Everyone Is Ready For Greek Exit From Euro, What's The Hold Up?

I'm so tired of hearing about Greece I seriously considered not even making this post. But it is amazing how European officials continue to delay and deny the inevitable Greek exit from the Euro. Despite the denials of the inevitable, plans continue to be put in place for this eventuality. I discussed this briefly in my post in January "The List of Companies & Governments Preparing for Euro Breakup Grows". This list is only growing....

This list now officially includes De La Rue. Here is the description of De La Rue via their website.

"the world’s largest integrated commercial security printer and papermaker, De La Rue is a trusted partner of governments, central banks, issuing authorities and commercial organisations around the world.

The Group is involved in the design and production of over 150 national currencies and a wide range of security documents including passports, driving licences, authentication labels and tax stamps. In addition, the Group manufactures sophisticated, high speed, cash sorting equipment."

  As reported May 18th by Reuters:

"De La Rue (DLAR.L) has drawn up contingency plans to print drachma banknotes should Greece exit the euro and approach the British money printer, an industry source told Reuters on Friday."

The Wall Street Journal also touched on it "From a Greek Drama to a Greek Drachma?"  (May 18th)

"...it emerged Friday that De La Rue, the U.K.-based banknote printer, has discreetly started to prepare for the revival of the drachma (or an alternative currency).

An industry participant, who confirmed a report in Friday’s Times of London, stresses that the development is driven by De La Rue itself for its own commercial reasons, as opposed to it being the result of a direct request from the Bank of Greece or any other government agency.

[The Bank of Greece has repeatedly declined to respond to questions as to whether it is preparing a contingency on banknotes and Friday again declined to respond.]"

Also, as reported today by Reuters "Insight: European firms plan for Greek unrest and euro exit" some specific companies making preparations also include

• Drugmakers GlaxoSmithKline and Roche
• Europe's No 2 electrical retailer Dixons
• Diageo the world's biggest spirits group
• BMW
• Mobile phone giant Vodafone

Per Reuters:

"British electrical retailer Dixons (DXNS.L: Quote) has spent the last few weeks stockpiling security shutters to protect its nearly 100 stores across Greece in case of riot."

 "As the financial crisis in Greece worsens, companies are getting ready for everything from social unrest to a complete meltdown of the financial system.

Those preparations include sweeping cash out of Greece every night, cutting debts, weeding out badly paying customers and readying for a switch to a new Greek drachma if the country is forced to abandon the euro"

"The London-based Association of Corporate Treasurers says businesses should take precautions such as demanding cash on delivery and writing sales contracts in another currency such as pounds or dollars."

Add to this list Lloyd's of London. As reported by the The Guardian:

"The Lloyd's of London insurance market has reduced its exposure "as much as possible" to the crisis-hit euro zone in preparation for a collapse of the bloc's single currency, its chief executive told the Sunday Telegraph newspaper."

""I don't think that if Greece exited the euro it would lead to the collapse of the euro zone but what we need to do is prepare for that eventuality," he said."

"On Wednesday, Reuters reported that each euro zone country was preparing a contingency plan for the eventuality of Greece leaving the single currency."

And add HSBC as The Independent reports:

"HSBC has set out contingency plans for all its 15 Greek branches to cope with a return of the drachma.  

Iain Mackay, HSBC finance director, said it had made "preparations at multiple levels" to cope with the currency's re-emergence from an 11-year hibernation should Greece leave the euro. The bank has already reduced its exposure to Greece but has also trained staff at its branch network to be ready should the worst happen. This includes work to manage IT systems, branch funding, how to deal with customers and how to update ATM systems to dispense drachmas."

So why is everyone making all these plans when the president of the Eurogroup, Jean-Claude Juncker, said that talk of a Greek exit was "nonsense, propaganda" and that their "working assumption is that Greece will stay as a member of the euro area."? Oh, I don't know......Maybe because this is the same Jean-Claude Juncker who said that "When it becomes serious, you have to lie" as can also be seen in the video below. Very bad audio but you can clearly hear it at the 20sec mark.

Everyone has had plenty of time to prepare for a Greek exit from the Euro. It is time to implement the 13 Steps For A Greek Exit From The Euro. The more denials, the more can kicking, the more money wasted delaying the inevitable.

When Should Wall Street 'Investment Strategists' Be Fired? Calling Out "Dr. Bob" Froehlich

In most professions if you are consistently wrong you lose your job. If for some reason you do not lose your job, you will at least lose your credibility. Oddly, that is rarely the case with Wall Street Investment Strategists. In fact, regardless of how their calls turn out, many show up day after day on the media circuit merry-go-round (and investment conference merry-go-round).

What brings this up is a recent meeting I attended where Dr. Bob Froehlich was the main speaker. You have probably seen him on CNBC, Fox News and the like. Somehow I seem to cross paths with "Dr. Bob" a couple times a year. He currently is the "Chief Investment Strategist" for The Hartford. He used to have essentially the same job for DWS Investments. In fact, I remember a rep from the firm bringing him by our office in mid-2008. And yes, he was in full permabull mode. According to him, The Fed was gonna keep lowering rates and you don't want to fight the fed! It was worth a good chuckle (after all, he still thought housing was only a "subprime" problem).

If you ever wanted a shining example of a "permabull" this is him. In his own words from his Jan 3rd commentary he says "As a strategist who always sees the glass half full......" However, honestly, I'm not sure he ever sees the glass as anything but completely full. Now there is nothing wrong with being optimistic....But blind optimism does justice to no investor.

Just to illustrate how consistently bullish this guy is...........BussinessWeek April 2000 - Branding a Bull, Kemper-Style (yes folks, this is about a week after the market peak, when the S&P was around 1500).

"Undoubtedly another reason Scudder Kemper is "branding" itself by featuring Froehlich is that he's an unabashed bull. He has produced a series of audio tapes called From Wall Street to Main Street that extols the great benefits of investing in stocks. He has penned a recent book, The Three Bears are Dead!, which makes the case that the "three bears" of investing--inflation, interest rates, and government spending--all died in 1997. And Froehlich is a big believer in "Boomernomics"--that is, that baby boomers are just starting to drive the economy and stock market and that their impact will be much greater than anyone thought, prolonging the bull market well into the 2010s. The Chicago Tribune wrote about Froehlich, "There are [those] who have the eyes to see the dust in the distance, ears to hear the hoofbeats of the thundering herd, and noses to smell the money to be made. One of those is Robert Froehlich."

Dr. Bob couldn't smell money to be made if someone shoved it up his nose. That is, unless we are talking about how he really makes his money (because we know it's not by investing). He knows he makes his money as an "investment strategist" by selling blind optimism.

Yes "Boomernomics" would prolong the bull market well into the 2010s.......and nearly 12 years later here we are........

Despite his continued bad calls, mutual fund companies continue to employ this guy. Why? Because apparently they believe optimism sells! When DWS Investments finally got rid of the guy in late 2008 (after another market crash he was completely blindsided by), Hartford was quick to swoop up the hype machine.

Dr. Bob puts out his 10 investment themes yearly and they tend to always be good for a laugh. For example, the below was Dr Bob's Top 10 Investment Themes for 2011.

10: Investment Theme: “I WANT TO TAKE YOU HIGHER” (INTEREST RATES RISE)
Strategy: OVERWEIGHT PRODUCTS THAT HAVE A POSITIVE CORRELATION TO A RISING-RATE ENVIRONMENT 

Not Quite......

9) Strategy: OVERWEIGHT THE TECHNOLOGY SECTOR  

8) Strategy: OVERWEIGHT THE INDUSTRIAL SECTOR

7) Strategy: OVERWEIGHT GERMANY 

6) Strategy: OVERWEIGHT ENERGY SECTOR
5) Strategy: OVERWEIGHT THE MATERIAL SECTOR
4) Strategy: OVERWEIGHT CHINA
3) Strategy: UNDERWEIGHT THE U.S. DOLLAR
2) Strategy: OVERWEIGHT INTERNATIONAL STOCK
1) Strategy: OVERWEIGHT COMMODITIES

Well let's first look at how his sector bets turned out (I included commodities using the S&P GSCI). Dr. Bob's sector "overweights" are in red.

Gee, if he only would have picked financials he would have been perfect.........at picking all the WORST performing sectors. The story isn't really any different if we look at global sector performance either (except the negative numbers are much larger).

How about his country overweights? China and Germany were both down about 18%. That compares to the MSCI World index which was down just over 7%. Clearly not a good call. And it goes without saying that his call to overweight international stocks (with an emphasis on emerging markets) and underweighting the dollar were both bad calls.

Now anyone can get calls wrong, and everybody does. But the consistency with which he makes bad calls and the degree to which he misses every crisis is amazing.

So what are his themes for 2012?

10) STRATEGY: Overweight Large-Cap Stocks  

9) STRATEGY: Invest in Tax-Free Municipal Bonds 

8) STRATEGY: Overweight Dividend-Paying Stocks Over Non-Dividend-Paying Stocks.

7) STRATEGY: Invest in Japan

6) STRATEGY: Invest in International Bonds 

5) STRATEGY: Overweight the Energy Sector

4) STRATEGY: Overweight the Health Care Sector

3) STRATEGY: Invest in China

2) STRATEGY: Overweight the Media Industry

1) STRATEGY: Invest in Commodities 

It will be hard for him to do worse than 2011. Here are a few gems from the above letter. First in regards to China

"I believe the economy has a major reversal growing at 9.5% to 10% instead of the 7%-7.5% consensus the market is currently calling for in 2012."

He was also very adamant about the China story when I saw him speak. The funny thing is this part where he claims to be able to spot bubbles...

"Look, the one thing that I’ve learned in my 35-year career is what the chart looks like for an asset bubble. It looks just like gold where the chart simply goes higher, and higher, heading straight up with no end in sight"

So he has had a 35 year career but about 23 years or so into it he wasn't able to spot the tech bubble, and then he wasn't able to spot the real estate bubble. But NOW he has it down! Wait, what was that about China again? So he learned to spot bubbles but yet doesn't see one in Chinese Real Estate?

But the best is this one, and he repeated this many times also when he spoke.

"First of all, Europe won’t fall into a recession"

The above is a perfect reflection of how long Dr. Bob stays in denial. The reality is the Eurozone is already in a recession!

Again, the purpose of this post was not to point out individual bad calls (although I did that). The purpose was to point out how ridiculous it is that the financial industry pays so much attention to (and regurgitates) opinions without any regard to the credibility or supporting facts behind those opinions.

Let me leave you with Dr. Bob's most ironic comment from his most recent letter. This is from his theme #9: Invest in Tax-Free Municipal Bonds (where he tries to call out Meredith Whitney for her call on Muni's)

"It never ceases to amaze me how the doom and gloomers tend to get all of the media headlines and hype. I guess it’s true that “bad news” sells"

News for you Dr. Bob. If bad news sells, why do you still have a job? Furthermore if accuracy matters, why do you have a job? And while he doesn't say it in his letter, when I heard him speak, he actually spoke about how upset he was that Meredith Whitney "was not held accountable" for her call! Really Bob? Really?

GDP Estimates 2012 Vs. 2008 and More Economic Consensus Groupthink

The Wall Street Journal recently released it's December Survey of Economists. This is where you generally get to hear about the current consensus groupthink. In the survey, 54 economists gave their projections for GDP in 2012 (among many other things). I decided to compare this years projections for the year ahead to what these great minds saw coming in December 2007 (the month the last recession started). Does anything about this strike anyone else as quite similar........

Now just maybe if they would have added a negative sign to their 2008 forecasts they would have been pretty spot on (considering GDP for the year finished down -2.5%). The December 2007 survey included 51 "economists"....yet not 1 came up with a negative GDP projection. Here we are now in 2011, with the European situation, the rest of the developed world including the US and Japan soaked in debt, and China trying to build ghost cities until someone rises from the dead, and not one of the 54 "economists" is willing to project anything lower then 1.3%? Interesting......

What else do they have to say?

With the unemployment rate right now at 8.6% (due to massive labor force shrinkage) the consensus is things will essentially stay as is. Funny, anyone know what the unemployment rate was in December of 2007? 5.0%. And what was the consensus for the end of 2008? 5.1%. In reality it tuned out to be 9.9% and yet not one of the economists predicted anything above 5.6%. Nice work guys.

Some more on unemployment....

Yikes, they can't predict one year ahead and now their being asked about the unemployment situation 3 years out? Anyone know how I can get in touch with James F. Smith from Parsec Financial Management who made that 5.0% projection? Because I would gladly pull a Mitt Romney on him and bet him $10,000 that's not gonna happen!

Alright, What about Treasury Rates?

Looks like they are calling for rates to rise from the current level of 1.85% to 2.75% (we can be sure this is due to their more optimistic view of the overall economy and not worries of the US ever expanding debt situation). In Dec of 2008 when it was 4.1% consensus said it would move up slightly to 4.28% (the yield ended 2008 down to 2.25%)

So what about their views on the probability of a recession in the US in the next 12 months?

23% and nobody puts the odds at higher then 40%? What about the Eurozone? Surely they must realize the Eurozone is already in a recession -- After all, the OECD already declared as much (and they are never the first to spot anything)

Really? You can't even get them to admit "yes" on a Eurozone recession which is clearly already happening? Well, what should we expect.......this is what they thought in July 2008 (7 months after the last US recession already started).

Ok so maybe we should interpret anything in the 50% range as their version of certainty LOL!

Will at least one member leave the Eurozone? 48%? Guess that should mean it's pretty near certain!

That may be about the biggest dispersion of views you will see on a subject from these groupthinkers.

Ah the joys of "economist" forecasts!