Thoughts {Greek Edition}
Greece has defaulted in all but name this weekend. You can go over to any news blog to read the particulars if you're not up to date on what went down over there. If you want further coverage, go over to Bloomberg.com. I want to cover here what comes next and how that relates to the U.S. markets.
First stocks are set to open down today. Markets overseas are down 3-4% as I'm typing this and US futures are showing declines between 1-2%. The screens may be all colored red this AM but so far the losses look manageable and contained. Greece represents something like 1.3% of the European Union's {EU} GDP so at this point the economic hit to the rest of Europe looks slight. Of course the hit to Greece itself is likely to be catastrophic.
I am assuming markets will take a few days to sort themselves out. After that I'll reference what I said about this earlier this month. "{W}e'll have a couple of bad days overseas then people will wake up and see that the sun still rises in the east. The world will not have ended and financial markets will go about their business."
And since Greece has now chosen the nuclear option, I'll refer you back to the idea that extra scrutiny may be needed on a going forward basis. "I think that Greece has long been a known event and so I think its creditors have long had plans for what could occur in the event of default and or exit from the Euro. But that scenario is worst case and because it is markets will worry about unintended consequences until the dust settles. That means that markets and investors will be rife with rumor and uncertainty, the two things markets hate the most. While I think the most likely scenario is that markets settle down once everybody realizes that the world hasn't ended, we do need to entertain the possibility that markets use the opportunity to sell off. Greece could be seen by some investors as a good reason to do a bit of profit-taking or a good excuse to reallocate assets."
One final thought: Packaged neatly with the Greek news yesterday was that Puerto Rico also announced that it couldn't repay the 72 billion in municipal debt it owes. That's the 2nd negative hit that markets have to absorb over the weekend. Add to that the likelyhood of a September Federal Reserve rate increase plus further bad news overseas and you've given stocks an excuse to become more defensive over the next few months. Timing in terms of seasonality would be right, given that late summer and early fall often can be problematic for stocks. Because of this we'll have the defensive pages of the playbook handy in the next few weeks.
*Long ETFs related to European equities in client and personal accounts. We have no direct exposure to Greece via ETFs.
First stocks are set to open down today. Markets overseas are down 3-4% as I'm typing this and US futures are showing declines between 1-2%. The screens may be all colored red this AM but so far the losses look manageable and contained. Greece represents something like 1.3% of the European Union's {EU} GDP so at this point the economic hit to the rest of Europe looks slight. Of course the hit to Greece itself is likely to be catastrophic.
I am assuming markets will take a few days to sort themselves out. After that I'll reference what I said about this earlier this month. "{W}e'll have a couple of bad days overseas then people will wake up and see that the sun still rises in the east. The world will not have ended and financial markets will go about their business."
And since Greece has now chosen the nuclear option, I'll refer you back to the idea that extra scrutiny may be needed on a going forward basis. "I think that Greece has long been a known event and so I think its creditors have long had plans for what could occur in the event of default and or exit from the Euro. But that scenario is worst case and because it is markets will worry about unintended consequences until the dust settles. That means that markets and investors will be rife with rumor and uncertainty, the two things markets hate the most. While I think the most likely scenario is that markets settle down once everybody realizes that the world hasn't ended, we do need to entertain the possibility that markets use the opportunity to sell off. Greece could be seen by some investors as a good reason to do a bit of profit-taking or a good excuse to reallocate assets."
One final thought: Packaged neatly with the Greek news yesterday was that Puerto Rico also announced that it couldn't repay the 72 billion in municipal debt it owes. That's the 2nd negative hit that markets have to absorb over the weekend. Add to that the likelyhood of a September Federal Reserve rate increase plus further bad news overseas and you've given stocks an excuse to become more defensive over the next few months. Timing in terms of seasonality would be right, given that late summer and early fall often can be problematic for stocks. Because of this we'll have the defensive pages of the playbook handy in the next few weeks.
*Long ETFs related to European equities in client and personal accounts. We have no direct exposure to Greece via ETFs.
posted by CR English at 7:22 AM
<< Home