Should You Invest on Hope for Europe?

02/18/2015 12:01 am EST


Jim Jubak

Founder and Editor,

Despite the hope for a resolution of the Greek debt problem, MoneyShow's Jim Jubak thinks investors should focus on the real problems that face Greece and the EU.

The day before the big foreign minister's meeting in Europe we had this extraordinary day. That meeting is scheduled for February 11; the day before that we had this extraordinary day where basically the markets decided that hey, Greece was being reasonable so there was going to be some kind of solution to the euro debt crisis and Greece wasn't going to wind up being forced out of the euro, that the crisis was going to get resolved and then we had the German foreign minister—within hours of that kind of optimistic read—come out and say hey, I don't know what you guys are smoking but we haven't said anything about Greece being able to renegotiate or extend the deadlines or anything like that and some of the market went oh, yes, that's really right. We were hoping this was going to happen but there's no evidence that it is.

What we're looking at here is a period where every sort of sign that there's some reasonableness, some grounds for compromise are going to be taken as optimistic by this market. This market really, really, really hopes for some solution to the Greek debt crisis that doesn't force Greece out of the euro. That's the hope. That hope will drive markets higher, but the reality is that well there's not a whole lot of fundamental good news coming out. There's not a whole lot of real good news coming out so that you've constantly got this pattern of the market rising on hope and then having the hope being punctured. For example, the Greek finance minister comes out and says well hey you know we're on agreement about 75% of the deal. The market goes hey, that's not bad and then people go, wait a minute, 75% of the deal, that means that 25% that's really hard still hasn't been negotiated at all and then the market then goes down.

I think what we're looking at is a period of extended uncertainty about the euro, extended negotiation about Greece and I don't see this really winding up in any good place as in Greece stays in the euro and some kind of compromise is struck because I think that the politics of the European Central Bank and the European Union particularly German's role in this situation really argues against some kind of compromise. That to get Germany and Finland and the Netherlands on board for a program of asset purchases, Mario Draghi the head of the European Central Bank has had to promise a kind of fiscal discipline that doesn't make a compromise with Greece and a renegotiation of the Greek debt package really possible.

I think from the Central Bank's point of view it's really quantitative easing which might help the whole euro zone or Greece. Those are the two alternatives and I don't think there's any way in which you can politically do both. I think what we're looking at here is some kind of gradually unwinding crisis that may wind up with some kind of negotiated exit for Greece; that would be in many ways the best thing that could happen or the possibility that in the worst of all worlds we don't have anything that's very, very clean about a Greek exit and also get increasing evidence that the asset purchases; the European Central Bank's desire to purchase about 1 trillion euros worth of assets isn't really having any effect on the European economy and inflation and growth are still very, very, very weak, dangerously weak in which case you've got weak growth, a Greek exit and the compromise of the deal that was struck to make the asset purchases possible which pretty much guarantees a Greek exit isn't really much of a payoff and that's the problem as we go into February and March in the EuroZone.

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