Every century has its wars. The fantasy that a twenty-first century wouldn't have any or that Europe has abolished 2000 years of its history in 20 years, I think these are not depressing things, these are fantasies. The Europeans remain Europeans, they are who they were, they are going to be who they were. But certainly the idea that the twenty-first century will be more peaceful than those that went before-it's an interesting concept; I don't know why anybody would believe it. -George Friedman
In 2010 I taught a software class at the US embassy in Athens. I had never been to Greece before and I booked travel a couple days early at a cheap hotel.
I got to Athens and got lost immediately even with a map in hand. The Greek alphabet is foreign to me and invariably the names of the streets are something like "Pouladapapadopopoulos" not to be confused with "Poudadapapadopoudos."
I walked for hours on the first day and I did not like what I saw. Run Down. Gloomy. The people and the buildings. Dirty. Vandalized. Too small for itself with tiny roads jam packed with tiny cars and mopeds. Meep. Hoooonk. Meeep. Hoooooooonk. "(whatever is Greek for F Yourself)."
Mopeds were legion and smoking ubiquitous. Not unfriendly but not friendly either. Furrowed brows. No one spoke English. This surprised me. Having spent time in Germany I thought all of Europe spoke English now.
Crossing one small street I came across about two dozen people lying mostly comatose in the street. One not-yet-comatose 100 pound man stood and lifted up his shirt and injected a needle directly into his belly as he yelled English language swear words at another man. He knew some English.
I found an old policeman and asked him with my map to help me find my hotel. He wanted to help me but did not speak any English and he eventually stopped a man on a moped and together they spoke Greek to me.
The next couple of days were more of the same as I walked the ancient ruins and pondered the squalor of the cradle of civilization.
After that, the company that sent me to Greece switched me to the Hilton across the street from the American embassy. This was a part of town I had not seen. Clean. English advertisements for luxury items. Ritzy shopping. Well-heeled young women donning the latest and most expensive. Designer. Fancy. Fancy Jewelry. Fancy restaurants. Fancy clothes. Fancy people.
My first day here by luck I took up in a coffee shop and to my delight a young woman working there, Maria, spoke English. She told me she had studied in America. I stayed and talked to her for hours.
I told her about what I had seen in my short time in Athens. When I was preparing for my trip I was warned to be careful. 2008's rioting had given way to demonstrations and strikes, and my airport was scheduled to strike (their high courts eventually ordered them not to). But there was a just general feel of protest. I told Maria I had overheard people talking about whether an angry demonstration was going to happen that night. Do you think it will rain again tonight? Do you think an orgy of anarchy will consume us all again tonight?
Maria started in right away justifying the demonstrations. It was hard to keep track of everything she saw as unfair. Of course they were protesting. The had been wronged in more ways then you could count. And when she talked it was "we" and not "they". They were mad, as a country, all together, and in unison.
Eventually Maria introduced me to some of her friends and we had a terrific old-world style dinner together. I was introduced to many people, most of whom did not speak English very well. Gracious, friendly, joyous people. Old men at the next table sang songs while one played strings. The owners visited with everyone.
Maria introduced me to people and it was always followed by what region their family was from and thus whom they hate and who they feel wronged them. Almost everyone I met was eager to show me that they felt wronged. There was an urgency to the way they talked. It was a national emergency to them. Maria would interpret what people were told me. It was like being at a wedding and every time you get introduced to a person someone leans in and tells you who they are related to, except they tell you who they hate.
And, let me tell you. They hated Germany, yes. They hated the EU and most definitely were mad that the EU had left their country in tatters. They blamed the Germans and the EU for their problems, no question. But what they really felt wronged by, what they hated most of all, was Turkey. Turkey. I had no idea what they were talking about. As it turns out Greece has a long running feud with the giant Islamic nation, and in Greece the feud is alive. And it's mad.
But you also have another issue emerging, which is that you have to remember that many Europeans-some would say most-never prospered in the European Union; that residents of countries like Greece or Romania or Spain found themselves unable to compete, unable to protect their markets, and now unable even to determine their own budgets, so that these people became increasingly powerless. So their national elites supported the EU, they did fairly well and they really believed in it, but there is always a great euroscepticism and now that euroscepticism is growing. And compound that with great fear of immigration from the Islamic world, great fear that they can't control it because of EU rules, and you have coming together racial concerns with economic concerns, which is an explosive mixture in Europe.-Friedman
The Greek people feel wronged in a personal so that the daily news of demonstrations and fires makes sense to them. It is personal to the them the way 9/11 is personal to people from New York.
And they feel desperate. Powerless.
And now officials from the troika - the EU, IMF, and ECB -have landed in Athens, and they are there to tell the Greeks "you are already behind on your end of the agreement, hurry up and shrink your government and collect taxes and cut your deficit or we may not bail you out."
Greece will be out of money in weeks if they are not bailed out. The heads of the newly formed three party coalition in Greece, however, have all pledged to push for leniency from their creditor union.
The government says it wants tax cuts, a freeze on public sector layoffs, extra help for the poor and unemployed and an additional two years to cut its deficit. [Reuters]
The economy in Greece has been in a recession for five years. Five years, and now the troika is pushing to privatize the giant Greek public sector, slash spending, and lay off tens of thousands in the middle of all the misery.
There is no will amongst the people of Greece to acquiesce to the EU. Greek officials on Thursday played down their demands for leniency, and they can go on putting on a good face for the world in perpetuity.
When it comes time to act, however, things will be very different. When it comes time to collect taxes, lay people off, keep borders open to old enemies while the unemployment rate climbs still higher, and give up national autonomy, then the whole facade of a workable agreement between Greece and the EU will come crashing down. The Greek people will hold Europe hostage. They will martyr themselves, not comply, and it will taste of sweet comeuppance to them.
There is one way to solve this problem within the framework of the European Union: give Greece everything it wants, support Greece's welfare state and not make it pay its debts. Otherwise, "it's gonna be the end of the world, Bill."
In the next two months Greece and the troika will be "working together" to solve this, but Greece is an unmovable object. If Germany tries to insist that its force is unstoppable, Greece will riot, the EU will quake, liquidity may dry up, investors will panic, and markets will plummet.
For investors, cash is not a bad place to be. Here is what I think a market-following investor should do. If you are a buy and holder, though, I'm counceling waiting out this storm in domestic utilities, railroads, domestic telecom, powder river basin coal, and domestic transports. These stocks should weather the Greek tsunami better than others. Have a look at these suggestions and note that almost every stock offers a good yield and is a play on America.
First off, the Summer in America is really hot. Black Hills (NYSE:BKH) and Westar (NYSE:WR) are two Mid-Western utilities that heavily use cheap coal from the powder river basin. This coal's cost is much more competitive with natural gas than Appalachian coal. In addition Black Hills drills their own gas so a rise in gas prices means they win twice (they still have the cheap coal for electricity).
Empire District (NYSE:EDE), Entergy (NYSE:ETR), Exelon (NYSE:EXC), and Great Plains Energy (NYSE:GXP) all offer good exposure to the basin as well and provide great home-grown yield. Stay away from Otter Tail (NYSE:OTTR) and the miny empire they are building (they are spread over too many businesses).
American Electric Power (NYSE:AEP), AES (NYSE:AES), Duke (NYSE:DUK), Consolidated Edison (NYSE:ED), Public Services Enterprise (NYSE:PEG), Southern Company (NYSE:SO), and TransAlta (NYSE:TAC) also offer a lot of yield having nothing to do with Europe.
Railroads Union Pacific (NYSE:UNP) and Kansas City Southern (NYSE:KSU) give you exposure to coal transportation from the powder river basin. Genesee & Wyoming (NYSE:GWR), Norfolk Southern (NYSE:NSC), and CSX (NYSE:CSX) are bets on America, not European banks, and provide yield.
Telecoms Verizon (NYSE:VZ,), AT&T (NYSE:T), and Sprint (NYSE:S) offer great domestic yield (in an industry that has become a utilty of sorts) in the first two cases, and domestic homerun potential in the third.
Arch Coal (NYSE:ACI) is the biggest miner of powder river basin coal, that's good exposure to the domestic electricity play with the hot Summer catalyst.
Because of what I think will be a strong American dollar compared to the euro (or whatever is left of it) I think most US-based euro-exposed global consumer non-cyclicals should be avoided. This includes Philip Morris (NYSE:PM), McDonalds (NYSE:MCD), Colgate Palmolive (NYSE:CL), and Coca-Cola (NYSE:KO). Many of these types of stocks have run up in the past year with investors looking for safe havens. Look into the utility stocks and note the yield on many beat these consumer non-cyclicals hands down.
Be careful of financials even if you are in American companies like Bank of America (NYSE:BAC), Cititgroup (NYSE:C), Wells Fargo (NYSE:WFC) or US Bancorp (NYSE:USB). If Greece slams banks in Europe it will slam US banks too.
Also watch out for oil. Like the financials oil companies like Exxon (NYSE:XOM), BP (NYSE:BP), and Chevron (NYSE:CVX) look cheap here, but Europe has to stay thirsty for oil or the price will plummet and so will the stocks of oil companies.
In the coming months Greece will be unable or unwilling to comply with the demands from Germany and the European Union. If the EU plays chicken with Greece the impact will crush Europe. Make sure you are prepared and watch carefully when the headlines turn to Greece. If it seems like Merkel and company won't yield then that could be a great time to short the market.
I leave you with William Shakespeare.
Let me have men about me that are fat,
Sleek-headed men and such as sleep a-nights.
Yond Cassius has a lean and hungry look,
He thinks too much; such men are dangerous.
Disclosure: I am long ACI.