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Greece Was Not Alone

Here is Greece

Greece, China, and Puerto Rico all played a role in yesterday’s sell-off.  Yesterday was the biggest “down day” for the year, but in the grand scheme of things, it was not even close to catastrophic.  However, I wanted to address this with a quick blog.

It is impossible to quantify the role of each player in the sell-off … but I believe much came from Greece.

The bad news is that no agreement and heightened uncertainty took stocks down in Europe and in the U.S.

Greece is set to put this whole thing to a vote on July 5th.  In the meantime, banks and the Greek market are closed, probably until at least the 5th, as the ECB is no longer supporting Greek bank liquidity. That limits ATM withdrawals to sixty euros per day. This will only intensify economic problems in Greece.

As of this writing around noon, the market is basically flat.

I didn’t really get into China and Puerto Rico yesterday, so here it goes.

China & Puerto Rico

China surprised markets with a rate cut over the weekend. In case you have not seen it, China’s market is down 22% from the high on June 12th. The rate cut did little to slow the market’s slide, which has now officially entered bear market territory.

Puerto Rico’s governor said it cannot pay its $72 billion in debt, which per the NY Times, has piled on more muni bond debt per capita than any American state.

How It All Ended

By the end of the day, the Dow fell nearly 2%, or 350 points, and we saw a big rally in Treasuries, with the 10-year yield down 0.14% to 2.33%.  If you are applying for a mortgage, this just helped.

The rise in yields for high-yield debt wasn’t encouraging either, and not surprising in a risk-off environment.

Bottom Line

In reality, a Greek default won’t hurt the U.S. economy at all because they are simply too small of a trading partner … but markets were shaken by their complacency.  As I stated in yesterday’s blog, very little Greek debt is held by the private sector. Most is held by European governments, the International Monetary Fund (IMF), and the European Central Bank (ECB).

Since the crisis began, firewalls have been in place that should prevent contagion from spreading through Europe.  The EU will ring fence Spain, Portugal and other countries that could be susceptible to this spreading, and frankly, what’s happening to Greece can’t being playing well among the populations within geographic proximity.  I believe this also really helps to reduce the odds of a “who’s next” scenario.

Perspective

It has been almost 4 years since the S&P corrected more than 10%, and even after that, the markets recovered and went on to new highs.  I get it that stocks are more richly valued today, BUT, the U.S. economy is much stronger and the ECB has demonstrated it will take measures to stabilize credit markets.  Both of these things were not as true four years ago.

Please call with questions.

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David B. Armstrong, CFA

President & Co-Founder

Dave got into the industry when he discovered his passion for finance in his mid-20’s. He’s a combat veteran and served as an officer in the United States Marines Corps on both active duty and in the reserves, retiring at the rank of Lieutenant Colonel. While serving on active duty, Dave was unable to spend money on deployments, so he became a self-taught investor. Along with a few bucks cash as a bouncer, his investing performance grew to be good....

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Please remember that past performance is no guarantee of future results.  Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Monument Capital Management, LLC [“Monument”]), or any non-investment related content, made reference to directly or indirectly in this blog will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful.  Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions.  Moreover, you should not assume that any discussion or information contained in this blog serves as the receipt of, or as a substitute for, personalized investment advice from Monument. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. No amount of prior experience or success should be construed that a certain level of results or satisfaction will be achieved if Monument is engaged, or continues to be engaged, to provide investment advisory services. Monument is neither a law firm nor a certified public accounting firm and no portion of the blog content should be construed as legal or accounting advice.

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