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Archive for June 2015

Greek Tragedy

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June 29, 2015 – 11:00 a.m. MDT

Greek banks are closed this week. The Greek stock market is also closed. Greece will default on a $1.69 billion debt payment due tomorrow to the International Monetary Fund (IMF). The negotiations between Greece and the IMF, the European Commission, and the European Central Bank (ECB)(the so-called, Troika) broke down last week when Greece’s Prime Minister, Alexis Tsipras, terminated negotiations and announced that we would put the issue before Greek voters on July 5th. This was not expected.

So what does all this mean for the average US based investor? Not much if your investment horizon is longer than 6 months and your asset allocation is sound. The turmoil created by Greece will only be temporary, whether they stay in the European Union or not. Greece is simply too small to take down the world’s credit markets. The ECB has worked diligently over the last few years to put a financial fence around Greece. The European banking sector is much stronger than it was when the last Greek debt crisis took place in 2010. While markets are off this morning, there is no sign of panic outside of Greece.

If you are correctly allocated, your asset allocation will help during periods of market stress and uncertainty. Portfolio managers sold most Greek investments several years ago. Most of Greece’s debt is now held by other European governments, the IMF, and the ECB. If European stocks sharply correct, it may be a buying opportunity

Expect to see a lot of media attention on this issue. The situation inside Greece is quite serious. There will likely be political and social unrest inside the country. There will be lines outside the banks during the day and rocks thrown in the streets at night. Try to keep this in perspective.

It will be interesting to see how the referendum plays out. If Greek voters decide they want to stay in the European Union, they will have to come to an agreement on further austerity with the Troika. In that case, Tsipras and his left-wing, anti-austerity Syriza party will likely not survive. If they vote no, Greece may be exiting the EU. No country has ever exited the EU, so there will be uncertainty regarding the details of such an exit and the reintroduction of the old Greek currency, the Drachma. But this is not necessarily a bad thing. It will show the world that membership in the EU is a privilege and not a right. The key will be containing the crisis to Greece and we believe the ECB is prepared for such a contingency.

You can expect some further volatility as the crisis plays out. There will be new developments. I would be very careful to make any serious moves in your portfolio at this time.

Austin Lewis

Written by Lewis Wealth Management

June 29, 2015 at 10:49 am

Posted in Uncategorized