E Greek Gods - Main Takeaway From The Greek Investment Round-Up

My main takeaway from the Greek investment round-up was from one of the two fund managers I met there named John.

While I enjoyed learning about a Greek lady shipowner challenging the men with her own highly leveraged complex of Tsakos companies, one yielding 10.66%, the idea of more investing in Marshall Islands incorporated Greek shippers terrifies. I rode up with Dryships Inc, another Hellenic Marshall Islands company during the last Baltic dry index boom, and then jumped overboard before the DRYS nearly sank. Moreover, while he gambled hard and lost shareholders' money George Economou is an Adonis, blond, suntanned, and handsome; ladies don't tempt me.

Before taking up new share ideas, I figure I had best get in some macro views about places other than China and the USA.

So here is John Llewellyn, from London, with the outlook for Euro currency countries for 2014. He expects less austerity, more growth, and some dangerous populism. He starts by patting himself on the back:

"The 'Anglo-Saxon world', mainstream British and American commentary, fundamentally misjudged the strength of political will, not least German, to make the [Euro] project work. Predictions of the euro area’s imminent demise proved wide of the mark. In contrast, Llewellyn Consulting [his consultancy company] prided itself on its objectivity on [Europe]. While aware of economic malaise and structural fault lines, we recognised [that] European integration has been able to develop institutions to overcome crises. Indeed, crises have provided the impetus – so far – for Europe’s continued evolution and progress.

"Few EU critics have asked themselves what the continent would look like absen[t] the efforts to bind together [its] member states over the last 60-odd years. Judging from history, the answer is probably a more fractious, iniquitous, [and] protectionist, and less prosperous [Europe].

[However], "the euro area economy continues flat. Aggregate output may have stabilised, but a sustainable recovery is hard to detect. The financial sector is fragmented and dysfunctional, and the[re are] uncertainties over the impact of the ECB [European Central Bank supervision].

"Much of the periphery remains acutely depressed, with jobless rates at historical highs, and risk appetite and investment spending dishearteningly low. [Moreover], deflation is emerging as a serious threat when outstanding debt levels (public and private) remain elevated. The process of deleveraging is therefore subject to additional inertia; the threat of something akin to secular stagnation is rising.

"Particularly disturbing is that the current situation reflects the impact of policies introduced to save the single currency. Extended and deep-seated fiscal consolidation within a close-knit trading zone [along] with efforts to accelerate structural reform, added to downward pressures on output, employment, and the price level. And monetary conditions have not been sufficiently loose to offset the[se] effects.

"This is encouraging a combination of 'austerity fatigue' and political polarization [moving toward] next May’s European parliamentary elections. Unless there are positive growth surprises early [next] year, we suspect that the prevailing policy mix will have reached its limits, and be progressively unwound.

"Over the course of 2014, we expect some combination of the following initiatives:

  • Considerable slippage in fiscal consolidation programs, if not explicit fiscal expansion. This could extend to Germany, where the new grand coalition is likely to prove more pro-euro than its predecessor.
  • Less enthusiastic commitments to structural reform, [or] adoption of some interventionist and protectionist palliatives to preserve jobs, maintain social stability, and curry favor with disaffected ‘have nots’ and [voters].
  • Yet more unorthodoxy [by] the ECB. Quite what form this will take and how the more conservative central banks in the euro system will respond is [unknown]. However, inflation is certainly no constraint on additional policy action.
  • The activation of further bail-outs, and debt write-downs.

"Therefore 2014 [will] be more challenging and dangerous for Eurozone financial markets than the surprisingly calm 2013."

Mr. Llewellyn's forecasts are hardly likely to tempt us to get into European shares, particularly not those from the unreformed periphery. That means companies at the mercy of government redistribution, or populist or inflationary policies in Greece, Italy, Spain, Portugal-- and perhaps France where both John and your editor lived a long time.

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