Interesting headline from 70 years ago. The European Union was dreamed up to help ensure that WWII was the last war in continental Europe. By tying the countries together economically, it was thought that no country would have an economic interest in invading one of their neighbors. One for all, and all for one. Unfortunately it didn't quite work out this way.
If you thought the face of modern warfare was our satellite operated drones, think again. Todays face of modern warfare is the smoothly shaved, slightly paunchy, pinstripe wearing, banker/politician. Think I'm exaggerating? Did you see the footage of the riots in Greece. The Greek people were not rioting because they were being bailed out by their friendly neighbors to the North. No, they were rioting because they were being taken over. It was not the Greek people, or even the Greek government, that was being bailed out, rather it was the bankers (namely German and French bankers) that were being bailed out.
The Greek people and Greek politicians would love to default on their debts, take the hit and start anew. But the European, US, and Chinese banks would rather not have to take the hit to their balance sheets. Instead Greece is being forced to have the worlds largest garage sale. Up for sale are 39 airports, 850 sea ports, railways, motorways, water works, utilities, olympic facilities, and thousands of acres of land. Who do you think the ultimate buyers of these fire sale assets will be? It won't be the Greek people.
What happens when one country invades another. They take over all the profitable companies and assets. How is 2011 different than 1941? The Greek people know when they are being raped and pillaged, that's why they are rioting. They riot while the bank stocks rally.
I know some of you are saying, "Hey, it's their own fault. They're the ones living beyond their means. They're the ones not paying their taxes! They get what they deserve!"
Well, lets back up a moment. Greece has always been a country that enjoyed life. They've always been corrupt. They've always been a country that lives beyond their means and frequently defaults on their debts. Nothing new here, everyone knows this. Even with this knowledge, knowing that Greece's fiscal condition did not warrant inclusion in the European Union, the powers that be sought to ignore their history and their present state and include them in the EU. After all, Greece was the cradle of Western civilization, and the birthplace of democracy, how could they not be included in the European Union.
Knowing all of this begs the question, "Who in their right mind would lend to these people?" And even more stunning, "Who in their right mind would lend to them at rates just slightly above the Germans?"
Doesn't this all have a familiar odor? Didn't the same thing happen here in our own neighborhoods? Those that even the casual observer knew weren't creditworthy (subprime borrowers) were able to get loans. No one was shocked when they weren't able to pay their debts, they never paid their debts. But still the banks were bailed out.
Believe me, I'm not saying it's all right to live beyond your means and default on your debts. It's not. But, if a bank is stupid enough to loan you the money then they should also be punished for their stupidity. Instead the banks are being made whole, via tax dollars here in the US; and where tax dollars aren't sufficient, via property sales (Greece).
I'm afraid that a new type of warfare is being practiced on a grand scale, class warfare. This is not capitalism, in capitalism those who make stupid business decisions go out of business. I'm not sure exactly what this is, but its very troubling.
Read, every day, something no one else is reading. Think, every day, something no one else is thinking. Do, every day, something no one else would be silly enough to do. It is bad for the mind to be always part of unanimity.
-Christopher Morley
I've always thought of myself as a bit of an outsider, someone who avoids crowds at all costs. I hate conformity, and often think that rules were meant for others. It's probably why I've never done very well in a large corporate environment. I've got authority issues, and its been said more than once, "He doesn't play well with others". I think that is why I've always enjoyed this quote, but this quote is also critical to becoming a good investor. While its important to know what the consensus is thinking, we also need to protect ourselves from the dangerous traps of group think.
Group think happens very easily. We all tend to watch CNBC or Bloomberg TV. We all read the Wall Street Journal, NY Times, or Barron's. We tend to gravitate towards the same web-sites and bloggers. We prefer to listen to those who share our views and beliefs. On the internet there is a term for this, its called a "Filter Bubble" (thanks Ethan Zuckerman). A filter bubble occurs when search results are tailored (filtered) to match your predispositions, biases, and interests. While this might be very useful when Amazon recommends books for you to read based on your previous purchases, or Apple recommends music based on your tastes, it can be very dangerous when investing. (As an aside, one of my favorite iPad apps is Zite, a filter bubble app that builds your own personal magazine based on what you read. Very slick, great for recipes and sports, but dangerous for investing.)
Investors need to have their views challenged. We need to constantly expose ourselves to the other side. Remember that every time you buy or sell something, there is someone else on the other side of that trade. Stop and ask yourself what their motivation might be. Remember that Warren Buffett, or Goldman Sachs, or any hedge fund, or any individual could be on the other side of that trade. Some of the best advice I've ever been given is to understand the bull and bear case on each investment. Seek out those who have an opposing view. Look for the most bullish and most bearish analysts. Understand your position and try and understand those on the other side.
Be careful out there, and keep the lights on,
Chris Wiles, CFA
412-260-7917
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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.
