Just when you thought sharemarket volatility had subsided, the Greek tragedy rears its ugly head, again.
Things started going wrong when Greece Prime Minister George Papandreou decided that instead of simply letting his government decide whether to accept the terms of the most recent bailout, he was going to put the entire measure up for a referendum to be voted on by Greek citizens.
Just like turkeys wouldn't vote for Christmas, we can't imagine the Greek people will vote for austerity.
On Bloomberg, David Kelly of JP Morgan said…
"It's frustrating. The danger of having a referendum is that it could be defeated, in which case Greece presumably would end up defaulting on its debt. Europe is not addressing the basic problem. They are not giving the peripheral countries a way out of a recession."
A disorderly default?
There are no two ways about it – Greece has already effectively defaulted on its debt. The only question now is whether the default is orderly or disorderly.
Last week, following what seemed like the 469th eurozone summit crisis meeting, everything looked set for the default to be orderly. Banks took a 50 per cent haircut on their Greek bonds, a 1 trillion euro bailout plan was cobbled together, and global sharemarkets celebrated by having one of their best months ever.
So on, and on we go. More uncertainty, more volatility. Overnight, the VIX, otherwise known as the fear index, spiked a massive 16 per cent higher.
Three Foolish winners
Damn inconvenient of Mr Papandreou to rain on our parade. We were all set to celebrate…
1) Tipping the Melbourne Cup winner.
Well done to our sport's investor mate Lewis on tipping Dunaden. He won by a short-half nostril, but that's all it takes.
Never has the difference between the thrill of victory and the agony of defeat been so fine. No complaints from us, as we pocketed a couple of bucks profit, although we do have a tinge of sympathy for professional punters Kingsley and Sean Bartholomew, who the Australian Financial Review reported could have pocketed $900,000 if Red Cadeaux extended his nostril an extra millimetre. Such is gambling.
2) Tipping the interest rate cut
It's hard to take as much credit for this prediction, but we have been saying for a while we expected interest rates to fall. Finally the Reserve Bank of Australia (RBA) has acted to save our 2-speed economy from totally stalling.
Interest rates fell by 25 basis points to 4.5 per cent. The market is now pricing in a further rate cut in December. If this Greek tragedy goes on a little longer, another cut is something you'll be able to bet on. Otherwise, look for the next cut to be in February. Like the rest of us, the RBA has January off.
Whilst on the point of rate cuts, we tips our Foolish cap to Bill Evans of Westpac Banking Corporation (ASX: WBC), who back in July, when Greece was thought of as a wonderful holiday destination, and sharemarkets were serenely marching higher, went out on a limb and predicted interest rates would be cut before the of the year.
3) A falling Aussie dollar.
Was it only a few days ago the Aussie dollar was riding high at $US1.07?
Don't look now, but it's back down to $US1.03, and sinking faster than a Greek public servant's early retirement plan. It hasn't quite retrenched back to around the $US0.90 level we're predicting, but at the rate we're going, we could see parity by, oh…the end of the week.
With markets in a funk, today is perhaps not the day to celebrate. It's safe to say our Melbourne Cup winnings are not going to make up for the losses our portfolios are enduring today.
Still, here at The Motley Fool, we like to put a positive spin on things. The sharemarket turmoil may give us the opportunity to pick up some of our favourite shares on the cheap.
Another bite of the bionic cherry?
Take Cochlear Limited (ASX: COH). A couple of weeks ago we mentioned our disappointment at missing picking up shares in this world-class implantable hearing device company when the price dived to around $45. As of writing, Cochlear shares have fallen from $60 back to $55. A few more weeks of eurozone-induced panic, and we could get another bite of the cherry.
Investing is a game of patience. And character. You need the patience to wait for the right price before pulling the trigger. You need the character to control your emotions as share price volatility attempts to scare you into selling.
Sharemarkets work in strange, unpredictable ways. They zig when you most expect them to zag. The obvious is often not so obvious. Even the experts can be blind-sided.
Just yesterday, for example, Goldman Sachs' Richard Coppleson was quoted in the Australian Financial Review as saying…
"Even if Qantas Airways Limited (ASX: QAN) hadn't gone on strike, it (Monday) would have been a quiet day. We are now up 12 per cent from the lows. Now we want to see if we can hold on to it. Most institutions are underweight the market and overweight cash. But as people start thinking 'I better buy these dips', I think we could end the year with a decent rally."
Yesterday's interest rate cut was hardly a surprise. Buy the rumour, sell the news goes the old adage. No wonder then shares in consumer discretionary stocks like Harvey Norman (ASX:HVN), David Jones (ASX:DJS), Myer Holdings (ASX:MYR) and JB Hi-Fi Limited (ASX:JBH), supposed beneficiaries of an interest rate cut, are tumbling today.
What's the opposite of the saying a rising tide lifts all boats? It might be Warren Buffett's classic "It's only when the tide goes out that you learn who's been swimming naked."
The tide has been going out for Harvey Norman for quite some time now. Same for most of the traditional bricks and mortar retailers. Back in July, our Investment Analyst Dean Morel argued the death of many retailers is not just imminent, it's inevitable.
Expect the unexpected
Dean remains busy at work putting together the launch edition of our forthcoming Motley Fool subscription newslettter. After what we've just written above, you'd think retailers would be the last stocks on his radar.
When it comes to stock-picking, one thing we've learnt about Dean is to expect the unexpected. His investing style is a fusion of growth and value, with little regard for traditional asset classes.
Dean is constantly searching for the greatest investment opportunities. These are often found in under-followed, mis-understood companies. In short, if Dean sees the opportunity for outsized profits, he'll be there, with bells on.
We'll keep you posted.
In the meantime, hold onto your hats Fools. There may be more rough waters ahead for this choppy market. But instead of getting ready to hit the panic button, we're cool, calm, collectedly and Foolishly looking for compelling buying opportunities. Any more of these Greek shenanigans, and we'll be licking our lips.
Bruce has an interest in Westpac. Dean doesn't have an interest in any of the companies mentioned above. The Motley Fool's disclosure policy is no tragedy.