It appears that there will be no Greek debt default for now.
The deal with Germany and France means the can is kicked down the road. Kicking the can means adding subsidy and postponing reckoning. As long as large powers agree to do it, “can-kicking” may persist for a very long time.
Europeans have elected to additionally subsidize Greece, attempt to facilitate Greek austerity budgeting and, most importantly, avoid large losses in the Eurozone banking system.
That means no imminent banking systemic shock. In addition, that means no credit default swap payments. Moreover, that means US systemic risk is reduced since payment issues related to Greece are deferred. The deferral timeframe is trying to get to 2014 or beyond. By then, the shift of holders of Greek debt will have occurred such that there can be a voluntary debt exchange and restructuring of that debt. Greece remains insolvent and troubled. It is also being contained. So, containment wins and contagion loses.
Of course, there are many risks as this unfolds. Nevertheless, in our view the risk is now diminished since the large powers in Europe have reached an agreement in principle.
Cumberland ETF accounts are back in the market. Reserved cash has been reduced. We emphasize defensive positions. The highest overweight is healthcare. We favor big caps. We like dividend yields.
Our strategic focus is now on the US Federal Reserve and the US economy, the emerging markets slowing, the oil/energy rebalancing and the US debt limit politics. For a while, the imminent Greek debt default will become less imminent and recede from the front page.
Will Greece eventually right its sinking ship? We are skeptical. So are most observers. But we note that Turkey did it and is now a powerful emerging market. We remember the Asian contagion in 1997-8. The world did not end. We recall the collapse of the Russian ruble. We saw the peso crisis in 1994. Full collapse and demise is not a foregone conclusion. Look at the evidence from history.
We are off to see our new grandson on Father’s Day weekend. Little does he know what a world he has entered. Little does his older sister understand how complex it is. Our job is to nurture and support and help educate. And we encourage the grandchildren’s parents who have a tougher road ahead of them than the parents, like us, who formed households in the decades of the 1950s & 1960s.
As for this week. “It has been a hard day’s night and I’ve been working like a dog.”
Happy Father’s Day.
