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Who Knows Game Theory Better Than the Greeks?

The stock markets traded off Monday based on the latest disappointing news of failing negotiations between Greece and the EU to resolve a pending Greek default. Following the daily twists and turns in this continuing saga over the past several years has been similar to reading the same novel over and over again—where we already know the ending to the story. While the financial media is spinning the latest news of Greek bank closures and restrictions as a new development, the overall structural problem has not changed. In our view, these latest developments were baked into this story. It is a foregone conclusion that Greece has no way to pay its creditors. Discussions about the technicality of default are an exercise in semantics. The only question—when will the default be acknowledged and how will it be positioned and communicated to the public?

Greece is a small country and economy. The bigger concern for the European Union is how other EU countries will interpret and react to any Greek/EU negotiated settlements. There are other EU countries that would be very motivated to demand “me too” concessions that the Greeks might negotiate. Today’s news is not a singular event. Expect negotiations and this drama to continue for months to come.

Meanwhile, markets are likely to remain volatile for some time. The Greek showdown may provide cover and an excuse for profit taking, AKA a correction. As we have discussed for some time now, the equity markets have traded at rich valuations with no hint of even a small correction. In our view, a correction is a healthy purging mechanism to keep investor sentiment and valuations in check. The market will continue to take its cues from current headlines, and is likely to remain in a fairly volatile state for some time.

--Brouwer & Janachowski, LLC

The information herein is not intended for public use or distribution beyond our private consultation. The discussion of the research of Brouwer & Janachowski, LLC (“Advisor”) is as of the date of this presentation, and is subject to change without notice.  The Advisor has no obligation to provide revised assessments in the event of changed circumstances.

While we gathered this information from sources we believed to be reliable, we cannot guarantee the accuracy or completeness of any statements or numerical data in this commentary.  Past performance is no guarantee of future results.