07/01/15   Where Were You When Greece Defaulted?

Editor’s Corner

Ron Rowland

Where were you when Greece defaulted?  That question doesn’t have the same ring as other events in financial history.  You may remember where you were at the time of the Flash-Crash of 2010 or the Black Monday Crash of 1987 if you are old enough.  Although it wasn’t directly tied to the financial markets, most of us recall where we were when the World Trade Center collapsed in a ball of flames.

The reason for this is easy to understand: in the grand scheme of things, the Greek default is not that big of a deal.  Greece is not the first, and probably not the last, country to default on its payment to the International Monetary Fund (“IMF”).  In fact, 25 other countries have taken this route.  Yugoslavia, along with Bosnia and Herzegovina, are other European nations that defaulted.  Cambodia, Vietnam, Iraq, Afghanistan, and many African countries are on the list.  Closer to home, Jamaica, Panama, Nicaragua, and Peru are all guilty of missing payments.

The major distinction between Greece, and the 25 countries that came before it, is the fact that Greece is the first “developed” nation in this category, and its $1.73 billion missed payment is the largest on record for the IMF.  Still, that amount is in the neighborhood of being a rounding error for Apple (AAPL) when it sits down to count its $194 billion of cash.

The simple conclusion is that the recent market swings, based on the day-to-day prospects for another Greece bailout, have been extremely exaggerated.  Granted, the IMF is feeling some pain, other credits are worried, citizens of Greece are uncomfortable, and the Eurozone may lose one of its members.  Additionally, investors holding Greek stocks are anxious because markets there are closed, but they have already endured substantial losses, and it’s not clear yet if prices will be higher or lower when markets reopen. However, outside of these few groups, the ramifications are hard to measure.  I don’t mean to make light of those people directly affected by all of this, but don’t be ashamed if in a couple of years you cannot recall where you were when Greece defaulted.

Investor Heat Map: 7/01/15Sectors

There was not much change in the relative rankings of the sector categories this week, although there was a noticeable change in the color.  The lineup went from just three sectors in red to eight now registering negative momentum.  The market bounce of the past two days suggests the color change may be reversed in the weeks ahead.  The three sectors in the green are the same ones that have occupied the top positions for the past four weeks.  Health Care heads up the list, Consumer Discretionary has a grip on the #2 spot, and the Financials sector owns third.  The five flipping over to red are Telecom, Consumer Staples, Technology, Industrials, and Materials.  The most significant change in the relative rankings of this group was the fall of Technology from fourth to sixth.  The weak got weaker as Energy, Utilities, and Real Estate all accelerated their downtrends.


The relative strength of the four smallest capitalization segments has been noted for weeks.  Today, that strength is highlighted with color coding.  Micro-Cap and the three Small-Cap categories are in the green while all of the others flipped from green to red this week.  This is not to say that Small-Cap stocks weren’t damaged in the recent selling, because they clearly were.  In fact, they underwent more significant declines than their larger brethren.  As recently as a week ago, Micro-Cap enjoyed a 25-point margin over Mega-Cap.  Today, that margin has been cut to just nine momentum points.  While the top of the rankings remain skewed toward Micro-Cap and Small-Cap Growth, any sense of order in the lower portion is not apparent among the jumble of Large-Cap and Mid-Cap categories.


Believe it or not, the dramatic changes in the sector and style rankings were eclipsed by the broad realignment across the global categories.  Perhaps it is more believable once you realize the recent selling was centered on the looming Greek default.  Proximity to Greece, both financially and geographically, seems to be the primary factor driving changes the past week.  Japan has successfully distanced itself from Greece, allowing it to keep its top-ranked position for a third week and making it the only global category in green.  Although the Greek gyrations reached our shore, they were relatively muted compared to other regions, which pushed the US three places higher to grab second.  World Equity followed the US up the ladder.  As you might expect, Europe and the UK both fell in the rankings and dragged down EAFE in the process.  China has its own selling problems, but it managed to hold on to its seventh-place ranking amid being one of the six global categories turning from green to red this week.  The four categories that were already in negative trends steepened their declines.  The bottom of the list consists of Latin America, Emerging Markets, Pacific ex-Japan, and Canada.

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.


“It’s is one thing to be able to just make do today, and quite another to know that you’ll be able to do the same next month.  No one is able to give us the stability we need, even as we’re asked to make this appalling decision between two evils.” 

Takis Antonopoulos, a retired citizen of Greece


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