Why Should We Care About Greece?

For today's comment I am going to discuss why investors care about Greece, and then end with why investors shouldn't care about Greece.

The market today is going to be very volatile as Europe is weighing on investors minds, but fortunately the news out of the US is good, and bullish. To begin, the markets in Europe were spooked after concern has begun to weigh that Greece will miss a debt payment next month as the latest Greek bailout aid was postponed to February 20th. In addition, Moody's warned it could downgrade the long-term credit ratings of the 17 of the largest banks, and in particular, the banks with the most Euro exposure. But, over the pond, weekly jobless claims fell to a near 4-year low to 348,000, and housing data was strong with housing starts rising 1.5%.

Now to begin why we should care about Greece....although Greece seems to be a small cog in the Euro, it's seen by investors as a proxy for the bond markets, given the fiscal debt deficits and debt of many countries and is also a proxy as to how the European leaders will deal with its other weaker countries. Greece is by far the weakest of the countries, but the other PIIGS countries, and in particular Portugal, are very weak and without aid very well could end up like Greece. Will the stronger Euro countries request so much austerity for their aid that it's impossible for those countries to pay back the stronger, creditor countries? Or will the stronger creditor countries devalue the Euro, and essentially help pay for the weaker countries debt problems? This is not an easy resolution, and I wouldn't expect to see a definitive resolution in the near term.

Now, courtesy of Jim O'Neill from Goldman Sachs Asset Management as to why the "world" shouldn't care as much about Greece.

"This past week, the 6th in the year 2012, has displayed a slightly different character to the previous 5 weeks with the equity markets losing their strong upward momentum. There have been some understandable reasons for this, not the least of which is the never-ending saga of Greece, which I shall discuss a bit more below, and the related challenges about resurrecting a credible and permanent European Monetary Union (EMU) from this mess. Despite this, my main message is – once again – to please keep this in perspective. Greece’s economy is somewhere between $300 to $350 billion. Last year alone, China’s GDP increased by $1.4 trillion, to $7.3 trillion. I reckon that means China has created the economic equivalent of another ½ of Greece in the 6 weeks of 2012 to-date. It is also the case that the evidence about a self-sustaining recovery in the US continues to build after yet another decline in weekly job claims, a rather reliable indicator."

As you can see, China is much more important to the world GDP, and in the end, will have a much bigger impact on the markets then Greece. And, as long as economic indicators continue to be solid in US, we will focus on our own growth, and push aside all this "PIIGS" talk.