I came across this interesting article where Mohamed A. El-Erian (erstwhile CEO and co-CIO of PIMCO) says that American's should take note of Greece in the following article -- Click to read.
For over a month now, I have been interacting with various market experts and the general opinion I see is everyone believes that Greece is no threat. Because it doesn't have options. If Greece tries to go back to drachma, then there will be no takers and the country will fall into an abyss of depression.
Although I believe Greece potentially has the ability to recreate the dramatic fall and panic we saw in the stock markets around the world in 2008.
There are two interesting insight in El-Erian's article.
On why even if neither side wants Greece to leave, nonetheless circumstances may make it happen.
The longer a workable and credible compromise evades Greece and its European partners, the higher the possibility of a “Grexit”(that is, Greece exiting the Eurozone). And this need not be the result of an active decision by one side or the other. Without a relatively rapid agreement, the destiny of Greece in the Eurozone could increasingly be in the hands of deposit flight from the domestic banking system that would risk turbo-charging a renewed economic and financial implosion.And why USA should keep a sharp eye on the event, although I think everyone in the investment world should keep an eye on this drama.
As much as the US economy continues to gain strength, it is not easy to maintain an improving economic house in a deteriorating global neighborhood. While a disrupted Europe would not necessarily tip the US itself into recession, it would make this economy’s escape velocity harder to attain. It would add to financial market instability, contribute to a further appreciation of the dollar, undermine corporate earnings, and increase the risks of an accidental currency war.
Perhaps it is time to move to high-quality and stable companies which can survive turbulent times.
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