How many light bulbs does it take to change sentiment in the Euro-zone?

Meeting after meeting has transpired since the beginning of the Euro-zone crisis (whenever exactly that was) and very few original ideas have emerged. For all the first class airline tickets to Brussels, all that we really have are statements like, “We will not let the Euro-zone fall apart,” and “We will concoct a plan for Spanish banks.” Yet that is all the market seems to need for a rally. It’s about time to write an article on Greece.

When you’re listening to the hyperactive news presenters on sky news business in the morning screaming about non-events that occur in time frames of months, weeks or even days, it’s easy to forget that the real economic events unfold over years, decades, and generations. The outcome of the next taxpayer funded Eurozone gabfest in a few days isn’t that important, but it is important to step back and realise that the best case scenario they are talking about (Greece remaining in the Euro and paying back all its debt) will not occur over a timeframe of months, but we will still be talking about it in TWENTY YEARS! It really puts into perspective the talk you heard this morning, the sell off on Monday, the slight recovery over the rest of this week, and is almost enough to make you turn off the television and wonder why you should care. The fact is you probably shouldn't.

The real point of the title is just another reminder that sentiment will always rule the market, and real game changing ideas and plans will be very far and few between (especially when politicians are involved). Do not get side tracked. Let’s say that tomorrow the Greek economy starts growing at three percent. If spending by the Greek government doesn’t grow at all (except to account for the different amounts of interest it pays as the debt levels change) then at the 3.5 percent interest rate associated with the last bailout package, Greece will have a more acceptable debt to GDP (or income) ratio of sixty percent not on Monday, not by October, or by the end of the year, but in 2035. As the media tries to convince you that day to day affairs are so important that you must switch on every night to hear the latest developments, it is often omitted that the real timescale of the current crises is measured in decades, not minutes. This is exactly what Warren Buffett has alluded to: that if you buy the right stocks, you should be able to switch off for a decade and be reasonably safe, or more precisely: if the stock market closed for ten years you should feel comfortable holding the stocks you’ve bought. The numbers are purposely oversimplified to exaggerate the conservatism and so that the broad message is easy for you and me to understand: the time frames involved are huge.

Of course there is one thing that could abruptly alter this time frame, and that is if the best case scenario doesn’t play out, and Greece defaults on its debt and/or leaves the Euro. With all the government intervention and media attention one might wonder whether economics is playing a part in markets at all, but the mess will still provide us with plenty of intellectual economic stimulation.

Greece
Euro-zone
Bailout package
Mainstream media