And the Greek Votes No

So, against what the markets in my opinion seemed to have expected, the Greeks have overwhelmingly voted No to accepting the deal that was offered by the European Union. Of course, since its very much doubtful that most voters had a clue about what the offer meant and what accepting or rejecting the offer will bring, it came down to who was able to convince them better and in that aspect, the Greek Prime Minister had his way.

Over the last 3 days, I have read a lot of reports on Greece and yet find it difficult to come to a conclusion as to whether they had a better future going with the recommendations of the European Union or they will have a better future risking the future (based on what a lot of top ECB folks are saying) and tie themselves with whatever plan Alexis Tsipras has in his mind.

Everyone who seems to have supported a No vote seems to indicate that since there is no way the Greece can payoff the debts and some amount of debt write off is necessary. A nation is unlike any other business where ff the compang unable to earn as much as necessary, the lenders will take action including pushing the company into bankruptcy and closure to ensure they get whatever they can get.

A nation on the other hand cannot be disbanded and sold off piece meal because the lenders were not paid their dues back. Greece is not the first country nor will it be the last to default on its obligations. In this 21st Century itself, we saw Argentina default on its debt and despite it passing 14 long years, is unable to access the International markets even today.

Russia defaulted on its debt in 1998 while in 1982, Mexico said that it would not be able to pay its debt triggering a full blown Latin American crisis.

One of the ways to get out of the sticky situation is by allowing its currency to depreciate and hence make Imports expensive and Exports cheaper. Unfortunately for Greece, even this option is ruled out for now since being in the Euro, it has no currency on its own to make that kind of transition,

One of the interesting things I learnt while reading about the Greece situation is that, this is not the first time Greece has gone into default. In the modern era itself, Greece has defaulted on its loans in 1826, 1843, 1860, 1894 and 1932. Its as if the country has never been able to be on the right side of the law.

There has been a lot of hand wringing by Analysts about the Greek tragedy and how it affects the commoner. Most seem happy to blame the creditors for all the pain and since Germany leads the list of creditors, its the one that commands the most hate.

But the big question is, What next for Greece and how will that impact the markets.

As of now, the SGX Nifty is down as are the futures of Dow, Dax and FTSE. Markets are disappointed since a Yes vote would have meant at the very worst kicking the can further down the road. With a No vote, none is sure as to how the European region will react.

A No vote we were told will mean a Greek Exit from the Euro. Since the agreement which facilitated the Greece (as well as other country entries) in itself does not have a exit clause, Greece cannot be kicked out but will have to go on its own.

Banks in Greece has been closes this last week since once the referendum was declared, ECB decided to stop its Emergency liquidity as well. If ECB does not open its purse, Banks will remain closed for the foreseeable future. Going back to their old currency, the Greek Dramcha was spoken about though that would literally mean that all the savings of everyone who still holds it in Banks will more or less get wiped out.

Greece will be able to start a new life with its own currency, but the pain of changeover can be huge. After all, if everyone loses all their savings (more or less), its very difficult to kick start the economy. Yes, tourism may boom since Greece becomes way cheaper for the rest of the world, but these things take time and time is something they don’t have the luxury off.

As traders / investors, all we can do is follow our rules and hope for the best since there is little impact on our markets / country directly. If this goes into a full blown European Crisis, we shall be impacted as well. The question hence becomes as to how well can the ECB ring fence the Greece crisis from affecting other weak countries in its region such as Spain / Portugal / Italy among others.

On Friday, before the markets closes, I tweeted that I was Long since I believed market know best. Depending on how big a opening gap down we see, I shall have my moment of truth and reckoning. But I continue to believe that markets will not be unduly ruffled since this was a out come that was expected as well (even though probability may have been lower).

This coming week will more or less provide us a glimpse of how this situation will evolve and the path forward. While the sword may still hang over the neck, I doubt markets to be unduly shaken off unless it starts affecting other as well.

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