A GREEK TRAGEDY
If you're like me you'll be fed up hearing about Greece. But it's been going on for longer than you think for it was over two years ago that a former European Central Bank Greek insider said it was only a matter of time before Greece collapsed into the Drachma.
I've just spent a fortnight in Ibiza. I went via Palma. We're told the Spanish economy is running a close second in the casualty stakes to Greece. Nobody told Palma airport. It was heaving.
Ibiza's doing rather well too. Property prices are holding up and the top end of eating out is doing well. At dinner last Tuesday at Sa Capella, a formerly unconsecrated church with magnificent food and ambience there wasn't a table to be had.
Everybody, and I do mean everybody, in Ibiza and the rest of the World knows Greece is leaving the Euro, bringing down the rest of the Eurozone and the World economy. Funnily enough people who should have a better idea think differently.
The President of Luxembourg was quoted as saying, "We do know the answers but we're trying to find out a way of delivering a solution and being re-elected the next time around."
Scot Niall Ferguson, now Professor of History at New York University, a man well known for pessimism, believes this mess will be sorted out with Greece staying in the Euro.
Fee based independent analysts, Ned Davis Research don't see the Greeks leaving the Euro any time this year. They also see this as one of the outstanding occasions to buy equities.
Their sentiment indicators confirm their positive views. For example, in the last sixteen years there have been seventy-six occasions when private investors as a crowd have had extreme levels of pessimism and optimism. You can measure this mathematically. In every previous occasion they've been wrong. So in other words when they're selling they should have been buying, and vice versa.
What do the indicators tell us now? They show extreme pessimism, time to Buy. I saw a headline in Ibiza airport - "The Death of Equities" Every time they run that old chestnut, it's a classic sign a recovery is due. Another classic contrarian sign is the front page of The Economist. The last one I saw showed the Euro getting pushed over a cliff.
But where did it all go wrong for Greece? Let's face it, over 2,000 years ago they led the World in Philosophy - with folks like Socrates and Epicurus. Epicurus said, "You don't develop courage by being happy every day - you develop it by surviving difficult times and challenging adversity." Socrates said, "Understanding the question is half the answer."
And it was the Greeks who invented the Olympic Games long before that. During all this pessimism you may have forgotten the London Olympic Games will be along soon. Can the Olympics teach us anything about what might happen to stockmarkets?
An analysis by Ned Davis Research looking at stockmarkets before and after Olympic Games, going back to South Korea in 1988, is very interesting. The study includes Spain, the US, Australia, Greece and China.
What the numbers show is that in five out of the six cases examined, the host country's stockmarket has been down over the three months before the Olympics. They've also found in five out of six cases the returns during the Olympic Games exceed the returns for the previous three months. So things begin improving.
But it's what happens next that's key. In all six previous cases the host country's stockmarket performance has been positive over the following six months once the Olympics are finished. And the outperformance is marked against the global stockmarket index. In other words the host country's stockmarket ends up winning more medals for investment performance than elsewhere in the World.
So my message to investors is you can expect to see the UK stockmarket through June to be more defensive, followed by the beginning of a sprint starting in July, and bursting through the performance tape by the end of the year.
Alan Steel Asset Management
A version of this article was published in the Scotsman on the 26th of May 2012