The results are in.
Greece has elected a new government.
All the talk is how the result will cause ructions in Europe.
Some suggest that it could even result in a ‘Grexit’. That is, Greece leaving the euro.
Well, you can forget that idea. Far from being a negative for investors, the Greek election result is actually a positive.
Why? Because it guarantees the European Central Bank (ECB) will have to pour even more freshly printed money into the markets.
And that (in the short term at least) creates a major buying opportunity for investors…
So, how can this be true when most other folks are suggesting that the election of a new government is bad news for Greece?
Simple. What you’re about to witness is a game of ‘chicken’ on a grand scale.
Frankly, the new Greek government has nothing to lose. The rest of Europe has everything to lose.
The old government was compliant. It pretty much did what the EU told it to do. That’s what you would expect from a prime minister (Antonis Samaras) who was a career politician.
He knew that the surest way to stay in power for as long as possible, and garner a career in international politics later in life, was to do exactly as the European Union ordered.
The new guy, on the other hand, is from a different mould…
No way out for Europe
Now, this isn’t to say that new PM, Alexis Tsipras, is better than Samaras.
All we’re saying is that this is a guy who is probably less concerned about ruffling a few feathers.
The Greeks will be able to say to Germany and the rest of the EU, ‘Do you really want to run the risk of Greece leaving the Eurozone?’
He knows the answer…and so does the EU.
But what’s the big deal? Wouldn’t the EU be happy to ditch Greece?
Good grief no!
This isn’t just about Greece. If Greece left, it would just be the first in a proverbial row of dominoes. Remember, the EU is full of economies that are living on the edge of financial disaster.
Spain. Portugal. Ireland. Even France.
If Greece left by its own accord, or because the EU forced Greece out, it would have a drastic impact on the rest of the EU.
For a start, it would immediately negate the one trillion euro money printing program, as interest rates would rise higher than they currently are. In other words, the EU would have to print more money just to stand still.
Second, markets have a great habit of seeking out weak prey.
Once they latch on to a ‘victim’, they won’t let go. And when one victim falls, they’ll look for the next.
Put it this way, the governments in Spain, Portugal, Ireland and France may not be happy about subsidising Greece, but they know if they don’t, the next economy to face trouble (and potentially be forced out of the EU) could be theirs.
A ready-made buyer
So, what are the options?
That’s easy to answer.
Ultimately, the new Greek government will get most of what it wants. It won’t get everything. The EU will insist on one or two concessions in order to save face.
But the upshot will be that Greece will ditch its so-called austerity measures.
It will go on a spending spree, tax the rich, and increase welfare benefits. To pay for it, the government will issue bonds. That means going further into debt.
And what a stroke of luck. The ECB has just launched its one trillion euro money printing program. The Greeks will have ready-made buyers.
Even better for Greece is that the ECB has said it will buy up to 30% of a national government’s debt. Best of all is the fact that the ECB can’t discriminate against any of its members.
If Greece needs someone to buy its bonds, the ECB will have to step to snap them up.
All up, this is the unintended consequence of money printing and trying to force round pegs (sovereign states) into a square hold (a single pan-continental currency, the euro).
Most investors probably haven’t figured this out yet. So odds are European markets will remain volatile, and could even fall in the days ahead.
But as soon as it becomes clear that Greece has the upper hand, and that the euro and EU will survive (for now), this should lead to a buying frenzy for European stocks as investors make the most of the ECBs trillion euro money printing extravaganza.
PS. This buying frenzy won’t just impact European stocks. The Aussie stock market will benefit from the international flow of money printing too. Finding the stocks to make the most out of that boom is part of our job at Tactical Wealth. You can check out our latest ‘asset boom’ stocks here…