by Gary Alexander

February 19, 2020

Don’t look now, but some of Europe’s former PIGS (Portugal, Italy, Greece, and Spain) are flying.

While everyone is concerned about the coronavirus in China, I try to turn your eyes to yesterday’s crises, to see how we managed to emerge from similar scares. A decade ago, when I first began writing these columns for Navellier & Associates, Greece was the big threat to the European Union, and, by extension, to global growth and financial stability. For two consecutive springs – May and June of 2010 and 2011 –daily headlines seemed fixated on the Greek financial crisis. Then, the crisis expanded to five troubled nations, dubbed “PIIGS” (Portugal, Italy, Ireland, Greece, and Spain). Ireland got healthy fairly quickly, due to tax reforms, so the global press reverted to the traditional spelling of “PIGS,” omitting Ireland.

PIIGS (Portugal, Italy, Ireland, Greece, Spain) Countries Metaphor Image

We wrote about Greece nearly every week in the late springs of 2010 and 2011, and later. Here’s a sample from MarketMail in mid-May 2011: “Last week, Standard & Poor’s lowered Greece’s bond grade by two notches to ‘junk’ status with ‘negative implications’ for improving its public finances.” As it turns out, this was just one blow among an avalanche of downgrades of Greek debt that spring and summer:

  • 9 May 2011 – Greece’s credit rating is downgraded by Standard and Poor’s from BB− to B.
  • 20 May 2011 – Greece’s credit rating is downgraded by Fitch from BB+ to B+.
  • 1 June 2011 – Greece’s credit rating is downgraded by Moody’s from B1 to Caa1.
  • 13 June 2011 – Greece’s credit rating is downgraded by Standard and Poor’s to its lowest rating.
  • 13 July 2011 – Greece’s credit rating is downgraded by Fitch from B+ to CCC.
  • 25 July 2011 – Greece’s credit rating is downgraded by Moody’s to Ca−.
  • 27 July 2011 – Greece’s credit rating is downgraded by Standard and Poor’s from CCC to CC.
  • 8 August 2011 – The Athens Stock Exchange index falls below 1000, its lowest level since January 1997.
    Source: Wikipedia article on “Greek Government-Debt Crisis Timeline”

Flash forward to 2020. Guess which eurozone nation just earned a credit-rating upgrade to BB by Fitch: Yes, Greece. Last week the yield on Greek government debt fell below 1% to an all-time low – far below the spike to 44% at the height of the second Greek crisis of 2012 or 3.8% a year ago or 1.4% a month ago.

Ten-Year Greek Government Bonds Interest Rates Chart

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

Such super-low yields imply creditworthy risk, while also offering positive yield vs. negative rates in Germany. All four “PIGS” now offer sovereign 10-year bond yields below 1%, implying lower risk.

PIIGS Ten-Year Sovereign Bond Rates Table

GDP growth in Greece (+2.7%) and Spain (+1.8) now outpaces growth in the traditionally powerful euro-zone leaders, Germany (+0.5%) and France (+0.8%), as well as the entire euro-zone (1.0%). Athens’ goal of 2.8% GDP growth this year and 3% to 4% growth beyond 2020 now seems realistic. The Greek stock market surged 43% in 2019, mostly in the second half (post-election), beating every other global market.

Much of the credit for this turnaround goes to Kyriakos Mitsotakis, the former McKinsey consultant who was elected prime minister last July by voters who were fed up after a decade of failed experiments with radical leftwing nostrums – the kind now being proposed by some Presidential candidates in the U.S.

Mitsotakis, leader of the center-right New Democracy party, seems like a good old-fashioned “supply-side” capitalist. He has cut the top tax rate on corporate profits from 28% to 24%, and some individuals have seen their tax rate fall from 22% to 9% and their property taxes cut. He aims to introduce a flat tax of €100,000 for wealthy foreigners who move to Greece to invest. He’s also dusting off privatization plans shelved by left-wing predecessor Alexis Tsipras. According to the latest table of global economic data in The Economist (February 15-21, 2020), the Greek national budget shows a surplus of 0.6% of GDP this year, and the inflation rate is down to 0.8%, a stunning array of statistics for a former PIG.

First “PIIGS” to Fly Image

NASDAQ (and “MAGA” Stocks) Continue to Soar

The S&P 500 is up 4.6% so far this year and 43.8% since its Christmas Eve bottom in late 2018. It’s up almost 60% since President Trump was elected president, and nearly 400% since the start of the bull market, but the S&P 500 is a laggard compared with the small-cap S&P 600, up 471.7% in the same time.

Standard and Poor's 500 Indices During Bull Market Chart

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

NASDAQ is in a class by itself – up 8.45% year-to-date in 2020, vs. just 4.62% for the S&P 500 and 3.01% for the Dow Jones Industrials. In the nearly 14 months since the Christmas 2018 lows, NASDAQ is up 57% vs. just 35% for the Dow and 33% for the Russell 2000. That’s basically because there is some serious distortion in these cap-weighted indexes which mask the real returns of more diversified investors.

NASDAQ Index versus S&P Dow Jones Table

NASDAQ and the S&P 500 are becoming more bloated than ever with four trillion-dollar market-cap stocks: Apple (AAPL) and Microsoft (MSFT) are worth over $1.4 trillion each, while (AMZN) and Alphabet (GOOGL) are worth about $1.05 trillion each. All four are four-letter NASDAQ stocks that also sit atop the S&P 500. (We’ve got to quit using “FANG” to describe these stocks. Sorry for the political acronym, but Microsoft-Apple-Google-Amazon spells “MAGA” to me, not “FANG”!)

According to Jim Welsh of Macro Tides, quoted in the latest Barron’s, these four MAGA stocks, plus Facebook (FB) at $610 billion market cap, account for $5.55 trillion, or 18.1% of the S&P 500, “compared to the bottom 300 companies, which only add 16.8%.”  He calls them the “Fav Five,” saying, “The concentration of money in the Fav Five and complacency they’ve inspired has reached the goofy stage.”

Navellier & Associates owns AAPL, MSFT, and FB,  in some managed accounts and or sub-advised mutual fund but does not own GOOGL or AMZN.  Gary Alexander does not own AAPL, MSFT, GOOGL, AMZN or FB in personal accounts.

According to another review in this week’s Barron’s (“Big Tech’s Regulatory Issues Go Deeper Than You Think,” by Eric J. Savitz), some of these tech giants have avoided regulation so far, but they are vulnerable to several ongoing probes “as the FTC sets out to examine a decade’s worth of tech deals.”

We are also concerned about the top-heavy S&P 500 and NASDAQ indexes and favor a far more selective look at stocks with better long-term fundamentals further down the cap-weighting scale.

All content above represents the opinion of Gary Alexander of Navellier & Associates, Inc.

Please see important disclosures below.

Also In This Issue

Global Mail by Ivan Martchev
Junk Bonds Don’t Believe the Coronavirus Threat (Yet)

Sector Spotlight by Jason Bodner
The Role of Repetition in Markets and Music

View Full Archive
Read Past Issues Here

About The Author

Gary Alexander

Gary Alexander has been Senior Writer at Navellier since 2009.  He edits Navellier’s weekly Marketmail and writes a weekly Growth Mail column, in which he uses market history to support the case for growth stocks.  For the previous 20 years before joining Navellier, he was Senior Executive Editor at InvestorPlace Media (formerly Phillips Publishing), where he worked with several leading investment analysts, including Louis Navellier (since 1997), helping launch Louis Navellier’s Blue Chip Growth and Global Growth newsletters.

Prior to that, Gary edited Wealth Magazine and Gold Newsletter and wrote various investment research reports for Jefferson Financial in New Orleans in the 1980s.  He began his financial newsletter career with KCI Communications in 1980, where he served as consulting editor for Personal Finance newsletter while serving as general manager of KCI’s Alexandria House book division.  Before that, he covered the economics beat for news magazines. All content of “Growth Mail” represents the opinion of Gary Alexander

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