Tag Archives: Greece

Greece’s Return to the Headlines

As you can see from the graph, the nation of Greece, once the subject of almost daily speculation about the viability of its government bonds, has pulled its economy out of a disaster into a muddle.  No doubt, you got tired of hearing about Grexit scenarios and all the times when the European Central Bank and the European Stability Mechanism came to the rescue.

Continue reading Greece’s Return to the Headlines

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How to Read the Panicky Market

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Some of the most entertaining times to be a long-term investor are those periods when short-term investors are looking over their shoulders for an excuse to sell.  They’re convinced that the market is going to go down before they can get out, and so they jump on any bad news that comes across their Bloomberg screen.

And, of course, Friday was a marvelous time to see this in action.  With all the economic drama playing out in the world, there were plenty of opportunities to panic.  The Greek Prime Minister has resigned!  Sell!  China devalued its currency a few days ago by 2%!  Head for the hills!  Chinese stocks are tanking yet again!  Get out of American stocks while you can!  The Fed might raise short-term interest rates from zero to very nearly zero!  It’s the end of the world!

Of course, a sober analyst might wonder whether a change in governance in a country whose GDP is a little less than half the market capitalization of Apple Computer Corp. is really going to move the needle on the value of U.S. stocks—especially now that Greece seems to have gotten the bailout it needs to stay in the Eurozone.  Chinese speculators are surely feeling pain as the Shanghai Composite Index goes into free-fall, but most U.S. investors are prohibited from investing in this tanking market.  If the market value of PetroChina, China Petroleum & Chemical and China Merchants Bank are less valuable today than they were a week or a month ago, does that mean that one should abandon U.S. stocks?  Does it mean that American blue chips are somehow less valuable?

What makes this dynamic entertaining—and sometimes scary—is the enhanced volatility around very little actual movement.  You see the market jump higher and faster, lower and faster, but generally returning to the starting point as people realize a day or two later that the panic was an overreaction, and so was the false exuberance of realizing that the world isn’t going to come to an end just because we’re paying less at the gas pump than we were last year.  Despite all the jitters investors have experienced over the past nine months, despite the drop on Friday, the S&P 500 is only down about 4% for the year, and was in positive territory as recently as August 19.

If you want a broader, more rational picture of our current economic situation, read this analysis by a long-term trader who now refers to himself as a “reformed broker” in Fortune magazine: http://fortune.com/2015/08/20/american-economy-worries/  He talks about the “terrible news” that it hasn’t been this cheap to fill your gas tank in over a decade, and business that rely on energy to manufacture their goods are now forced to figure out what to do with the excess capital they’re not spending on fuel.

Oh, but gets worse.  American corporations are struggling under the burden of enormous piles of cash they don’t have a use for.  They may have no choice but to return some of that money back to shareholders in the form of record dividends.  Of course, you read about the risk to corporate profit margins.  It seems that unemployment is so low that wages for American workers are going up, and that could raise consumption and demand for products and services.

Meanwhile, contributions to 401(k) and other retirement plans are up dramatically, housing starts and the construction sector are booming, America’s biggest global economic competitor (China) is reeling, and the Federal Reserve might decide that it no longer has to keep short-term interest rates low because the emergency is over and the economy has recovered.  The author apologizes (tongue in cheek) for bringing us all this terrible news, but hey, we can always sell our stocks and get out until conditions improve.

Right?

Nobody would be surprised if the U.S. stock market suffered a 10% or even a 20% short-term decline, this year, or perhaps next year.  But what can you do with that information?  Nobody would have been surprised if this had happened at any point in the long bull market that doubled your stock investments, and nobody can predict whether Friday was a signal that the market will take a pause, or if Monday will bring us another wave of short-term euphoria measured mostly in sighs of relief.  And if you don’t know when to sell in this jittery market, how will you know when to buy back?

These short-term swings provide entertainment, but very little useful information for a mature investor.  If you aren’t entertained by watching people sell in a panic and then panic-buy their way back in when they realize things aren’t as dire as the headlines made them out to be, then you should probably watch a movie instead.

About the Author: Bob Veres has been a commentator, author and consultant in the financial services industry for more than 20 years.  Over his 20-year career in the financial services world, Mr. Veres has worked as editor of Financial Planning magazine; as a contributing editor to the Journal of Financial Planning; as a columnist and editor-at-large of Dow Jones Investment Advisor magazine; and as editor of Morningstar’s advisor web site: MorningstarAdvisor.com.

Mr. Veres has been named one of the most influential people in the financial planning profession by Investment Advisor magazine and Financial Planning magazine, was granted the NAPFA Special Achievement Award by the National Association of Personal Financial Advisors, and most recently the Heart of Financial Planning Distinguished Service Award from the Denver-based Financial Planning Association. 

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The Latest from Greece

Screen Shot 2015-08-07 at 8.54.19 AMWhile negotiations on Greek debt continue to be mired in uncertainty, the Greek banking system is taking a daily pounding.  And you can understand why.  If Greek representatives were to suddenly walk away from the table and leave the Eurozone, the country would have to print its own currency (Drachmas), which would almost certainly be worth less against the Euro from day one.   In order to pay its creditors, the Greek government might have to keep the presses working overtime, which means that the poor Greek citizen who left his money in a Greek bank would watch helplessly as his Euros were automatically exchanged for a currency that would be at least 30% less valuable.  Better to take the Euros out now and keep them under the mattress until the negotiations work themselves out.

This may be a wise strategy for individual Greeks, but it’s terrible for a banking system that relies on deposits in order to make loans and, more basically, remain solvent.  Meanwhile, Greek negotiators are trying to stave off German demands for austerity, arguing that the country has already experienced the worst recession in Eurozone history, and stocks have fallen to roughly the level they were at in 1990.  If the past five years of austerity has produced this kind of results, they argue, then perhaps a different strategy is in order.

The banking situation has complicated these negotiations, since international observers now believe that the banks may need an infusion of as much as $27.5 billion to remain solvent—before the next day’s lines at the ATM machines.  That means negotiators are now talking on two fronts; debt relief and recapitalization of the lending system that is the nerve center of any economy.

Will you be affected?  For most U.S. investors, the Greek tragedy is simply a spectacle to tell your grandchildren about.  Greece will survive, eventually the money will come out from under the mattresses, and Europe as a whole might find a way to be more accommodating when one of its own gets into financial trouble.

Sources:

http://news.yahoo.com/greek-banking-stock-plunge-again-debt-crisis-dominates-082744811–business.html

http://www.huffingtonpost.com/jakob-von-uexkull/from-greek–to-euro-crisi_b_7926532.html

About the Author: Bob Veres has been a commentator, author and consultant in the financial services industry for more than 20 years.  Over his 20-year career in the financial services world, Mr. Veres has worked as editor of Financial Planning magazine; as a contributing editor to the Journal of Financial Planning; as a columnist and editor-at-large of Dow Jones Investment Advisor magazine; and as editor of Morningstar’s advisor web site: MorningstarAdvisor.com.

Mr. Veres has been named one of the most influential people in the financial planning profession by Investment Advisor magazine and Financial Planning magazine, was granted the NAPFA Special Achievement Award by the National Association of Personal Financial Advisors, and most recently the Heart of Financial Planning Distinguished Service Award from the Denver-based Financial Planning Association. 

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Life Satisfaction and Economic Growth

You’re probably tired of hearing about the Greek debt crisis, but sometimes it helps to connect the abstract with the concrete—that is, the huge numbers involved with the actual lives of the people living in the country.

The Greeks today live in a vacuum of uncertainty, with their banks closed at least another day, limited access to their funds, and the knowledge that the banks don’t actually have much of the money they’ve deposited there unless a somewhat uncaring European Central Bank decides to provide a backstop package of guarantees.

And they’re not alone. The chart, with statistics compiled by the Organization for Economic Cooperation, shows the percentage change in the “life satisfaction” of the average person in different countries since 2007—which roughly marks the beginning of the financial crisis around the world. As you can see, there has been a small decline in the U.S., probably reflecting wage stagnation and a slow recovery in jobs and economic activity. But look at the bottom and you see that the Greeks have experienced a 27.3 percent decline in their life satisfaction. According to the report, only 47.8% of Greek citizens agree with the statement: “I generally feel that what I do in life is worthwhile.” In Denmark and the Netherlands, 91.4% agree with that statement.

 

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Other countries that are experiencing a debt crisis and high unemployment—Italy, Spain and Ireland—have gone through lesser (but still significant) declines. Meanwhile, at the other end, the German people, who hold all the cards in the various debt crises, have been experiencing a mild euphoria, matched only by Slovakia and Chile, which have been among the fastest-growing economies over the past seven years.

Overall, there was a strong correlation between the growth of GDP per capita and perceived life satisfaction among the countries studied—with a few exceptions. The people of Denmark and the Netherlands seem to have been consistently satisfied with their lives before, during and after the crisis. The people of Poland and Turkey seem to be unmoved by the rapid economic growth their countries have experienced recently. And the U.S. and Canada, which are better off than most of the world economically, have experienced a decline in their general life satisfaction. Maybe we should realize how lucky we are in our situation compared to the Greeks’.

Sources:

http://www.forbes.com/sites/niallmccarthy/2015/07/06/life-satisfaction-in-greece-has-plummeted-infographic/?utm_campaign=Forbes&utm_source=TWITTER&utm_medium=social&utm_channel=Business&linkId=15339276

http://www.ons.gov.uk/ons/rel/wellbeing/measuring-national-well-being/measuring-national-well-being–international-comparisons–2015/art-mnwb-international-comparisons–2015.html#tab-Personal-well-being

About the Author: Bob Veres has been a commentator, author and consultant in the financial services industry for more than 20 years.  Over his 20-year career in the financial services world, Mr. Veres has worked as editor of Financial Planning magazine; as a contributing editor to the Journal of Financial Planning; as a columnist and editor-at-large of Dow Jones Investment Advisor magazine; and as editor of Morningstar’s advisor web site: MorningstarAdvisor.com.

Mr. Veres has been named one of the most influential people in the financial planning profession by Investment Advisor magazine and Financial Planning magazine, was granted the NAPFA Special Achievement Award by the National Association of Personal Financial Advisors, and most recently the Heart of Financial Planning Distinguished Service Award from the Denver-based Financial Planning Association. 

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The Brink of Grexit

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Well, the Greek voters were asked, once again, whether they would accept additional austerity measures that were demanded by their creditors, including the European Central Bank, the International Monetary Fund and the European Commission.  And once again they voted—this time overwhelmingly (61.31% to 38.69%)—to hunker down and move the country to the brink of a Grexit from the euro currency.

Their choice may not have been hard to make.  Virtually all of the $264 billion that has been loaned to the Greek government have actually been paid to the European banks who unwisely loaded up on Greek debt before 2009—and the loans and extensions, to them through Greece, has kept the European banking system solvent during the crisis.  Virtually none of that money has gone back into the ailing Greek economy.

Over the past three years, the Greek government, following many of the demanded austerity measures, has actually reached the point of budget surplus, aside, of course, from the debt repayments.  The cost: a skyrocketing unemployment rate that has reached 25.6%, including 60% of the nation’s young workers, and a steep recession which economists seem to agree would only get steeper if the country accepts the austerity demands.  The Greek economy has shrunk by 25% over the last five years.

But the hardship continues.  Anticipating a shift from euros to drachma, Greek citizens have staged the mother of all bank runs, trying to get as many euros out of the system as they could before they were exchanged for lesser-value drachmas.  The government limited the amount of their own money that citizens could withdraw to approximately $67 a day, and has now shut down the Greek banking system at least through end of day Tuesday.   Reopening the banks could be problematic, since they don’t hold nearly as many euros as depositors have put into them.

Some are betting that the European Central Bank will provide guarantees and financial support to keep the banks from collapsing and taking the Greek economy down with them.  But you can expect Germany to push back hard on this idea.

Will Greece leave the Eurozone?  Nobody knows, but the vote suggests that the citizens of Greece have had enough of European (read: German) control over their economy and political decisions; indeed, some observers saw the extremely hard line at the negotiating table as a ploy to destroy Greek’s ruling Syriza party by forcing Greek voters to abandon it.  There are sizable numbers of people in other European countries who feel the same way about losing control over their own affairs, who are closely watching how the European Union responds.

The discussions will be tricky.  If the European Union offers further concessions, then you can expect Spain (unemployment rate: 23.1%) to ask for less stringent austerity and some space to get its own economy moving again.  Portugal could be next.

And, of course, if Greece leaves, and begins to experience economic growth again, then those citizens in other countries could demand that their leaders also cast off the layer of oversight and control coming from Brussels.

What should you watch for?  Greece is already technically in default as of Tuesday, on $1.7 billion in payments.  At the end of July, it will own the next payment, in the amount of just under $4 billion.  One compromise possibility is that the European Union, led by Germany, will reluctantly allow Greece to extend its payments, and also put together some kind of an aid package for the Greek economy that would help it become more able to make payments in the future.

How does this affect you?  Once again, you’re going to see turmoil in the markets, and a temporary decline in the value of the euro on international markets.  You’ll hear pundits and economists speculate about the “fate of the Eurozone,” and eventually, one way or another, everything will settle down again without affecting in any way the underlying value of the stocks you own.  We’ve all seen this crisis a few times before, and each time the predictions of some form of doom haven’t come true.  This “crisis” is very real to the Greek people, but the world will go on no matter how it’s resolved.

Sources:

http://finance.yahoo.com/news/greece-says-oxi-heres-happens-180726938.html

http://www.nytimes.com/interactive/2015/business/international/greece-debt-crisis-euro.html?_r=0

http://www.nytimes.com/2015/07/06/business/international/eurozone-central-bank-now-controls-destiny-of-greeces-battered-banks.html?rref=business/international&module=Ribbon&version=context&region=Header&action=click&contentCollection=International%20Business&pgtype=Multimedia

http://www.nytimes.com/2015/07/06/business/international/eurozone-central-bank-now-controls-destiny-of-greeces-battered-banks.html?rref=business/international&module=Ribbon&version=context&region=Header&action=click&contentCollection=International%20Business&pgtype=Multimedia

About the Author: Bob Veres has been a commentator, author and consultant in the financial services industry for more than 20 years.  Over his 20-year career in the financial services world, Mr. Veres has worked as editor of Financial Planning magazine; as a contributing editor to the Journal of Financial Planning; as a columnist and editor-at-large of Dow Jones Investment Advisor magazine; and as editor of Morningstar’s advisor web site: MorningstarAdvisor.com.

Mr. Veres has been named one of the most influential people in the financial planning profession by Investment Advisor magazine and Financial Planning magazine, was granted the NAPFA Special Achievement Award by the National Association of Personal Financial Advisors, and most recently the Heart of Financial Planning Distinguished Service Award from the Denver-based Financial Planning Association. 

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The Next Bailout

It has been five years since the newspapers exploded with stories of the Greek debt crisis, which, we were told, threatened the very existence of the Eurozone.  Eventually, a variety of bailout packages were negotiated, and things seemed to return to normal.

As it turns out, the current rescue package will run out at the end of June.  The European Union finance ministers and leaders of the newly-elected Greek government appear to be far apart in their negotiations on extending the bailout.  The European Central Bank, International Monetary Fund and the European Commission have demanded that Greece institute another round of economic reforms, meaning austerity in government spending and services, higher value-added taxes, pension cuts, and a continuing decline in the Greek GDP and standard of living for ordinary citizens.  The citizens, naturally, have been reluctant to endure any more pain, and elected leaders from the Syriza Party who ran in opposition to any more austerity, promising instead to cut a better deal, spend more and generally use Keynesian economic theory to restart the economy..  The Greek government recently rehired 4,000 public sector workers in a clear display of independence from the creditor demands.

Greece’s finance minister has agreed to make the next 750 million euro loan repayment to the International Monetary Fund, which staves off immediate default.  But there is no question that the country will have to refinance 172 billion euros of debt.  No deal means default and, possibly, what people are calling a “Grexit” from the Eurozone.  You can expect to suddenly see headlines about the looming “crisis” and once again hear intimate details about the financial situation in Greece.  If the negotiations succeed, and Syriza officials win concessions, it could bolster the strong anti-austerity populist movements in Spain, Portugal and Ireland.

Should you be concerned?  If you’re holding a private stash of Greek bonds, or are receiving a government pension from the nation, then you should be following these developments closely.  If not, then there is nothing about the negotiations which will change the underlying value of European stocks and bonds in most American portfolios.  The headlines could cause a selloff, particularly in the event of a Grexit, but corporate earnings and valuations will ultimately prevail, whether Greece is given a grace period, whether it remains part of the Eurozone—or not.

About the Author: Bob Veres has been a commentator, author and consultant in the financial services industry for more than 20 years.  Over his 20-year career in the financial services world, Mr. Veres has worked as editor of Financial Planning magazine; as a contributing editor to the Journal of Financial Planning; as a columnist and editor-at-large of Dow Jones Investment Advisor magazine; and as editor of Morningstar’s advisor web site: MorningstarAdvisor.com.

Mr. Veres has been named one of the most influential people in the financial planning profession by Investment Advisor magazine and Financial Planning magazine, was granted the NAPFA Special Achievement Award by the National Association of Personal Financial Advisors, and most recently the Heart of Financial Planning Distinguished Service Award from the Denver-based Financial Planning Association. 

Sources:

http://www.ft.com/cms/s/2/7f31597a-f4cd-11e4-abb5-00144feab7de.html?ftcamp=published_links%2Frss%2Fhome_us%2Ffeed%2F%2Fproduct#axzz3ZV6PABAZ

http://www.huffingtonpost.com/rj-eskow/13-questions-about-greece_b_6621708.html

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