Greek Exit Could Spark Rally

05/30/2012 11:34 am EST

Focus: GLOBAL

David Callaway

CEO, The Street, Inc.

The crisis outcome the market dreads could be a tonic should the rest of the Eurozone hang on, says David Callaway, editor-in-chief of MarketWatch.

What’s happening in Europe, and how will it affect America? We’re here with David Callaway, who’s going to give us his insights on the long-term picture of what’s going on in Europe.

I think Europe is entering another summer of turmoil. We’ve had it going on for three years now, tied to the euro.

Greece is again in the headlines, and it’s going to have an impact on the global markets. A lot of people in the US don’t seem to realize. They think, "Why is something in Greece affecting us here in the US?" But over the last 20 years, all of the major banks and financial services companies have become interchanged, so a problem in one area, be it Greece or Southern California, is going to affect the other end, New York, and the market.

We’re going to have this issue. It’s not going to be over this summer, just like it wasn’t over last summer. I think the Euro is fundamentally flawed, and at some point we’re going to lose it, but it’ll be a few years.

In the meantime, though, Europe has shown that it can periodically bounce back from these periods of turmoil, so the smart investor is looking for stocks in Europe that are good global companies, that aren’t just completely contained to that region, that are going to gain some value during the period of turmoil and grow when things come back. So the smart investor is looking at opportunities there, is holding on to the US, which is clearly well ahead of Europe in terms of growth.

When you talk about companies over there, are you looking at, say, Siemens, or…

Yeah, look at big companies like Siemens (SI), or Total (TOT), the French oil company. It’s a global company. It might not do any business in France, but if it does it’s less than 5%. But it’s listed in France, and it’s dragged down by perceptions of the French economy and French politics and France’s role in the euro.

In these periods of turmoil when European markets fall, these good stocks gain value, and they’re good opportunities for investors. So, don’t expect to see a settlement of the euro crisis this summer. Expect it to bump along with various problems, and make the best of the opportunities.

With stocks like Banco Santander (STD) in Spain or Eni (E), which is another petroleum producer out of Italy, are those dangerous places to go just because they’re the PIIGS nations that might not make it and might get tossed, so is it better to concentrate on the more solid and secure Eurozone countries and companies based out of there?

Yeah, I mean, you do want to concentrate on some of the northern ones like Germany, like you said, or Switzerland, but I wouldn’t throw out Spain or Italy just yet.

Greece, maybe. Greece is leaving the euro, and it probably will be sooner rather than later. I actually think the markets will rally on the day that Greece leaves the euro, and the Greek people will even be happy about it too because we’re so waiting for this to be a disaster for global markets, right?

One rule about investments is whenever everyone thinks a disaster is going to happen, it doesn’t happen. It’s usually a surprise. So Greece will leave, and they will try to hold together the rest of it. I don’t think that ultimately will be successful, but will divide into a northern and southern area where the northern folks keep the euro.

But even then, once the markets see that Greece can leave successfully, devalue, return to the drachma or whatever they decide, that’ll make it a little bit better for places like Spain and Italy. I still don’t think Spain and Italy are in danger, but we’ll see. Certainly they’re in a firing line.

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