Risk/Reward Vol. 272
THIS IS NOT INVESTMENT OR TAX ADVICE. IT IS A PERSONAL REFLECTION ON INVESTING. RELY ON NOTHING STATED HEREIN.
I am suspending the usual format of Risk/Reward for a few weeks in light of an impending move and crowded weekend social schedules. That said, I may send some random thoughts your way if the spirit moves me.
I remain convinced that the Greek affair is much to do about nothing. Indeed, the fear of a Grexit (Greek exit from the Euro) has never been about Greece. It always has been about contagion; the fear that should Greece exit the Euro then Portugal, Spain, Ireland and Italy (PIIGS) could follow suit. That fear has subsided in light of various programs adopted by the European Central Bank (ECB’s) under Mario Draghi, and those countries’ adherence to some modest economic reforms. If you doubt that contagion is a low risk, just look at the yield on the 10Year Bond from the PIIGS. Spain’s is 2.12%; Italy’s is 2.13% (both lower than the US 10Year) while that of Greece is nearly 13%. Remember, the lower the yield, the higher the price, the more creditworthy the debt.
Moreover, the amount of Greek debt held by foreigners has dropped from 247billion Euros in mid- 2012 to 34billion Euros today. That reduction alone lessens the blow from a Grexit; a blow which has been lessened even more by the ECB’s promise to backstop any country that suffers should Greece not reach a deal in the next few days. And this is an event which I believe is likely.
So once Mr. Market determines that Greece is not the boogeyman (and Friday’s action indicates that he may have so determined already), his focus will shift to corporate earnings which will begin to be reported in earnest this coming week. As for me, I will continue to focus on the timing of the Fed’s rate increase with plenty of cash ready to deploy.
