Jim Cramer of the CNBC made history a few years ago.
When asked whether investors should have sold all their Bear Stearns holdings in early March 2008, he said: No, no, no, Bear Stearns is fine.
Bear Stearns, one of the largest US brokers at the time, traded at around $60 a share back then.
As it turned out, unfortunately, the bank was sold to JP Morgan for $2 a share less than one week later, in a rescue deal orchestrated by the Federal Reserve.
In spite of a take-out price that eventually rose to$10 a share, investors were left nursing huge losses the shares plummeted to $10 from$159 in less than a year.
Drawing a parallel, Greece may go belly-up but is a very different story.
In the summer of 2007, two Bear Stearns fund mangers brought down one of the brokers funds followingwrong bets placed on risky mortgages, whose prices had precipitated to somewhere around zero.
At that time, BNP Paribas also had some problems, and itfroze a few funds it had under management because of subprime-related losses. Meanwhile, the syndication of the record debt package backing the leveraged buyout of Alliance Boots was pulled as liquidity dried up.
By the end of 2008, Bear Stears had collapsed, followed by Lehman a few months later, while Merrill Lynch was forced to merge withBank Of America, and a few insurance behemoths, including AIG, were bailed out by the Fed.
Goldman was safe, but it raised expensive capital from Warren Buffett, who profited from the trade.
In those days, from the US to Europe and elsewhere, systemic risk stood at itshighest level on record since the Great Depression.
Now, seriously, why should you bother about the possible demise of a tiny country that represents just a tiny fraction of the Eurozones GDP (less than 10% of the GDP of the UK), whose trade relationships with the rest of the world carry very little significance, if any, and whose accounts should have not been trustedever since day one?
Its primary deficit which is just like the earnings before interests and taxes (Ebit) line for a corporation is a structural issue that only a full restructuring would solve, quite simply becauserevenue increases and cost cuts are no going to do the trick.This issue has been apparent ever since the first restructuring deal between Greece and its creditors was agreed a few years ago.
Thats not to mention its huge fiscal deficit.
Default So What?
The way I see it, a soft default of Greece is a possibility, but its a risk you should have considered at least five years ago or earlier, when the FTSE 100 traded at 4,800 points when it traded some 30% below its current level.
As I write, this Bloomberg headline just hit my inbox: Greece documents can be basis for a deal: EU official,while a second broker noted that Greece does not intend to change its stance on certain unnecessary fiscal measuresthat are being proposed.
A third email stressed the fact that no agreement had been reached, but now both sides (are) working on a feasibility blueprint.
Finally: Eurogroup meeting delayed by 30 minutes to 1.30pm in Brussel.
Bond prices have signalled uncertainty over the last 48 hours, but they do not suggest a meltdown scenario.
Either way, what history teaches us is that a domino effect whos next: Portugal? Italy? France? Spain? is a possibility, but remains highly unlikely. Under a worst-case scenario, panic would spread across the world, but the UK would be set to benefit over the long term, one of reasons being that capital inflows would boost the value of GBP-denominated assets.
So, keep calm and look for your next value candidate. This is the right time to trade.
You want aname?
Then, I suggest you learn more abouta growth & valuestockthat bears the hallmarksof avalue play, and whose market cap is worth less than half abillion.
This is a valid alternative to the FTSE 100.Its name can be foundin this brand new Motley Fool report— it’scompletely free and comewithout further obligationsfor a limited amount of time.
So,click here right awayto get your copy and find out if this outstanding opportunity fits your investing style!