Note Recently Sent to Clients.

This is the note I sent to my clients yesterday regarding Greece.

You've probably seen the reports over the weekend that Greece is likely to default on its bonds this week.  Because this has been featured so prominently on the news, I thought I would address how this may affect the markets and your portfolio.

First we have no direct exposure to Greece.  We for example do not own a Greek specific ETF.  We do have exposure to foreign equities via ETFs.  Most of these according to their fund information have no holdings in Greece.  ETFs that we own for clients  that do hold Greek equities have minimal exposure.  For example, according to Vanguard, the Vanguard FTSE European ETF has a position in Greek equities amounting to 1/10 of 1 percent of the funds assets.  

The Greeks are going to hold a referendum on July 5th that will basically decide whether the country stays in the European Union {EU}.  The first opportunity for US equities to react to that vote will be on Monday the 6th.   Greece has  been a known event to the markets to what now seems like a century.  As such I believe that its creditors have long ago drawn up plans for what could occur in the event of a default and Greek exit from the Euro.  Even so, this Greek exit and default is the worst case scenario and because of that investors will worry about the unintended consequences until the dust settles.  That means between now and next weekend markets will be rife with rumor and uncertainty, the two things investors hate the most.  Probability suggests that stocks may be choppy the rest of the week heading into that referendum next Sunday. 

In regards to {client} portfolios, I am monitoring these events with an eye to add to positions should opportunities arise.  The reason for this {and what's most important to the US markets} is that probability  suggests that after this period of uncertainty stocks should settle down with minimal damage to the US economy.   It is important to remember that Greece as a country has an economy somewhere in size between New Mexico's and Oregon's GDP.  It amounts at the end of the day to about 1.3% of the European Union's total GDP. Greece's problems belong to Greece and Europe.  They do not affect how many diapers Procter & Gamble sells, cars Ford sells or jeans that the Gap sells here in the US.  The US economy has been muddling along  with economic growth for the rest of the year projected to be around 2%.  Continuing jobs gains and growth in consumer incomes suggests we should be on solid footing for the rest of 2015 unless something unexpected washes over the gunnels of our economic ship.  It is likely that in a few days investors will wake up see that the sun still rises in the east, the world will not have ended  and financial markets will go about their business pretty much back to normal. 

Having said all of that and while we will be looking for investment opportunities, it is also now summer and therefore a period where negative market moves can sometimes be magnified as much of the investment community heads to the beach.  We will hold the defensive pages of the investment playbook near just in case.

I will discuss the economic outlook and market valuation in more detail in our mid-year report to you.  In the meantime please call if you have any questions or concerns.  As always thank you for your continued trust and support. 

*Long certain international ETFs in client and personal accounts.  ETF positions depend on client risk/reward parameters and strategy.  Please note that positions can change at any time.