The benefits of this strategy are obvious. For both Banco Santander, S.A. (ADR) (NYSE:SAN) and Greece, reduced government spending through austerity measures in Europe could greatly reduce enterprise expansion and the need for commercial loans. Similarly, less business expansion could lead to more unemployed persons and less disposable income for deposits. That’s a scary scenario if you own stock in banks in the EU. It’s especially scary for the National Bank of Greece (ADR) (NYSE:NBG), whose long-term survival could be at stake if unemployment rates don’t reverse at some point soon.
But betting against individual companies also has its risks. Most companies are global in nature these days — such as Banco Santander, S.A. (ADR) (NYSE:SAN) servicing the Brazilian, U.S., and multiple other markets — making a pure-play bet difficult. In addition, high levels of short interest can be dangerous as well. Just look at National Bank of Greece (ADR) (NYSE:NBG)’s short-covering induced rally earlier this year.
Perhaps one of the more intriguing ways to play this pessimism is through an ETF. Betting against the Global X FTSE Greece 20 ETF is one such example that might make a lot of sense. This ETF does its best to correspond to the performance of the Greek market by owning shares in the largest 20 Greek companies by market cap. With the unemployment rate at 27% and pessimism running high, it’s quite possible these factors could feed off each other to make things worse before they get better.
Also note who’s not on the list
A key point about the most pessimistic countries is also who’s not on the list. Aside from Haiti, there isn’t a country within the top 10 that’s based with any proximity to the Americas. And to be honest, with no disrespect intended, Haiti’s economy isn’t vital to the success of any of the largest North, Central, and South American economies.
What I’m getting at here is that while optimism in the U.S. may not be off the scale based on our recent economic data, the rallies we’ve seen in the Dow Jones Industrial Average 2 Minute (INDEXDJX:.DJI) and the S&P 500 (INDEXSP:.INX) may prove self-sustaining based on the happiness they’re generating with investors.
Don’t get me wrong. Most U.S. data has been encouraging. U.S. unemployment levels are near five-year lows, most homebuilding indexes are at their highest levels since 2006 or 2007, and the ongoing free money from the Federal Reserve known as QE3 is keeping lending rates near historic lows. However, justifying a more than 9,000-point surge in the Dow Jones Industrial Average 2 Minute (INDEXDJX:.DJI) over the past four years and change, and a new all-time record high for the S&P 500 (INDEXSP:.INX), is difficult with a U.S. GDP growth rate that’s struggling to maintain the 2% level.
I wouldn’t go so far as to say investor happiness is the only reason we’re heading higher, but it’s certainly a justifiably significant piece of the puzzle considering that the economic data isn’t overwhelmingly suggestive of U.S. markets hitting new highs. If investors remain happy, we could continue to see new all-time highs in both the Dow Jones Industrial Average 2 Minute (INDEXDJX:.DJI) and S&P 500 (INDEXSP:.INX).
Turn that frown upside down
As Gallup has clearly shown, there are regions of the world that clearly don’t view their future with much optimism. But that doesn’t mean you can’t turn that frown upside down and find your own happy place. Consider using this data to your advantage and look for opportunities in your own portfolio where you might be able to utilize consumer’s sentiment and opinion to your benefit.
If you’re looking for a happier ending, stay tuned as I plan on highlighting the most optimistic countries as well tomorrow.
The article These Are the World’s 10 Most Pessimistic Countries originally appeared on Fool.com is written by Sean Williams.
Fool contributor Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.
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