If the Greeks sneeze, will the rest of us catch a cold?

I’ve been watching the Greek crises unfold, and assessing the potential effect on the global financial markets. If the Greeks sneeze, will the rest of us catch a cold?

There are differing views on this but the general consensus among my peers (we may be right or wrong, by the way, so these are just our opinions) can be distilled into two statements:

1. The European Union (EU) has already  and will continue  to take steps to ensure that Greece secures further financing so that it doesn’t default.

2. Even with Greece’s economy being severely affected by austerity measures, its role and interconnection to the global economy is not substantial enough to create a domino effect. The crises will be relatively contained to the local Greek economy, and from a balance sheet perspective the bulk of Greek creditors are European governments that can afford to weather any so-called “default.”

There is a five-year austerity measure that includes a revised tax plan, which has generated tremendous resentment and revolt among the Greeks. It seems the Greeks’ pride is getting in the way of accountability. Like the US, Greece will have to recognize that years of excess will have to be repaid over the next few years. After all, there is such a thing as financial karma. We have to be held accountable otherwise we will be promoting moral hazards.

It seems both China and the US have some rain clouds on the horizon. The US has an obvious budget deficit and debt issue, while China has a multitude of issues ranging from rising interest rates to a perceived bubble in the real estate sector, and for the first time cancellation of IPO(s).

The interesting thing is there seems to be a decoupling going on as far as the global markets are concerned. I was pleasantly surprised to see that the Philippines has been included in what people are now referring to as “mini-brics.” The Bric economies (Brazil, Russia, India and China) have long been touted as the places to invest. Over the last decade or so, Bric countries have been the favored destinations for foreign investors.

It is interesting that investors are starting to look beyond Bric countries, as perhaps deals are getting expensive there (too much capital chasing too few deals). In the latest study released last week, mini-bric countries are Mexico, Turkey, South Korea, Indonesia and the Philippines.

I have to say it is great to be back on the map. There seems to be a lot going for the Philippine economy (stable remittances, good economic growth, credit upgrades, strong BPO sector, and appreciation in asset classes). There are several indicators for how well a country is doing. The usual bellwethers are the stock market, property market, and consumer demand. The Philippines seems to be doing well across all fronts. There is also a rule of thumb that every $1 of FDI has a multiplier effect of 4x (or creates $4 of growth). Assuming this administration is able to successfully complete its PPP program, this should support a healthy GDP growth rate moving forward.

Some trivia: There is a flourishing group of narco-entrepreneurs in Afghanistan. It does seem to be a simple case of do or die, though. Due to lack of employment or proper entrepreneurial opportunities (the country lacks basic support infrastructure), quite a few people have resorted to growing “cash crops,” i.e. poppy seeds.

Does your own survival take precedence over the common good? If growing poppy seeds were the only way in the short term to feed your family, would you do it? These are the questions and reality of life in Afghanistan today. The price of opium has risen dramatically (i.e. tripled in the last year). This provides Afghani folks an incentive to plant and harvest opium, which has a huge demand in the worldwide illegal drug trade. The fear is that when the Americans leave, Afghanistan will become a narco-state. I hope this doesn’t happen but seems like an inevitable reality.

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Any questions? E-mail me at egtheplayer@gmail.com.