The Roller Coaster Road
If you ask anyone how the stock market is, they will comment on the fact that depending on the news from Greece, the stock markets zoom up, and zoom down, with equal ease and equal frequency.
The syndrome is so obvious, that even the taxi drivers comment on it. In one of our older blogs, we commented that when the cab drivers talk stocks, it is time to get out. The similarity to the current situation is obvious.
What Will Happen in Greece?
It seems there are a number of likely scenarios, none of which are a certainty. Default seems inevitable, regardless of the scope. Will there be contagion, or a move out of the Euro or the failure of the EU? No one knows.
What is known for sure, is that the living standard of the Greeks will suffer, and changes are coming.
Other Effects
What is also obvious, is that the overspending of the Western nations will slow and budgets will become more sustainable. Balanced budgets will get politicians elected as fear overcomes beliefs in entitlements.
What we also know, is that unemployment in the US is slowly stabilizing. This month’s figures actually showed a decrease from 9.1% to 9%. The change is too small to be a sign of anything, except that stabilization is occurring. As the world’s economic powerhouse is slowly coming out of the depths of the last downturn, the next economic cycle starts to take shape. The markets have remained rangebound for some years now, and they will start rising in anticipation of the next cycle, and they will start rising before you notice this. But it is inevitable that this will happen.
The Long Term Effect of Greece on the Markets
As we all know, program trading has now become the majority of trades on the market. When there are a few ticks downward or upward, computers operating at nanoseconds execute trade orders and market volatility increases dramatically. Whether it is the Greek crisis, the Irish crisis, or the next currently unnamed crisis, the markets will move and they will move dramatically.
Market Movement
So what we have is a new paradigm. Market volatility has increased dramatically and swings of several hundred points daily are commonplace.
Whether it is the Greek crisis, or tomorrow’s crisis, markets will move quickly. To be an investor, you must accept this new reality.
Seasonality
In most years, August/September is a very weak period, and as year end approaches, the markets seem to catch a fever and move forcefully upward. Not every year is the same, but the regularity is there. This year, the possible severity of the debt crisis has held down the markets when they should be starting their seasonal move upward.
However, the annual strong market season is barely upon us, and the upward movement could still occur. Patience is a virtue.
Value Investing
One must take a view of investing that ignores temporary swings in the market. Today many stocks are quite depressed compared to where they were a few months ago. Remember Warren Buffet’s comment in 2009. Why is GE worth $20 today (back then), and $120 12 months ago (before then)?
So it is today. Many stocks are really cheap compared to their intrinsic values.
One way of comparison, is to review recent offerings of junior resource stocks – IPO’s and the like. What you will find, is that offering price of many of these new issues is very much higher than the market price of existing issuers, whose stocks have fallen dramatically.
Look for these good value stocks that have been beaten down and buy them. The values available right now are outstanding.
The views expressed in this blog are opinions only and are not investment advice. Persons investing should seek the advice of a licensed professional to guide them and should not rely on the opinions expressed herein. This blog is not a solicitation for investment and we do not accept unsolicited investment funds.
