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Eric Fry, feeling that everything is Greek to him, reports...
One month ago, when today's guest editor last graced The Non-Dollar Report with his insights, he was extolling the virtues of "crisis investing."
Interestingly, however, he did not snap at the obvious bait: Greece.
"Greece certainly qualifies as a country in crisis," Marco observed, "but I still think it's a bit early to dive into Greek stocks. Even though the stock market has tanked, so have corporate earnings, and the path out of the crisis is still too murky to provide any legitimate rationale for buying Greek stocks...
"Whatever happens [from here], it won't be pretty," Marco continued. "But sooner or later things will have to change for Greece, either voluntarily or otherwise. I believe a debt default and currency devaluation would be the best outcome for the country, however painful in the short run. It would be an opportunity to clear the decks and start anew. And I would definitely be a buyer of Greek stocks at that point, even though the crisis would probably become even worse for a while.
"But until Greece definitively deals with its dreadful financial position," Marco concluded, "Greek stocks remain too risky for my taste."
Earlier this week, Marco reiterated his cautious stance toward Greek stocks. Even though they've continued to fall, they do not entice him yet.
"Crises usually offer great opportunities to buy investments at bargain prices," he explains. "But they can kill you if you get in too early. You need to examine each situation carefully before you take a 'crisis vacation' with your investments.
"The Greek situation remains highly speculative and I continue to recommend that investors stay away until there is more clarity. Even then it may be sensible to stay away, depending on events in the coming days and weeks."
But even though Marco would not be a buyer of Greek stocks, he points out that the Greek crisis contains a great deal of value... as an object lesson!
There is much to learn from the current chaos in Greece, he explains, especially if you are an investor who hopes to preserve your wealth throughout the next crisis that may come your way.
We're All Greeks Now
You may not think that the unfolding crisis in Greece is relevant to you. But it is. This modern Greek tragedy contains many important lessons for all savers and investors around the world.
As you probably know by now, the desperate situation in Greece is reaching a climax. Greek banks are closed this week and so is the stock market. The government has implemented capital controls to try to prevent any more money from fleeing the bankrupt country. And Greek depositors can withdraw only 60 euros a day (about $66), although electronic payments can still be made.
Within this chaotic situation, the government has called a national referendum on Sunday to vote on whether to accept "austerity measures" from the country's lenders. Based on early polls, the likely outcome of the referendum is too close to call.
So while awaiting some sort of clarity in the Greek crisis, the world's stock markets are lurching lower... and all eyes are on Greece.
And yet, most of the world's investors dismiss Greece as a sideshow. They believe the Greek crisis is mostly irrelevant to their own situations.
Not true.
All economic crises contain highly valuable lessons for savers and investors, no matter where in the world they live, and no matter what investments they hold.
For a start, this whole business in Greece seems to have caught a lot of people by surprise. Incredibly, this "surprise" has been taking a prominent place in media headlines for weeks, months... even years.
It never ceases to amaze me how people fail to act in time when financial crises are building. There seems to be some blind faith that things will all turn out for the best... or that the government will sort it out... or that things can't really be all that bad.
Or even worse, people just don't take care - which is another way of saying they aren't taking responsibility for their own financial situation. Unfortunately, that doesn't stop them from blaming others when things go bad.
The current Greek crisis has been building for years. This is a country with a massive public debt burden (177% of GDP). It is a country that's suffering a deep and prolonged depression (unemployment is at 26%, and twice that for young adults).
So what are the odds that the Greeks will ever repay their debts in full? Virtually nil. When things are this out of whack, they eventually have to come to a head, which is exactly what's happening today.
The Greek government has been bankrupt for years already. If not for a series of multibillion-euro "lifelines" provided by the European Central Bank and the International Monetary Fund since 2010, the Greek government would have swirled down the Charybdis years ago.
So why the big surprise?
Earlier this week, the Bloomberg website showed a short interview with some deluded young Greek fellow, described as a "business consultant" but with the spark of socialism in his eyes.
He said he was "very angry" and that on Friday he had transferred a "substantial amount" of his savings into the National Bank of Greece from an account outside the country at a bank in London. Apparently his emotions had swamped basic common sense.
This poor sap appeared to think this was a valid way to express his political opinion and support the government. Perhaps it is. But it's also an incredibly stupid move in financial terms.
If your country is in crisis, and there's a big risk of currency devaluation, you want to get as much money out of local bank deposits as possible - before it's too late. Many Greeks have been doing just that in recent weeks, but this guy doesn't appear to have gotten the message.
Remember: Bank deposits are not cash kept at the bank. They are loans to the bank. That's why banks report customer deposits as "liabilities" on their balance sheets. It's money they owe to customers. It's money the banks literally borrowed. So just like any other borrower, the banks might not pay back the money they borrowed, which means that depositors would lose their savings.
Cold, hard financial realities like these are important to keep in mind, no matter where you live.
Plenty of developed countries are likely to be hit with financial crises in coming years, and a lot of people will be caught out. All it will take to see more crises is for governments to continue piling on debt, or for bond yields to rise a couple of percentage points (making interest costs much larger on new borrowing to cover maturing bonds), or a combination of the two. There are candidates for crisis across much of the developed world, including Japan, the USA and much of Europe.
Well in advance of the crunch point, there are usually plenty of warning signs of impending crisis, such as politicians and central bankers saying there is nothing to worry about. The mere fact that they feel the need to say those things means there is a big problem.
We all need to be alert to the risk of crisis, wherever we live. Here are the essential steps that all savers and investors should take to protect themselves:
- Always keep a modest stock of physical cash at home in case you can't make withdrawals from the bank. If crisis looks imminent, increase it.
- Own some physical gold coins, hidden close at hand. These can be sold or bartered for essential goods if no one will accept cash. They're also a long-term store of value.
- Purchase and hold some assets overseas as insurance against domestic crisis, or simply to minimize the risk of capital controls. As a minimum, this should include foreign bank deposits or physical cash in safety deposit boxes. You can also have gold bullion in safe storage, foreign brokerage accounts and overseas real estate if you can afford it. Some countries, such as the USA, deliberately make geographical diversification hard for their citizens via onerous regulations and tax reporting. But do it if you can.
- Invest across a wide range of assets. These can include cash, deposits at multiple banks, a diversified portfolio of international stocks and shares, real estate and much more.
Greece's problems, and the drama that's playing out in the media, may seem remote from your own personal situation. But they are a reminder of what we all need to do to protect our hard-earned wealth from any and all eventualities.
Don't wait until it's too late to put together your global wealth-preservation strategy.
Good investing,
Marco Polo
P.S. If you enjoyed today's issue, please check out OfWealth to find similar insights from Marco Polo.
Eric's Note: You've all heard the expression, "Hope for the best; prepare for the worst." We think that's sage advice. But maybe it's a little too gloomy. So how about this version: Hope for the best, prepare for something less than that.
As today's issue of The Non-Dollar Report makes clear, it's never too early to prepare for adversity... or at least for something less than "the best."
Typically, a handful of diversification tactics can make a very big difference. And now, thanks to the U.S. dollar's strength, diversifying into non-dollar assets is a low-cost proposition. In most foreign countries, the dollars in your bank account now buy about 20% to 30% more goods and services than they did just a few months ago.
To take advantage of this "global shopping" opportunity, I invite you to join me and several of my colleagues at the Inaugural Beyond the Dollar Summit, January 12-17, 2016.
During the summit, you'll learn about some of the best overseas investment opportunities. You'll also learn about intelligent and profitable ways to "internationalize your life."
To top it all off, you'll have the opportunity to sample and enjoy the delights of Rancho Santana, a stunningly beautiful resort destination on Nicaragua's Southwest Pacific coast.
For more details on this can't-miss event, please email Event Director Steven King at conferences@beyondthedollar.com.
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Instead, you know ahead of time just how much money you're set to make.
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