|Written by Rob Goldman|
As expected, things have come to a head with the Greek Tragedy. Still, we view this as really good news for U.S. investors. It brings us closer to a screaming buy signal where investors can feel comfortable buying in earnest. Check out our 3 reasons why this situation will present itself sooner than you think and even help 2016.
The returns of our Goldman Guide picks, much like our 30-30 picks, are impressive and with new changes on the horizon, we expect the returns to be even better in the second half of the year.
Don’t mind risk or speculation? We have some out of the box ideas to play the Greek/European crisis with an ETF, a bond, and sectors (for stocks.)
WHEN BAD NEWS IS GOOD NEWS
For those of you still on holiday or not really paying attention to the global or financial news, here is a news flash. The Greek public voted against the austerity measures (which supports leadership’s stance but is 180 degrees from the rest of the EU.) As we see from futures a few hours before the U.S. market open, stocks are trending sharply lower in response to this news.
This is terrible news for Greece and its people and we feel for them. It is also bad for the EU. That means it is bad for stocks across the pond. Of course, that is bad news for stocks here. But—only for a little while.
In fact, it is good news. It may be the break we have been waiting for. Here’s why:
• Stocks have been tired for months.
• GDP growth and earnings growth have not been up to par.
• Valuations are nearing a tipping point.
• Interest rates could rise in 2H15, limiting equity performance.
The market has been saddled with a cold for too long with no cure in sight. Chaos in Greece is heart-wrenching but has proven to have little long term impact on U.S. stocks. But, it will be a catalyst for share declines which is the medicine we have needed in order to move higher later this year.
What Lies Ahead
Last week, we highlighted the Greek economy and its recent performance history. By putting it all in context, it is easy to see why any downturn due exclusively to the Gyro that is the Greek economic crisis will be short lived.
First of all, this mess that is the Greek economic crisis did not happen overnight. The latest incarnation actually is six years in the making beginning with the country’s first sovereign debt downgrade in late 2009. New downgrades, missed payments, high unemployment, GDP declines, stock market collapses and poor economic performance hammered the country in 2011 and 2012, which is when the U.S. stocks were last affected. Since 2009’s peak, the country’s GDP is down 30%, so this has been a long time coming!
We note that the 2012 crisis was sparked by the largest sovereign debt fault in history. But, after a new plan was agreed upon by creditors, stocks recovered and then rallied pretty quickly.
Fast forward to today...as of last week Greece is now the first developed nation to default on a payment ($1.6B) to the IMF. Depending upon the figures one believes, the current total debt is around $400 billion and there is no consensus to fix the problem. In addition to worries over the value of the euro, write-offs by banks and other creditors, there is major concern about financial (and migratory) carry over into other nations and the potential that Portugal, Spain, and Italy are now at risk. While these concerns are valid, the Greek economy is really just a pimple on the butt of the world’s economy, even though shipping might be at risk.
According to the IMF, Greece’s GDP last year was $230 billion which ranked #43 in the world and was a few slots above such “stalwarts” as Algeria and Kazakhstan. If Greece were a state, it would be smack dab in the middle of U.S. GDP generated by state. In fact, its size is essentially equivalent to Oregon. Meh.
The key with understanding the impact on the U.S. is to look ahead a few weeks/months, rather than today as the situation is just too fluid.
Economy: The direct impact a prolonged Greek crisis has on the U.S. is limited due to its relative size and the total trade between the nations. Where we do get hurt is on an indirect basis; specifically the impact on the EU and the resultant effect on America. It is impossible to gauge but clearly the biggest Greek creditors (like Germany) and other EU nations can’t swallow the Greek pill alone. At the end of the day, a consensus will be won and this will all be behind us. Until then, take comfort that unless the problem spreads or hurts our exports across the pond, or our own loans to Greece bow up, we are in decent standing.(I am more concerned about Puerto Rico but that is a story for another day.)
Interest Rates: Barring major changes on the domestic front, it now appears that interest rates may not be raised until 2016. Thank you Greece! Considering 2016 is an election year, we expect any increase(s) to be tempered as the Democratic Party will want to focus on growth, not interest rates.
Stocks: In our view, any sell-off is what the doctor ordered. We could use a good 5-8% to make valuations more attractive and with the interest rate overhang pushed out, investors will soon be cheering. Moreover, with favorable EPS comparisons expected to start in Q4, equities look to be the place to be as investable assets migrate away from bonds and European and emerging markets due to instability abroad. That means the investment outflow cycle to funds of companies abroad will reverse itself, driving up all domestic equities. This trend should begin to show itself around the Q3/Q4 timeframe. How to play Greece if you don’t mind risk? Velocity VIX 2x ETN (NYSE—TVIX—$9.30) could be a good short term play on the crisis while the Greek shippers or banks (think NYSE—NBG) may be worth a QUICK trade when the dust settles. Or, buy A+ rated Ireland bonds now that should drop in sympathy near term, but rally later—we think...
With all of this heavy stuff on Greece we thought we should highlight lighter stories.The Smoking Gun
Hilarious and different.
The Daily Mail
Sad story for you historians.
After the ridiculous story about Twitter’s minority hiring, this was unexpected.
The New York Times
This could affect all of us, eventually.
Just the Stats!
AAII Sentiment Survey (courtesy of AAII.com, figures rounded)
How is this for different? For the week of June 25th, the bullish percentage was 35% and the bearish percentage was 23%. This past week they flipped positions! I look for more bears to join the party which should help our thesis that the time to buy stocks in earnest is coming soon!
As we have noted recently, we believe that this survey is likely a bit ahead of the mass investor group. The bulls have increased slightly in the past two weeks while the bears have dropped. We may look back and say that the poll two weeks ago may have shown the turning point of the market. Unlike the AAII survey, I expect the bulls to make a modest move higher.
FYI, with the shortened holiday week, we elected not to highlight fund flows. However, with the advent of a new quarter, big stock market drops and financial crises in China and Greece, the stats due to be released mid-week by Lipper will be very telling.
How We Doin’?
While our returns have tailed off a bit of late, our small cap picks are still comfortably ahead of the Russell 2000 Index at the one-half pole. Expect some more addition/deletions in the next few weeks as we adjust to new market conditions and put more distance between us and the Russell.
Even our big cap names have not done too badly despite the oil disaster that is Chevron (NYSE—CVX). Still, our returns have been solid especially when you take into account dividends (which we did not.) You may recall that these picks were largely drawn from NYSE stocks with the biggest dividend payouts.
The major indices (SPX, RUT) are in trouble—-especially the S&P 500 as it is primed to break below its 200 DMA. The RUT could also be vulnerable but the support is a little better here. IGNORE these facts and look ahead, instead. Buy signals are forthcoming.
Be on the lookout for individual picks and new Opportunity Research ideas in the next week or so.
1498 Reisterstown Road, Suite 286 Baltimore Maryland 21208 Phone: 410.609.7100
Launched in May 2010, The Goldman Guide is a free weekly publication of Goldman Small Cap Research and is written by Founder Rob Goldman with contributions from the GSCR contributor team. This non-sponsored investment newsletter seeks to provide investors with market, economic, political and equity-specific insights via an action-oriented, straight to the point approach. No companies mentioned in this newsletter are current sponsored research clients of the Company or its parent, unless noted, With some exceptions, all companies or investment ideas mentioned in this publication are publicly traded stocks listed either on the NYSE or the NASDAQ. Goldman Small Cap Research members and contributors’ bios, certifications, and experience can be found on our website: www.goldmanresearch.com
This newsletter was prepared for informational purposes only. Goldman Small Cap Research, (a division of Two Triangle Consulting Group, LLC) produces non-sponsored and sponsored (paid) investment research. Goldman Small Cap Research is not affiliated in any way with Goldman Sachs & Co.
The Firm’s non-sponsored research publications category, Select Research, reflects the Firm’s internally generated stock ideas, along with economic, industry and market outlooks. In virtually all cases, stocks mentioned in Select Research offerings are listed on the NYSE or the NASDAQ. Publications in this category include the weekly newsletter The Goldman Guide, Market Monitor blogs, Special Reports, and premium products such as The 30-30 Report. Goldman Small Cap Research analysts are neither long nor short stocks mentioned in this newsletter.
Opportunity Research reports, updates and Microcap Hot Topics articles reflect sponsored (paid) research but can also include non-sponsored microcap research ideas that typically carry greater risks than those stocks covered in Select Research category. It is important to note that while we may track performance separately, we utilize many of the same coverage criteria in determining coverage of all stocks in both research formats. Please view the company’s individual disclosures for each engagement, which can be found in company-specific Opportunity Research reports, updates and articles.
Goldman Small Cap Research has not been compensated for any content in this issue.
All information contained in this newsletter and in our reports were provided by the companies mentioned via news releases, filings, and their websites or generated from our own due diligence. Economic, market data and charts are provided by a variety of sources and are cited upon publication. Stock performance data and information are derived from Yahoo! Finance and other websites or sources, as noted. Our analysts are responsible only to the public, and are paid in advance to eliminate pecuniary interests, retain editorial control, and ensure independence.
The information used and statements of fact made have been obtained from sources considered reliable but we neither guarantee nor represent the completeness or accuracy. Goldman Small Cap Research did not make an independent investigation or inquiry as to the accuracy of any information provided by the Company, other firms, or other financial news outlets. Goldman Small Cap Research relied solely upon information provided by companies through filings, press releases, presentations, and through its own internal due diligence for accuracy and completeness. Such information and the opinions expressed are subject to change without notice. A Goldman Small Cap Research report, update, article, blog, note, or newsletter is not intended as an offering, recommendation, or a solicitation of an offer to buy or sell the securities mentioned or discussed. This newsletter does not take into account the investment objectives, financial situation, or particular needs of any particular person. This newsletter does not provide all information material to an investor’s decision about whether or not to make any investment. Any discussion of risks in this presentation is not a disclosure of all risks or a complete discussion of the risks mentioned. Neither Goldman Small Cap Research, nor its parent, is registered as a securities broker-dealer or an investment adviser with the FINRA or with any state securities regulatory authority. Statements herein may contain forward-looking statements and are subject to significant risks and uncertainties affecting results.
Separate from the factual content of our articles about the company featured in this newsletter, we may from time to time include our own opinions about the companies profiled herein, their businesses, markets and opportunities. Any opinions we may offer about the companies are solely our own, and are made in reliance upon our rights under the First Amendment to the U.S. Constitution, and are provided solely for the general opinionated discussion of our readers. Our opinions should not be considered to be complete, precise, accurate, or current investment advice. Such information and the opinions expressed are subject to change without notice.
ALL INFORMATION IN THIS REPORT IS PROVIDED “AS IS” WITHOUT WARRANTIES, EXPRESSED OR IMPLIED, OR REPRESENTATIONS OF ANY KIND. TO THE FULLEST EXTENT PERMISSIBLE UNDER APPLICABLE LAW, TWO TRIANGLE CONSULTING GROUP, LLC WILL NOT BE LIABLE FOR THE QUALITY, ACCURACY, COMPLETENESS, RELIABILITY OR TIMELINESS OF THIS INFORMATION, OR FOR ANY DIRECT, INDIRECT, CONSEQUENTIAL, INCIDENTAL, SPECIAL OR PUNITIVE DAMAGES THAT MAY ARISE OUT OF THE USE OF THIS INFORMATION BY YOU OR ANYONE ELSE (INCLUDING, BUT NOT LIMITED TO, LOST PROFITS, LOSS OF OPPORTUNITIES, TRADING LOSSES, AND DAMAGES THAT MAY RESULT FROM ANY INACCURACY OR INCOMPLETENESS OF THIS INFORMATION). TO THE FULLEST EXTENT PERMITTED BY LAW, TWO TRIANGLE CONSULTING GROUP, LLC WILL NOT BE LIABLE TO YOU OR ANYONE ELSE UNDER ANY TORT, CONTRACT, NEGLIGENCE, STRICT LIABILITY, PRODUCTS LIABILITY, OR OTHER THEORY WITH RESPECT TO THIS PRESENTATION OF INFORMATION.
For more information, visit our Disclaimer: www.goldmanresearch.com.