Bouroudjian: Finding Opportunity in the Greek Crisis
When you have a country with a debt-to-GDP ratio that rises above 150 percent, historically that country defaults.
There’s only one exception, which was Great Britain following WWII—and the only reason it didn’t default was because its close ally, the United States, made sure it didn’t.
The British pound did, however, lose its status as a reserve currency as a result.
I bring this up because the debt-to-GDP ratio in Greece is somewhere in the neighborhood of 160 percent.
The interest rate on the 10-year Greek treasury bond is hovering around the 18-20 percent level, and the 2-year is up near 30 percent. The yield curve inverted, which makes trading Greek bonds akin to playing with a grenade and not knowing whether or not it’s live.
People trading Greek debt are worried they’re not going to get their money back, so capital preservation is the name of the game right now—and we’re seeing the ancillary effects of that all over the world.
Look at the 10-year U.S. Treasury Note, the good old government-sponsored mattress. It’s down below 3 percent as I write this.
That’s where traders all over the world are shifting their money right now, and at a rate that low, it’s a loaded spring.
The fundamentals of this market are not changing.
Think about it: Besides a little tear gas, is there anything going on in Greece that’s different from a year ago? They’re still not growing, sure, but they’re still a part of the euro-zone experiment.
Germany is still doing very well. So is France. They knew going in that something like this could happen.
Japan and China are also both heavily invested in the euro. China has already said they might step in with a bailout package if worse comes to worst.
Leo Melamed, the chairman emeritus of the Chicago Mercantile Exchange, taught me an important lesson back when I was on the board of directors at the CME . “Within every disappointment, there is a gem of opportunity,” he said.
The socialist welfare country of Greece is absolutely a disappointment—and it’s a shot across the bow that should serve as a warning about our own domestic policies.
That gem of opportunity, I believe, is in U.S. equities.
The market's pullback these last five to seven weeks is right in that 7 percent sweet spot.
The 10-year is a loaded spring, and eventually all that cash will find its way back to risk assets. Growthflation, that global growth story coupled with inflationary pressure on the demand side, is intact.
Heck, we even got some decent news about housing this morning.
Greece is not Lehman Brothers. Now is the time to look for value.
Jack Bouroudjian will share more investing advice today on "Power Lunch," 1-2pm ET, as part of a special week-long series, "Hands-On Investing."
Jack Bouroudjian is chief executive of Index Futures Group.