The Greeks have been saved. Long live the euro, the Eurozone, souvlaki, ouzo and the stock market, writes The Motley Fool.
European leaders have agreed a new €109 billion bail-out of Greece, making it something like the 43rd bail-out since the whole financial crisis began way back in 2008. It could be more…or less. We’ve lost count.
This bail-out is different, or so the Eurozone heads would like us to believe. This time, the bail-out will, once and for all, end the threat of contagion and secure the long-term future of the euro, allowing weary stock market investors to get back to focusing on picking winning stocks.
That’s the theory, anyway. At least the Greeks now have time to pay off some of their debts, up to 30 years to be precise.
It’s almost enough to turn previous rioting Greeks into peace-loving, tree-hugging hippies.
If it all sounds too good to be true, it probably is. For Greece, officials estimate all measures would cut a somewhat puny €26bn off the country’s massive €350bn debt pile by 2014.
The euro may be saved, for this week anyway, but Greece still has a long austerity road ahead. Still, with 30-years up their sleeve, we wouldn’t put it past the Greek politicians to defer some of the tougher decisions just that little bit longer, if they can. Anything to keep the stone-throwing rioters off the streets of Athens.
Addicted to bail-outs
Whatever the long-term ramifications, the stock market loved the bail-out. If we were being really cynical, we’d say world stock markets are surviving on bail-outs alone, whether it be British and American banks, Greece, Ireland and Portugal, AIG, and the indeed the whole American economy.
Maybe they are. But investors don’t care, today anyway. Over in the U.S., the Dow Jones finished 153 points higher at 12,724, closing near the multiyear high it reached in late April.
All this Greek happy gas also powered the Aussie dollar (AUD) higher, jumping a cent to $1.085 against the US dollar (USD). Risk on. Game on.
Bringing things back down a notch, there is the small point of the U.S. debt-ceiling impasse still outstanding. Only 12 days to go to get that one sorted, or else we’ll all be facing economic and financial Armageddon.
Never mind, a lot can change in 12 days. In any case, markets are assigning an almost zero chance of a U.S default, with U.S. 10-year bonds yielding just 3%.
The canary in the coal mine might be gold. It still trades close to $1,600 an ounce, and close to its recent high of $1,610. It seems gold bugs aren’t impressed by bail-outs. Will nothing please them?
Bail out our portfolios
Amidst all this euphoria, the poor old Aussie stock market continues to languish. Still down 33% from its October 2007 high, and 8% from its April 2011 high, we’re missing out on the action. The Australian economy may have avoided recession, but not Australian share portfolios.
Where’s a bail-out when you need one?
Blame it on BHP Billiton (ASX: BHP) if you like. In 2011 to date, its shares have tracked the S&P/ASX 200 index almost identically. Both are down over 3%.
Forget the old adage that if the U.S. stock market sneezes, we catch a cold. Forget Australia riding on the sheep’s back. Our super funds, and our retirement, depend on you, Marius Kloppers.
We also haven’t been helped by the poor performance of our big 4 banking stocks. Year to date, Australia and New Zealand Banking Group (ASX: ANZ) is off 9%, Westpac Banking Corporation (ASX: WBC) 5%, Commonwealth Bank of Australia (ASX: CBA) 2%, with only National Australia Bank (ASX: NAB) in the green, up 4%. True to their marketing campaign, the NAB really is “breaking up” with the others.
Unsustainably high house prices will do that to banking stocks. You can only defy gravity for so long. But that’s a story for a different day.
As for Australian stocks, we’ll get a nice relief rally from the apparent resolution of the European debt problem. We may even get a lift if and when the American politicians belatedly agree to lift their debt ceiling. If they don’t, we’ll see a massive stock market crash, until Obama and crew come to their senses and increase the ceiling, as they’ve already done 74 times since 1962.
Bring on bail-out number 44. And, long live BHP Billiton.
Of the companies mentioned above, Bruce Jackson has an interest in ANZ, CBA, NAB, WBC and BHP, of course. The Motley Fool’s disclosure policy does not require a bail-out.