In Greece no political party had the courage to take ownership of any reforms, any cuts in expenditure or any new taxes, even though it was very clear that some such combination was inevitable. When in government, politicians blamed all measures on the troika; when in opposition, they declared all measures unnecessary and wrong and branded the government as traitors.

This polarization brought violence and threats. Tourism was hit for three years by pictures of arson and beatings in Athens, as well as by port blockades and taxi strikes. Foreign investors were put off by threats from the surging Syriza opposition that they would reverse all sales of state assets, and would restore a centralized wage system that enforces pay raises every year, regardless of productivity. Deposits flowed out of banks due to fear of a "Grexit" or on rumors of nationalization, leaving no funds to lend to export-oriented businesses.

So what should investors make of all this? When those fearful Greek headlines hit, just consider: We've seen this movie before. If you are reading this, chances are high you've seen this movie before, too. They didn't crush the bull then, and they are even less likely to now. No, I'm not saying this because the Greek economy that was tiny in 2009 is now about 25% smaller, but rather, because investors are pretty darned aware Greece is a mess. This isn't sneaking up on anyone. Folks who would have liquidated based on Greece probably did so somewhere between now and 1,896 days ago.

Yet still, some suggest stocks are irrationally complacent about the threat Greece poses. Balderdash. In those 1,896 days, world stocks are up 73%. Greek stocks are down huge, -57%. Trust the market on this one! The world just doesn't have to be pristine for stocks to rise. Greece's problems are real, but if they haven't spread or otherwise derailed a bull market after all this time, is it really so rational to think they will now?