The Greek Can Kick, Episode VII: Investors Awaken

On Tuesday, Greece sold €3 billion ($3.5 billion) of five-year government bonds. Good news, especially when you consider the summer hasn't been too kind to Greece in recent years.^[i] It feels like eons now, but just over seven years ago, Greece received its first bailout package. Since then, the country's trials and tribulations have evolved from a nightmare scenario dooming the European project to something of a punchline. As the Hellenic Republic has stumbled, bumbled and yet somehow avoided falling out of the eurozone, global stocks have risen higher-a keen reminder of bull markets' resiliency.

Take a trip with me, dear reader, back to May 2010, when the landmark movie Iron Man 2 was about to be released.^[ii] Mere months earlier, Greece announced it had uncovered some fuzzy math in its budget calculations and revealed a (much) bigger deficit than previously thought. Officials announced a big austerity plan a couple months later. Yet this wasn't enough, and Prime Minister George Papandreou asked for a rescue package in April. On May 2, eurozone finance ministers agreed to rescue Greece with €110 billion in loans over three years.

Yet the trouble was only beginning. While the causes and specifics differ, by summer 2011, Greece was no longer alone: Ireland received a bailout in November 2010; Portugal got rescue funds in May; and fears ran high over Italy and Spain. As Papandreou announced further austerity measures, things got ugly in Athens as strikes and protests turned violent. While the uncertainty spurred broad fears Greece would be the first domino to fall, eurozone finance ministers agreed in July on a framework for another Greek bailout. However, it took several months of negotiating and political posturing for Greece's creditors to approve the second bailout package in February 2012.

New plot twists continued to emerge in Greece's tragi-comedy over the next five years, but the movie stayed true to its formula: lots of bickering, then a can-kick down the road.^[iii] Following the second bailout, Greece elected a new parliament and prime minister (Antonis Samaras). Things quieted down for a bit-Greece even returned to debt markets in 2014-but as with any good movie, a sense of foreboding lingered. Pragmatic, neutral Switzerland, which had a front-row seat, even prepared its army in case a euro collapse led to Europe devolving into warring factions and triggering a flood of refugees.

Sure enough, the drama returned in 2015. After a snap election in January 2015, the far-left upstart political party Syriza, led by firebrand Alexis Tsipras and allegedly studly finance minister Yanis Varoufakis, stormed into government and promised to end the oppressive austerity measures. This reignited Greek default fears, and as MarketMinder Managing Editor Todd Bliman wrote in February 2015 in a piece titled, "1,896 Days Ago, Greece Was a Mess": "Fearful Greek headlines will likely return, probably no later than 3.5 months from today."

As if on cue, scary summertime headlines returned after Greece became the first developed^[iv] economy to effectively default to the IMF in June. In a July referendum, voters rejected the terms of an international bailout, and some wondered if this would finally mark Greece's exit from the common currency bloc. Nope! Further talks, compromises and moderation from Tsipras led to Greece securing a third bailout package. Since then? Well, Tsipras has acted like a typical politician who seems to enjoy his time at global summits. Varoufakis returned to academia and wrote a book. The Swiss army has presumably stood down.^[v]

Though the frightful Greek tragi-comedy has dominated headlines for much of the past seven years, global stocks have charged higher. By no means was this smooth sailing: "Grexit" fears drove a lot of short-term negative volatility and factored into the 2010, 2011 and 2012 global market corrections. Yet ever since that first Greek bailout, the MSCI World has returned 89%.^[vi]

Exhibit 1: Seven Years of Bad Greek Movies

Source: FactSet, as of 7/26/2017. MSCI World Total Return Index (net dividends), from 12/31/2009 - 7/25/2017. Stabilo Due is the Swiss military exercise done in preparation for a eurozone breakup.

As we have written before, Greece alone isn't large enough to pack the "wallop" necessary to kill a bull market. While scary headlines can-and have-roiled sentiment in the short term, even that power seems to be waning a bit. That is the cool and beautiful thing about markets: They are pretty darn resilient, and they price in reality much more efficiently than any one person can.