Decoding Wall St.: What is REALLY Going Down in Greece

All has not been well in Greece, this is plainly obvious by conducting a Google search on the country. Starting with greed and lies that led to mounting public debt, Greece has endured riots by jobless citizens and those that are working but will be forced to accept lower wages and pension disbursements. The writing of the wrongs of Greece’s free-spending politicians will fall on the heads of people through years of tightness on their finances (sound smart: austerity). There are hidden messages from this high stakes drama worthy of a decoding exercise:

• Government having no other choice to curtail is free-spending ways leads to fewer public services, which angers an already angry citizenry. • Fewer government jobs, more jobless competing with those workers who have never worked for the government (sound smart: private sector workers).

• Unhappy remaining government workers + unhappy unemployed ex. government workers + unhappy people in the private sector = a Greek economy that will produce less goods and services (sound smart: GDP) for years to come.

Amidst all of this doom and gloom (sound like a newspaper writer: “Greek Drama”), there is a key point made by The Economist:

“Last year every new jolt in the euro crisis sent financial markets into a spin. This year they have become blasé.”

For the average person sitting at home, this occurrence described in The Economist could be seen by taking a glimpse at the 401k statement from January 2012 compared to that of summer 2011; it should boast a higher value as stocks have gone up despite the daily dose of worrying Greece news that had thought to be a threat to the global economy. As for our more advanced club members, there are two decodable concepts here. We tend to favor the first:

1. Stock markets have grown too satisfied (stock prices up) in Greece not exiting the Eurozone and the plan of austerity easily cleaning up the country’s finances without many large bumps in the road. When everyone forms an opinion along this line (sound smart: consensus), the risk of unforeseen events from Greece or other troubled Eurozone countries walloping stock prices rises.

2. Greece is finally near a resolution to fix its problems and the U.S. economy is improving, so stocks will continue to head higher unabated.

While You Were Working

Thought that Greece was the only overly indebted nation in the Eurozone worthy of headlines? Think again as Spain and Portugal have done near maxed out their credit cards. Spain had been spending beyond its means for years, but things really spun out of control in 2007 as its property market cooled (home prices slid dramatically, people sent less, less taxes collected, more needed to be borrowed from outside sources, or creditors). As for Portugal, don’t be fooled by that leveling off in its debt projections from 2011 to 2015. If a country’s debt is above 100% as a percentage of GDP (be smart: country’s debt/GDP…two numbers pulled from the Bloomberg website), which came home to roost in Portugal in 2010, it’s bad news.

Decoding a Member’s Call for Help: Member Profiled 

Like we have contended since day one, in reading the WSJ, FT, or countless financial news outlets you are likely to have “what are they talking about” moments. Words are glazed over because no financial dictionary is nearby. Concepts are not fully appreciated because there is no financial dictionary nearby. Through it all there is this sense of “I should be grasping this stuff, but don’t know where to begin, so forget it.” That is unless you are a member of our club.

Today we profile Sleuth member Mr. Chase Hall, a young fella that like so many working professionals does not stop reading on current events just because the calendar says Saturday and markets are shuttered. Below are excerpts of his outreach to the Decoding Wall St. team:

The payroll tax cut is going to be offset by the rising price of gas.

“I was reading CNBC’s website on my mobile phone and saw that Congress passed the payroll tax cut last week. People are going to see the roughly extra $1,000 come in and then go right back into the pockets of the CEOs of the major energy companies. I bet all the money in my own pockets right now ($60) that a gallon of gas is going to reach $4.00 by the summer. I won't say what actual date but $4.00 a gallon will happen in 2012.”

First, let’s decode a couple of topics being presented before guiding to something actionable:

1. Payroll tax cut: A government enacted plan (sound smart: stimulus plan) designed to encourage household spending, improve consumer confidence, and bolster employment by reducing the amount of taxes withheld from worker paychecks.

2. Money in the pockets of major energy companies: There is this opinion that the extra money in the hands of consumers will push up energy prices, say by promoting more trips to the mall or the buying of items that require the use more electricity. In turn, that “found money” in the paychecks of workers actually gets absorbed by higher energy expenditures for households. The spreading around of this “found money” throughout the economy technically doesn’t going into the pockets of CEOS, rather a company’s savings account (be smart: Chase does have a point on an indirect basis as increased energy prices will drive greater profits from energy companies, which leads to increased bonuses for CEOs as their compensation is tied to earnings performance in many instances).

Decoding in Action

We are able to decode an investing action plan based solely on the concepts we decoded from Chase’s own head:

1. For now, small to medium cap companies (companies worth $500 million $5 billion) are likely to continue to have strong stock prices. These companies tend to have more financial exposure to the domestic company, which we just outlined should do well as consumers have money in their pockets and are inclined to spend.

2. Theoretically, oil companies have the potential to earn fatter profits in the future in a world where the U.S. is paying over $4.00 a gallon for gasoline. Exxon Mobil seems to be a logical “buy and hold” investment.

3. By mid-year, should gasoline prices reach $4.00 a gallon, it would inevitably hurt consumer spending going into the holidays. The easiest way to position your portion for this is to go short the SPDR S&P Retail ETF (ticker symbol: XRT) and buy stocks of defensive global companies, along the lines of Johnson & Johnson and McDonald’s.

From the Social Media Scene: @DecodingWallSt

Markets in the U.S. were closed for President’s Day yesterday. We, on the other hand, adhere to the notion that the world of finance never closes for business.

• “Reaganites” are like rock concert groupies, except they are only fans of President Reagan’s economic policies.

• Just read “safety valve of currency devaluation” in The Economist. Hmm. When in doubt, a country could always weaken its currency to boost exports and growth.

• Is there really such a thing as “politics of austerity?” What politician wants to campaign on “forced lower living standards for peeps.”

• “Fiscal compact” is Wall Street’s concise way of saying “countries agree on terms to bailout other countries.”

• Want a cool name for the campaign tactics used by Republican Prez hopefuls? Call it “poison politics”, as Wall Street elite do.

• CNBC says: “Strong Miners Push Shares to 7-Month High.” We say dirt-cloaked miners are NOT causing stocks to rise…rather their companies’ stocks.

• “Risk loving investors” are those that enjoy buying stocks over bonds.

• Huh Mr. Wall Street I-banker: “normalized earnings over the cycle.”

Based on the book co-authored by former CNBC anchor Nicole Lapin and Wall Street analyst Brian Sozzi, Decoding Wall St., the daily Decoding Wall St. newsletter is a lifeline to unlocking, and acting upon, an endless array of hidden financial and world news clues. On FaceBook and Twitter, Decoding Wall St. releases unique streaming content daily, as a compliment to the newsletter, to help get you through interviews right on down to after work cocktail parties. For more information, including to join the movement, please visit www.decodingwallst.com.