Greece
Greece is a country of about 11 million people and not really that significant in terms of its economic activity. Yet the shenanigans of the Greek politicians, the chronic tax avoidance by many Greek citizens, and the country’s habitual fiscal irresponsibility have panicked some observers.
We are not panicked. We see opportunity arising from Greece’s problems. Greece is a small nation, and it’s difficult to see how its crisis could have real global consequences. Contagion could happen, but it is unlikely to spread to a large degree beyond a few weak countries on Greece’s borders.
Puerto Rico
Puerto Rico is a transfer payments mecca because of its relationship with the U.S. Over-leverage, imprudent spending, and a highly inefficient local government have resulted in the accrual of a large public debt. In the final analysis, Puerto Rico is going to be able to look to the U.S. for fiscal help, but it is not close to addressing or restructuring in a way that will resolve its problems. Puerto Rico is a good example of the policy disasters that need to be avoided in other states and regions of the U.S.
We believe that a buying opportunity in the U.S. and Europe will arise in the next days or weeks as a result of the fears about Greece and Puerto Rico.
China
China has been extremely volatile as the public begins to recognize that the authorities will not tolerate massive speculation on margin. By minimizing margin debt and attempting to slow down speculation, the government has created a substantial correction in Shanghai stock exchange. In our opinion, China will be a good repurchase after the correction runs its course.
India
Thus far India is being blessed with an excellent monsoon. A strong and timely monsoon is a positive for Indian stocks, as most of the population still depends on agriculture.
The Indian monsoon begins in June and continues into September, so it is still early. We can say “so far so good.” We are watching closely and our optimism about India is growing by the day.
Investment implications: Problems in Greece and Puerto Rico, and volatility in China as the government manages its exuberant stock market rally, will produce volatility in the near-term, and may offer buying opportunities in the U.S. We expect a relief rally to occur when the Greek negotiations end. We are bullish on China and we will buy on dips. When buying, we will be focusing on the large-cap Chinese stocks and we will put trailing stop loss orders to protect from excessive volatility. In our opinion, insurance, online services, and medical services will be fast-growing sectors of the Chinese economy. Stocks in these sectors trade in the U.S. and Hong Kong. The strong monsoon developing in India bodes well for Indian stocks, and we continue to be long-term optimists on the Indian stock market. We are not buying Indian stocks until we see that the monsoon continues to be strong in July. An adequate monsoon will allow for declining interest rates, lower inflation, and good economic growth in India over the next year.