You may wonder what Greece has to do with our stock market. It is a good question and the answer is somewhat complicated
Essentially there are two causes behind the troubles in Greece (and, potentially, Ireland, Portugal, Italy and Spain): the structure of the European Union and the world recession of 2007-2009.
The European Union has one currency for all of its member nations – and one central bank. However, there is no unified political system. Consequently, when one country gets in financial trouble (e.g., too much debt), it affects all of the other EU nations. However, there is no political system to enforce hard financial choices – such as raising taxes or cutting entitlements.
And so the Greek people feel that they are being backed into an increasingly austere and difficult corner by the EU. And thus they are rioting in the streets.
However, for the past year or so, European banks have been buying Greek (and Irish and Portuguese, etc.) debt – trying to keep those countries afloat. And banks around the world own debt and stock in those same banks. And on top of that, insurance on Greek and European debt (otherwise known as credit default swaps – which we heard so much about in the Lehman failure) – that insurance is owned around the world.
The point is that we live and work in a totally global financial system – where what happens to one part has ramifications for the rest. And that – in a nutshell – is partially why our stock market is uneasy right now.
Our sense is that the EU will finally come up with some way to finagle another patch for Greece (and its weak brothers and sisters). But this will not be quick or simple. In the meantime, our stock market will move on to other worries or triumphs.
It is our belief that the best course of action for you is to stick to your long term asset allocation with a well diversified portfolio. If you have any questions or would like some additional help with your portfolio, please call us.
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