Galiga: Greece Debt Will Likely Sink Europe’s Ship

Remember the last round of the Greece crisis and all the worries about financial meltdowns if Greece defaulted on debt it could not pay? Remember the call to kick Greece out of the union?

The dire warnings came. Markets might collapse. Investments would be slaughtered. Even some of the big bankers would lose on this impending disaster.

And then, almost magically, a last-minute deal was struck that basically kicked the can further down the road. Debts could be paid again. Impending financial disaster delayed. Crisis averted. All was well in the world.

A funny thing about the kick-the-can strategy: eventually the progression of time makes you catch up to that can again. And each time, it’s harder to give it another good kick down the road.

Now here were are, with international headlines awash last week with renewed warnings that the national debt for Greece remains unsustainable. And even with reports of positive economic growth, it’s unfortunately too little, too late.

The problem with Greek debt is more than a simple matter of debits and credits, and the minds behind the European Central Bank — the institution financing the entire European Union experiment — know it.

Even if Greece had a sudden, unpredictable surge in economic consumption which grew the nation’s GDP by double-digits, their problem is much the same as that for many European and Asian markets. And it’s not purely a financial problem as most people think; it’s actually a people problem.

That problem, of course, is bodies — young bodies, to be very specific. The baby boom that resulted after the cessation of fighting in WWII produced the largest generation in modern history, and it happened not just in the U.S. but in every developed nation in the world.

What that means in simple terms is that the world saw a burst of excitement and anticipation for the future resulting in more babies which meant more consumers and producers, which we’ll call ‘prosumers’. And when those prosumers came of age, began working and started families of their own, global economies exploded.

But, as with most things in economics, what goes up must eventually come down. And we’re now seeing the chickens from that boom come home to roost.

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Because we’ve yet to discover the fountain of youth, those boomers began to age and finally have begun to age entirely out of the workforce. What that means is far less population productivity and, simultaneously, quite a bit more relative consumption, particularly in the realm of health. Older folks don’t necessarily eat much less but they do require a great deal more in health care. And that additional health care has real costs to society.

So while population productivity is plummeting as boomers continue to retire in droves, health care costs are skyrocketing. In the most basic economic terms, this means that developed nations around the world are slowly suffocating under the weight of their own demographics. And there is no way to kick that particular can down the road to magically correct this issue.

What makes the problem worse is that subsequent generations have had far fewer children than did the parents of the boomers. So, in short, fewer people born means fewer people producing and fewer taxes paid. All of this sets up an unavoidable collision course in places like Greece where the fertility rate is below the minimum replacement line.

So what will happen? Can the can get kicked one more time? Well, the European Union really has no choice but to print more money and continue to bail out Greece (and Spain, Italy and Ireland) because the alternative is collapse. But by printing money, there’s very little reason to expect currency to do anything other than inflate — perhaps even hyper-inflate. So the choice for leaders of the EU is stark: a quick, painful death by economic collapse or a slow, uncomfortable death by currency inflation.

Currency inflation is a terrible enemy for anyone with money. If you know that your political leadership is going to take actions to basically make your money worth less than it is now, do you just let your hard-earned savings be eroded? If your currency is losing value by such decisions, what would you do?

Do you have choices? Of course you do. You don’t have to keep your money invested where it will be eroded. You can flee that market to greener pastures elsewhere.

Where does the world look when seeking the greenest pastures? The U.S. of course. This global reality will continue to drive international investors to the U.S. stock market as the best safe haven for their money. And that is one more reason why I’m predicting the Dow will hit 30,000 in the next 24 months, give or take. It is a reality that defines a great wave of buyers investing in U.S. markets.

Now, remember what happened when the Greece story was dominating the news? Markets around the world became volatile. Investors became frightened as the press spun that a default of Greece could trigger another round of great recession. Investors wondered if they should flee to cash or even focus in on bear market trading vehicles. Markets shifted from somewhat stable to pretty volatile- strong gains followed by harsh falls followed by big rebounds… all in a matter of days or weeks.

Volatility feeds investor nervousness… even in the U.S. markets. Americans get uncomfortable when we see that the DOW is down a few hundred points on worries about Greece… or Brexit… or any other volatility-fueling event. We remember a record high 5-digit DOW falling all the way to a 4-digit DOW not so many years ago, and how that great fall significantly cut into our 401K & IRA nest eggs.

We do not want to suffer through that kind of pounding again. And that fear can make investors panic out of the markets. Other investors see the selling and they panic out. That can define short-term sellers who let their emotions- particularly fear- overwhelm them such that they panic and run to cash.

The clash of those 2 forces will make for fairly big swings in the markets in the next few years. One fear of the international buyers is pressing them to buy into the relative safety of U.S. markets. Another fear of domestic sellers is short-term worries that the markets will fall in spite of that wave of buying.

A smoothly rising or smoothly falling market is a market where almost everyone is betting on the same direction. As such, investing profitability potentials get squeezed. Imagine the payout on a horse race where there’s only one horse in the race. Everybody knows which horse is going to win in that race. So the profit potential in that race evaporates to nearly nothing.

Volatility emboldens bulls & bears to think their view is right and about to come to pass in a big way. And that opens up the opportunity to make much greater profits over short holding periods if one is on the right side of those trades. Indices like the DOW will rise & fall- sometimes dramatically- over periods as short as just hours or days.


While I maintain great confidence in my medium-term expectation of DOW 30K, I expect the path to that destination will have these bouts of dramatic, hand-wringing volatility. And I welcome it because my own approaches to harvesting profits from trading can make maximum gains whether stocks rise or fall.

In fact, volatility is a particularly powerful catalyst for bigger profit trades than anyone can realize if the DOW is just steadily moving up or down. The right buy or short… the right call option or put option purchases… and we grab profits in a few days or weeks that far exceed what we might make in many months just “holding” in a less-volatile market.

Do YOU know how to profit in both directions? Do you know how to take advantage of volatility so that it helps you make much more money than any kind of “buy & hold” strategy? Email me at [email protected] if you would like me to cover such topics in future editions of this column.

If you don’t know or are not so sure, this would definitely be the time for a quality refresher. That knowledge can help you make more ROI than you’ve ever made over the next few years and/or help you protect your wealth against market downturns instead of just taking the losses. Are you ready?

Lastly: I’m also interested in more topic suggestions you would like to see us cover in this column. Let us know what is on your mind and we’ll likely address it in timely, future articles. Again, just email anything you’d like to share with me to [email protected].

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