Trying to guess the likelihood of a Greek default right now is a bit like trying to guess the winner of the Super Bowl at halftime. It’s a close game that could go either way, and investors are going to have to stick around until the final minutes to know for sure how it ends.
So do yourself a favor and take a break from the EU debt crisis, and cheer yourself up with some reasonably rosy economic news from right here in the U.S.
This is not to say eurozone debts don’t matter. They do, and the global economy could be thrown into chaos if things spiral out of control. Particularly harrowing is the idea of the EU currency union disbanding, throwing the value of all euro-denominated debts into confusion. That’s to say nothing of “haircuts” on sovereign debt that investors will have to suffer, and how those losses could chill further lending or damage still struggling banks.
But here’s the bottom line: Without aid, Greece is almost certain to default when its bills come due in mid-March — but all parties seem honestly committed to avoiding that outcome, even if they are a bit petulant at times. Painful compromises will be part of any deal to avoid default, and that ensures a lot of bluster and political posturing. So try not to read too much into the day-to-day give-and-take.
The only thing that really matters is whether a deal will be brokered six weeks from now, when a bond repayment valued at 14.5 billion euros comes due March 20.
To be clear, Greek Prime Minister Lucas Papademos and leaders of Greece’s three main political parties could blow up the whole affair and cause a crisis through inaction. And as we saw with the childishness around the U.S. debt ceiling resulting in an S&P credit downgrade for American debt, foot-dragging can be damaging even if a compromise is ultimately reached.
But I remain convinced that the severity of the eurozone crisis is clear to everyone. And most Greeks, despite complaints about austerity, still are by and large in favor of remaining a member of the EU.
So don’t sweat things in Greece too much.
Besides, investors who are looking to take control of their portfolio would be wise to place emphasis on factors that have had a very real impact on Wall Street recently. Namely, strong earnings and positive economic indicators that are resulting in a nice rally for equities.
- The headline unemployment rate fell to 8.3% last week, the lowest rate in three years.
- Stocks enjoyed their best January run since 1997.
- The fourth-quarter earnings growth rate for the S&P 500 (so far) is almost 8%. Some are disappointed this isn’t higher, but growth is growth, and profits continue upward momentum in many sectors.
- Existing home sales hit an 11-month high in December, and while prices fell a bit in the latest Case-Schiller report, there are reasons to hope that affordability provided by such low prices (and low rates) is actually helping the demand side.
Is the economy firing on all cylinders again? Hardly. Note the rather qualified optimism in the earnings bullet point and the home sales bullet point as proof that many uncertainties persist.