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Portfolio Insights by Brett Arends Archives | Email alerts
Nov. 2, 2011, 12:01 a.m. EDT
By Brett Arends, MarketWatch
NEW YORK (MarketWatch) "” Aristotle would be proud.
The philosopher of Greek drama divided the works of theater into tragedy and comedy, never the twain to meet. But his fellow countrymen are going one better. They are currently staging a tragedy that is also a farce.
Not only did Prime Minister George Papandreou call for a "referendum" on the latest European bailout, but it turns out he didn't bother telling his own finance minister first..
Ha ha!
The high stakes gamble by the Greek prime minister is unlikely to pay off says Costas Paris, senior correspondent for Dow Jones.
Maybe Aristotle's famous, long-lost book on comedy has finally turned up in the government archives, and Papandreou is putting on a one-man recital.
The situation remains fluid "” or, to be more accurate, chaotic.
But you have to wonder why the Europeans don't just kick these clowns to the curb. Europe doesn't need Greece. It gets no benefit from having Greece in the euro /quotes/zigman/4867933/sampled EURUSD +0.6975% . Greece's entire debts come to $366 billion. That's 4% of the gross domestic product of the euro zone. Greece's entire GDP is less than 2%. More money was "lost" during yesterday's stock market tumble than in a massive writeoff.
Europe could eject the Greeks, write off most of the debt, monetize the losses, and move on. Guarantee bank depositors, but let the stockholders, bondholders and credit-default counterparties take their losses.
Let them eat baklava!
If Greece is ejected from the euro and launches the new drachma, Greek pastries, olive oil, real estate, island vacations and ouzo will quickly become a bargain again.
Meanwhile the crisis, as ever, makes us look for opportunities. Michael Gayed, chief investment strategist at Pension Partners, an investment advisory with $150 million under management, draws my attention to two things. When the crisis blew up Monday, small-cap stocks initially held up better than large caps. And inflation-protected Treasury bonds held up compared to nominals.
His take? The "risk-on" trade remains intact. The rally that began at the start of last month remains in force, and we are heading for a big fourth-quarter rally. "The market is acting like it wants to go up," he said.
I mention Gayed because he accurately called the summer slump and the rally that followed. Of course that doesn't mean he'll be right this time.
If you're hugely bullish you'd buy small caps for a trade. My take? I think high quality large caps already offered a better deal for investors than small caps.
This is not merely my opinion, but that of a number of shrewd and independent money managers, including the likes of Jeremy Grantham and Charles de Vaulx.
If they're right, then sell-offs are a chance to load up on some of the higher-quality large cap stocks, here and in Europe.
Brett Arends is a senior columnist for MarketWatch and a personal-finance columnist for the Wall Street Journal.
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Brett Arends is an award-winning financial columnist with many years experience writing about markets, economics and personal finance in Europe and the U.S... Expand
Brett Arends is an award-winning financial columnist with many years experience writing about markets, economics and personal finance in Europe and the U.S. He has received an individual award from the Society of American Business Editors and Writers for his financial writing, and was part of the Boston Herald team that won two others. He was educated at Cambridge and Oxford Universities, and has worked as an analyst at McKinsey & Co. He is a Chartered Financial Consultant (ChFC) and Accredited Asset Management Specialist (AAMS). His latest book, "Storm Proof Your Money," has just been published by John Wiley & Co. Collapse
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