When travelling, I love to stay at bed-and-breakfast establishments because I meet the most interesting people. Even boring people seem interesting over a good cup of coffee. This time, I met a fellow from Iceland, the first Icelander I had ever encountered. No wonder we rarely meet them: Iceland has a population of only 320,000, half that of Winnipeg. This was my chance to solve the mystery. The media never did follow up on the aftermath of the Icelandic banking crisis and I was curious as to how things came out. Do you remember what happened in Iceland? In 2008 all three of Iceland’s banks went broke and had to be nationalized. Britain and the Netherlands provided huge bail out loans in order to keep the Icelandic banking system together and the government of Iceland guaranteed the loans. The crisis got worse. In early 2009 a variety of government officials resigned. In March 2010 there was a referendum where the people rebelled and voted not to support their government’s guarantee. This left the Dutch and British banks in a pickle! The rescue operation, appropriately labelled “Ice Save” had failed. Iceland’s sovereign debt became junk bonds. So, I asked John from Iceland, how things were nowadays in the aftermath of all this. John said, “Fine,” and sheepishly took another sip of his coffee. As I pressed further he started to use words like “economic depression” and said that many Icelanders were emigrating, mostly to Norway. Another guest, Hans, from Denmark, used the term: “Third World country.” Icelanders are paying the price for their decision not to honour their country’s obligations.
That’s why we’re all so worried about the Greek crisis.
Greece has a population approximately double that of the Greater Toronto: significantly larger than Iceland. But the script is the same. Act I was when Iceland tried to borrow its way to prosperity. Act II was when they went too far and the excesses came to light. Act III was the bail out. The whole world hopes that this Greek tragedy (I call it “The Golden Fleece”) won’t go into Act IV – the default. The Greek people are embroiled in their debate. What concessions will they make? Will they accept austerity? Or will the people rebel as the Icelanders did? The script is almost the same, but the problem is significantly larger.
Let’s not even think about Italy with a population almost double that of Canada. But, “The Decline and Fall of the Roman Empire” is the same script, isn’t it?
All these scripts have the same ending. In fact, all financial crises have the same ending: great loss for some and great opportunity for others. The trick is to avoid the loss and be there for the opportunity.
At CastleMoore, our technical methodologies help us in avoiding great loss. In 2008 we sold out of the stock market before the big decline. And in summer of 2011 when the Greek debt crisis unfolded (We call it “The Golden Fleece”), we participated in the bond boom and the gold boom. Avoiding loss is priority #1. Taking advantage of opportunity is priority #2.