Greek tragedy

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Greece Booted From the Developed World

Greece has become the first developed nation that Wall Street has left behind.

Equity analysis firm MSCI Inc. (MSCI), the brains behind the namesake stock indices used in mutual funds and ETFs, cut Greece to “emerging market” status on Wednesday.

That move is a first — but it’s hardly a surprise.

After all, Greece’s stock market in Athens has dropped almost 85% since 2007 highs. Its government deficits have long been a cause for concern, and its fiscal issues were in many ways the precipitating cause of the euro debt crisis. Throw in a roughly 27% unemployment rate overall — with an ugly 58% jobless rate for those under 24 — and you have a hard time making a case that Greece is a “developed” nation.

Of course, “emerging” implies that the direction is up … and that is equally misleading. Because until these systemic problems of unemployment and crippling debt are at least on the road to resolution, Greece will do nothing other than struggle.

The Global X FTSE Greece 20 ETF (GREK) is down about 9% this year, and though it showed brief signs of life in May, the fund has given all those gains back and then some.

Other funds with big exposure to Greece include the Guggenheim Shipping ETF (SEA), which is weighted in a lot of Greek companies by virtue of many major maritime businesses being headquartered here. The SEA fund has tacked on 7% year-to-date, but has underperformed the S&P 500 by delivering just half the nearly 15% for the U.S. benchmark.

So what’s next for Greece? Well, the nation’s sovereign debt was upgraded by ratings firm Standard & Poor’s at the end of 2012 to B/B- thanks to a debt buyback plan. It’s still in the “junk” range of debt ratings by Wall Street standards — for whatever those ratings are worth, of course — but at least has shown a glimmer of hope.

However, some of the reason finances are better (well, less bad) for Greece include bone-deep cuts on the backs of government workers. At the end of April, Greece’s parliament approved yet another emergency bill that traded thousands of civil service jobs for rescue loans.

These draconian measures might keep the government from going bankrupt, but will only exacerbate the unemployment problem since the private sector is not hiring at all.

Greece has survived much over the millennia, but after six straight years — yes, years — of recession and predictions of a seventh year of contraction across 2013 … well, don’t bargain hunt here anytime soon.

Perhaps a better label than “emerging” market would be a “devolving” one.

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Jeff Reeves is the editor of and the author of “The Frugal Investor’s Guide to Finding Great Stocks.” Write him at or follow him on Twitter via @JeffReevesIP. As of this writing, he did not own a position in any of the stocks named here.

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