Greece

July 4, 2015

Here is my logic on this subject.

A member of the Euro Block and it can’t pay it’s debts = uncertainty about stability of European Economic Union = US dollar safe haven.

Who benefits from a strong dollar = European exporters = primarily Germany.

Europe is trying to re-ignite economically, so a strong dollar/ weak Euro  helps make European export merchandise bargains.  Very similar to what is happening at Buffalo, NY.  With the Canadian dollar worth just 80 USA cents, it pays to shop in Canada.  Who takes the hit….Buffalo storefronts.

A strong dollar versus the Euro hurts USA export storefronts and any USA international company that needs to convert its local currency profits to dollars for remittance and display  on USA home office income statements.

But, it seems a decision has been taken to play on and on with the “Greece” card to allow time for Europe to reflate and be able to balance its strength with the USA. All the talk and uncertainty about Greece  plays right into Germany’s objectives.

Going back to the time of Adam Smith, international economics has been thought to be a self correcting mechanism…sort of like a pendulum’s swing.  At this  moment the ” Greece ” card is causing the dollar to swing toward strength and the Euro to swing toward weakness. At some point in time the crisis will resolve itself.  When ?  Read on.

The Greek crisis also plays into the hands of hedge funds and individuals like Carl Icahn (  and me ) who want to buy equities with less risk at lower prices.  Our wish is being aided and abetted by the talking heads on TV who need to fill air time and do so by treating the crisis as if it were huricaine Greece.  Will it strengthen from a tropical storm and when will it make landfall.? The closer the storm comes to landfall the closer I am to increasing my 41% stake in this market.  I believe its all a ploy and the storm will weaken and/ or miss making landfall. I need to make my move before the crisis abates.

With USA internationals taking the hit, temporarily , the S&P 500 is flat. The mid caps, small caps and micro caps are carrying the market, temporarily.

Q…..When will the crisis resolve itself ?   When will USA interest rates rise ?.

A…. When Europe has reflated itself sufficiently well that it’s economies are following the same growth trajectory as the USA .  At that point a rise of USA interest rates will not strengthen the dollar or weaken the Euro.  The US economy will be able to resume export- import activity with  Europe in a balanced way and sales will be based on factors other than price advantages / disadvantages  based on currency disequilibrium.

For sure, this little post will be drowned out by TV and anyone who wants to see stocks fall.

If stocks do fall,  I’m an Index ETF buyer ( but maybe not SPY )  and an Index ETF Put writer( definitely SPY ) . As long as my perception is that USA will continue to keep interest rates low and SPY remains above its 200 day moving average ( at month end ), I’ll be searching for opportunities to be long.

Richard Maurice Gore

 

 

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