02/11/15   Greeks Try To Vote Away Austerity

Editor’s Corner

Ron Rowland

Austerity is a bitter pill to swallow. Just ask the Greeks. Greece nearly collapsed a few years ago, and it is the poster-child of the European debt crisis. At the height of the crisis, there were very real concerns about the country’s willingness and ability to remain a euro-based nation. The country was saved (bailed out), but it came at a cost. Greece agreed to undertake austerity measures. Government spending was curtailed in a land where the average citizen believed they were owed above-average entitlements. Efforts to increase tax collection were undertaken in a country where tax evasion was practically a national sport. In short, citizens were told to pay more and receive less.

Greece made progress the past five years, though European leaders are quick to point out that Spain, Italy, Ireland, and Portugal made much more progress. Combined, these nations constitute the PIIGS, the five countries that almost brought down the Eurozone. Four are thought to be on the road to recovery, although you don’t have to look too hard to find doubters. The fifth is Greece, and Greece is another story.

The Greeks do not like austerity, and the simple fact is that no one does. However, unlike the citizens of other countries that accept it as necessary, the Greeks have had enough. Greece held elections recently, and a radical leftist political party campaigned on a platform of reversing the austerity measures. They were easily elected.

Viewed from the comfort of North America, this appears to be a classic example of “be careful what you wish for.” The new government set about unwinding the austerity measures Greece agreed to years ago, but the ECB and IMF said not so fast. The country accepted austerity in exchange for aid. If the austerity ends, then the aid will be pulled.

Once again, Greece is giving consideration to abandoning the euro. If it does, then look out below. The Greeks thought they could end austerity by voting for someone promising to undo it. They are starting to realize it is not that simple since they do not control the euro. By moving away from the euro, they believe they can regain their independence. It makes for good political rhetoric, but the euro is probably the best thing the country has going for it at this time. The only other currency the Greeks could afford would be their own, and what country would want to conduct business with them then?

The Global X FSTE Greece 20 ETF (GREK) has lost 29% the past two months and more than half its value over eleven months. This easily places it among the worst performing nations of the world, but it could get significantly worse if it abandons the euro.

Investor Heat Map: 2/11/15


Consumer Discretionary jumped from fourth and assumed the leadership role for the first time in 16 months.  Homebuilders have propelled the latest surge among Consumer Discretionary stocks. Retailers have also made positive contributions, but the leisure segment has lagged.  Interest sensitive stocks came under pressure this past week, knocking Real Estate down to second place.  Telecom surged from sixth to third, which forced Health Care down a notch. Materials was also a big winner, climbing four places to fifth and placing itself in the top half after spending the fourth quarter near the bottom of the rankings.  Consumer Staples slipped a notch while Technology gained a spot, a sequence repeated by Industrials and Financials.  The Utilities sector got whacked on interest rate concerns, plunging from second to tenth, although it showed signs of stabilizing this week.  Energy continued to reduce its negative momentum, but it is still in a downtrend and the only sector in the red.


All style categories posted momentum improvements this week, although not equally, leading to some subtle shifts in the rankings. Small Cap Growth is at the top for a third week and is now trying to put some distance between itself and the other categories.  Mid Cap Growth climbed from fourth to second, showing that market leadership resides in the lower right-hand corner of the traditional style box matrix.  Mid Cap Blend held steady in third while Large Cap Growth moved up two spots to place itself in a tie with Mid Cap Blend.  All three Growth categories now reside in the upper tier, signaling the market’s current preference for Growth over Value.  Mid Cap Value slid three spots lower, and Small Cap Blend edged down one.  Large Cap Blend and Micro Cap swapped places, with Large Cap Blend gaining the upper hand.  The bottom three categories of Small Cap Value, Large Cap Value, and Mega Cap remain in the same order as last week. However, Mega Cap managed to move back into the green.


China has been at the top for ten weeks but has lost most of its once substantial margin.  The rebound in domestic stocks pushed the U.S. from fifth back up to second, while Japan held on to its third place ranking.  World Equity, the U.K., and Pacific ex-Japan moved higher as a group and are now in a three-way tie for fourth place.  The U.S. dollar resumed its recent climb, which created headwinds for many foreign categories.  EAFE slipped three spots lower, and Europe plunged from second to eighth. Emerging Markets lost enough momentum to push it back into the red.  Canada is in tenth again, and Latin America remains on the bottom.


The charts above depict both the relative strength and absolute strength of various market sectors, styles, and geographic locations on an intermediate-term basis. Each grouping is sorted (top to bottom) by relative strength. The magnitude of the displayed RSM value is a measure of absolute strength, which is our proprietary method of measuring and reporting the intermediate-term strength as an annualized value.


“Why should they buy from Greece when they can go to neighboring countries with more stability?”

Nikos Vasilou, owner Greek lighting company Bright Special Lighting, on the subject of foreign customers refusing to make down payments, 2/11/15


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