During last year’s brinksmanship over potential Greek default, when a deal was finally reached and Greece vanished from the world’s headlines, we noted to readers to be patient… that nothing had really been resolved, and that the issues of Greece’s unsustainable debt would surface again in the future. On cue, they have, with reruns of last year’s wrangling among the various actors: intransigent Germans, unconvincing and foot-dragging Greeks, and the International Monetary Fund (IMF) desperately trying to introduce sober analysis of the economic and financial facts against the rosy and fantastic projections of European institutions seeking to paper over the dismal truth.
Ambrose Evans-Pritchard summed up the reality well last week in The Telegraph:
“Blame is pointless. The critique of the [European monetary union] was always that it would be unworkable to corral Europe’s prickly, heterogeneous nation cultures into a tight… union, and so it has proved.”
Our observation is simple: Greece’s debts are unpayable, certainly unpayable by Greece. One way or another, there will be default or haircuts, within or outside the euro. The politicians involved can be counted on to keep up the charade as long as they possibly can, which means to kick the can further down the road, until it hits a wall. That wall is still some distance off. We predict a further episode of “extend and pretend,” with congratulatory photo ops featuring beaming Greek and European officials announcing that the problems are “solved.”
Speaking of walls, the wall seems to be coming into clear focus on the other side of the world, in Venezuela. There, the final chapter of Hugo Chávez’ Bolivarian socialist revolution is unfolding exactly as we predicted it would when he took power in 1999—with food and medicine in increasingly short supply as the government blames foreign powers for the disaster which has befallen their kleptocratic regime, and a state of emergency possibly presaging the arrival of real violence. (The fact that Venezuela’s largest brewery can’t afford barley and had to shut down production may focus a few minds as a hot summer approaches.) As usual, the common folk who supported Chávez and his successor, Nicolás Maduro, are the ones who have been hurt the most, and will be hurt more when the regime crumbles into chaos. Meanwhile Chávez’ family and his political successors are now billionaires. So much for Bolivarian socialism.
Investment implications: The Greek show is on again, and we predict another solution that solves nothing. The day of reckoning is still some ways off. The day of reckoning is much closer for another economic disaster: Venezuela, where shortages of food, medicine, and other basic necessities are threatening to tilt the nation into chaos. We predicted this outcome when Hugo Chávez took power in Venezuela in 1999. The lesson to be learned: look for sound and sober financial systems, and shun those run by fantasists, kleptocrats, and ideologues. When the music stops and the dust settles, we’ll look for bargains.