Greece is a Turkey

At Christmas, when I was a lad in the 60’s, every family bought a full grown plucked and be-headed bird and then tried to stuff it into a Belling oven for hours on end. The heavier the turkey in lbs., the greater the bragging rights. Bernard Matthews later popularised the bird and taught us that Norfolk turkeys were for life, not just for Christmas. He transformed them into basically cylindrical shapes that came wrapped in polythene. It still tasted like chicken, but drier. Anyway, the small detail that had been kept from me in Bernard’s TV adverts, was that turkeys are plain nasty creatures. You should see the way they treat each other when kept in captivity. Most birds are territorial, anybody who has witnessed the darker side of our common or garden Robin understands they are always up for a good scrap with another Robin. Robins are not cute like depicted on our Christmas Cards.

You see, a turkey isn’t smooth and cylindrical and wrapped in polythene from birth, it’s full of deadly sharp bits that can peck and kick. Turkeys kill each other in captivity if allowed to. A turkey farm resembles the “fly on the wall” staple numpty TV, that is so popular these days. “I’m a celebrity, get me out of here” & “Big Brother”. The format is much the same in both shows. A group of strangers are kept in captivity, gangs start to form almost spontaneously. Eventually the weakest are picked on by the others for the supposed amusement of the TV audience, baying for gossip and blood.

A weak vulnerable turkey can’t claim celebrity status or be voted off the farm. In a turkey farm the farmer could step in and protect the most vulnerable bird at any time. But he doesn’t. The farmer lets the bullying go on. Cock fighting for sport may be outlawed, but in turkey farming, better one dead bird than a whole flock of bruised and battered birds, with so many scars they are only fit for sausages. The outcome is always assured, the bird eventually dies, the carcass is thrown away and the turkey gangs start pecking the next weakest bird on the farm.

Greece is the weakest and ugliest bird in Europe. For three years Greece has been continuously patched-up and kept alive on financial life support by the European Central Bank, the European Commission, and the International Monetary Fund. There is an argument that Greece deserves all the grief they get, having falsified their entry paperwork when they joined the EEC. But maybe the press and the readers of those newspapers have also become complicit in this endless bullying. After all we know that Greek men never really work a day in their lives, they pay no tax and retire at the grand old age of 40. I read that in “The Daily Truth” so it must be factually correct.

The Germans, the French and us Brits collectively are the biggest bullies. Continually chastising the Greeks for continuously borrowing when they can never repay what they owe already and refusing to put their house in order. Well hello! UK Government debt stands at £1.3 trillion and climbing. We don’t produce olive oil, we’ve had the real stuff flowing for 40 years or so. Norway had oil too and instead of owing like us, they have around £1.5 trillion invested in their sovereign fund. Where has our prosperity gone?

The German’s talk a good story, but they don’t even count the massive cost of re-unification of the East and West of their country in their total borrowings. That’s creative accountancy more than equivalent to Greece’s little errors and omissions. The European Community financial accounts have not been signed off by the auditors for 17 years because they don’t reflect reality. Talk about the kettle calling the pot black.

All eyes have already started to look for the next sacrificial turkey in Europe. Portugal, Spain or Italy. They are all potentially lined up. If together they agree to just keep pecking with the others, they just may not get pecked themselves.

To the other members of the EU it’s important Greece is kept alive, but if they do default what can their creditors do? Repossess the Tavernas? I don’t think so. Most of the debt has not been lent against something that can be repossessed. Angela Merkel can’t criticise Vladimir Putin and then just send her panzer tanks in to Greece like Vladimir annexed the Crimea. The debt will be just written off because it’s tiny in relative terms to the overall level of Pan-European debt. And besides most of it now comprises interest. At the interest rates charged, any lender has had a fair return by now. What’s left Is mainly owed to European governments, central banks and the IMF. Any small investor who loses out this late in the game cannot say he hasn’t been warned.

You will no doubt be relieved to hear we have held no Government Debt in our portfolios since 2012. Modern Portfolio theory suggests we should hold 40-60% in fixed interest investments. The interest rates currently offered, just do not compensate for the possible risk of not getting our original capital back. Every country in the world has defaulted on some debt at some point in its history, except for 5 I believe.

“So Mr UK Government, you want to borrow more money at only 2% interest rates, with long term inflation running at 2%. You currently owe £1.3 trillion, and you have a history of never repaying your debts off. I don’t think so”

Never a lender or borrower be. My Mum taught me that.

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Dick
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Dick

Bond crash, money supply catching fire signalling a surge of inflation later this year. So 2% interest looks good for UK Gov and tax payer but not investors. M3 supply climbing faster than a Dreamliner but Equities falling. Where will the money be parked? Gold?
I’m glad, Howard, you do the worrying for me!
Cheers it is gone opening time.

Howard
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Howard

Hi Dick

As always thanks for your take. Like you I believe there may be trouble ahead. Gilt yields climb, first taking junk bonds, then most corporate bonds then bond proxies such as UK Equity Income. We can’t say when, we first started planning the fall out in 2012. What matters is what we do next.

As always I’m watching our back. Enjoy the beer, have a good weekend and thank you for the comments

Howard