The percentage you're paying is too high priced
while you're living beyond all your means.
And the man in the suit has just bought a new car
from the profit he's made on your dreams.
But today you just swear that the man was shot dead
by a gun that didn't make any noise.
But it wasn't the bullet that laid him to rest
was the low spark of high-heeled boys."Low Spark of High Heeled Boys" by Traffic
Watch it on YouTube:
Don't you just love the way the universe comes together in the most unexpected of ways. My oldest daughter Lauren, a seventh grader, has been studying Greek history for the last several weeks and her school has gone all out to make it an enjoyable history lesson. In Literature they read "Percy Jackson and the Lightening Thief", in math they studied geometry (founded by the Greek Thales (624-547BC)), and in Social Studies they studied ancient Greek culture. Each classroom was decorated after a particular Greek God, and it all culminated today in a Greek festival, complete with Greek foods (provided by parents) and mandatory toga attire. Add the Olympics into the mix, and the non-stop business news about Greek's financial problems, and it seems like every time I turn around I'm running into Greece.
It's ironic, that what may emerge as the trigger for the West's newest financial crisis, has begun in Greece, the birthplace of western civilization. And it is also a shame that the birthplace of democracy is now being forced by outside creditors and guarantors to make the hard decisions that they should have been making through their own legislative process for the last 30 years. After seeing the news the other night, Lauren asked me about the riots in the streets of Greece, something to the effect of, "like, whats going on in Greece"? I explained to her that Greece, like so many countries, has spent decades promising their citizens more benefits than they could deliver. The country was living beyond all its means. Eventually when you borrow to live beyond your means you're creditor (the person who loaned you the money) will want to be repaid, that is what's happening in Greece. Lauren asks again, "yeah, but like why are they rioting?" Well its simple, they were told that their country can no longer afford to keep its promises; that they'll have to work to 63 before retiring, public sector wages will be frozen, and taxes will be increased. Lauren again making me proud, "Duh, like where did they think the money was going to come from?" That's my girl!
The situation in Greece will be fun to watch and very instructive. Already we have the Germans asking why they have to work till 67 so the Greeks can retire at 63. And the Greeks (playing the six decade old Nazi card) saying that the Germans killed 300,000 Greeks, took all the gold from the Bank of Greece, and never paid it back. While this is great theater, please don't forget that even though the balance sheet of Greece is similar to that of the UK and the US there are some very big differences. Greece can not print Euro's, they can not devalue their currency to spur growth, we can. I'm not saying that printing dollars and devaluing currency is a good thing, but it is a tool that can be used to mitigate the pain of fiscal constraints. Greece is much more comparable to a state, say California. California is in a world of hurt...living beyond all their means...and is seeking help from the Federal Government (i.e. all the other taxpayers) to bail them out. Will taxpayers, from other states (i.e. you and I), riot in the streets when California takes their hard-earned dollars to pay for their in-state students nearly free college education, or their public sector retirees at the ripe old age of 50? That's what these tea-party protests are all about. People are tired of living within their means, and then being forced to pay for others who haven't.
The Greeks have found out that "the percentage they're paying is too high priced, while they're living beyond all their means." Jim Capaldi, of the ban Traffic, said that "low spark" to him meant "high-spirited rebel" and that "high heeled boys" were the guys in Europe back in 1971 walking around in cowboy boots. Will todays bond vigilantes be the "high-spirited rebels" who lay them to rest?
Investment Considerations
Clearly we'll be watching the global markets to see how this contagion spreads. So far its been interesting that the US dollar has strengthened while gold has weakened, as currency players have shorted the Euro and gone long the dollar. Eventually this may become an indictment on all fiat currencies and then gold will rally again...we'll see.
Next week I'll comment on some interesting ways we might be able to manage our U.S. dollar risk.
Until then, be careful out there.
Chris Wiles
This article contains the current opinions of the author but not necessarily those of the Rockhaven Capital Management. The author’s opinions are subject to change without notice. This article is distributed for informational purposes only. Forecasts, estimates, and certain information contained herein are based upon proprietary research and should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed.
Source: Bureau of Economic Analysis
