The Dow to Greece: Now What?
Jun 18th 2012 2:18PM
Updated Jun 18th 2012 4:30PM
Certainly the country's 25% unemployment rate is a tragedy, but to borrow from Shakespeare: Was Greece's election yesterday simply sound and fury, signifying nothing? Although potential chaos was averted in the short term by electing the pro-austerity New Democracy, fundamental problems remain.
So while the uncertainty of a Syriza-controlled Greece won't hang over markets, there are no easy answers for a country that has to devalue relative to the eurozone core countries while remaining on the same currency. It will likely be a long, slow grind for Greece, and lost output from austerity and potential deflation may in fact make things worse, as would short term thinking by Greece's new government. Syriza may push to abolish a tax break that allowed Greek shippers to remit over $175 billion in untaxed earnings over the last decade. The industry is warning that this could potentially cost the 60,000 jobs, as companies like DryShips (NAS: DRYS) could easily move corporate offices to more tax-preferential locations outside of the country.
Spain has not escaped investor skepticism, as borrowing rates for the country topped 7%. Despite the mini-TARP heading to Spanish financial institutions, Banco Santander (NYS: SAN) is plunging 5%, even worse than National Bank of Greece's (NYS: NBG) 4% drop.
That said, let's take a closer look at how the three major indexes are faring.
|Dow Jones Industrial Average (INDEX: ^DJI)||(13.70)||(0.11%)||12,753.47|
Source: Yahoo! Finance.
Markets are flat to mixed, but it may have been worse if the Greek elections had turned out differently. As it stands now, the Nasdaq is up thanks to the technology sector's relative outperformance. Also, the markets' "fear index" continues to decline; the VIX (INDEX: ^VIX) is down 10% today. Without a near-term catalyst, reduced volatility isn't surprising, despite the pessimism that surrounds the global economy.
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At the time this article was published David Williamson holds no position in any company mentioned. Click here to see his holdings and a short bio. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.
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