As I wrote yesterday’s edition of Daily Insights on Sunday night, it was ‘obvious’ that stocks would respond poorly to the news and that bonds would fare reasonably well.
In a sense, I’m not surprised at the market reaction yesterday. That said, I would also not have been surprised if markets had been much worse than they were. After the fact, I can say that the response is what I would have expected, but the night before, I didn’t really know what kind of magnitude of loss to expect.
I, for one, am pretty happy with the market’s answer to the news. In the morning, I thought it was terrific because markets were down less than one percent. To me, that signaled that the whole event was a bit of a yawn.
That turned out to be wrong to some extent because stock prices continued to drop throughout the whole day and finished near their worst levels, but the price activity seemed orderly and there were no signs of panic.
It’s too early to make any kind of definitive pronouncement (which I’m never really inclined to do anyway), but markets do seem to have stabilized already.
There will almost certainly be more volatility when Greece officially misses their IMF payment today or tomorrow and after the national referendum on Sunday. If the Greek people vote ‘no’ and refuse the terms set by their creditors, it seems to me that staying in the euro is a jump ball.
According to national opinion polls, the Greek people overwhelmingly want to stay in the euro even if it means more economic pain (probably in part because an exit could be even more painful).
Europeans leaders also want Greece to stay in the euro because losing a member country weakens the entire currency – not necessarily the exchange rate, but the belief in the entire system. Having countries simply come and go from a currency would undermine the creditably of the entire concept.
To be powerful, the euro needs to be thought of as a single, unified currency and not as a series of individual currencies from different countries pegged to each other.
There is much at stake for Greece and Europe today and all I can really say is that it will be interesting to see how it plays out from afar and hope that the supply of feta cheese and Greek yogurt coming into my house remains uninterrupted and maybe even gets a little cheaper.