Lowe fs continues to have concern regarding the debt issues in Europe. The situation in our opinion is by no means cured. We believe the Spain and Portugal and possibly Italy may be in a similar situation to that of Greece.
The EU has been vague on the details of the assistance they will be providing to Greece but we suspect that some of the directives from the EU may stagnate economic growth. Further, we are hardly convinced that even if Greece accepts the demands of the EU that the populous will go along for the ride. Rather, we anticipate potential protests and strikes if the cuts the EU demands are too extreme.
You can rest assured that Spain, Portugal and Italy are watching what the EU does relative to the situation in Greece. They most certainly will expect the same.
What is the problem with the sovereign debt of these countries and why should we care? Well, imagine the U.S. is unable to make payments on our Treasury Bonds. That is the equivalent scenario that Greece and possibly Portugal, Spain and Italy may find themselves in absent intervention by the EU.
The impact of a sovereign debt default could be severe but the most obvious concern to Lowe fs is that the stock market has rallied last week based on the premise that the EU has taken care of the problem and that all is well. It is our belief that any stock market rally based on an assumption that the EU has solved the sovereign debt problem is not sustainable.
A short term result from the global debt concerns could be the potential strengthening of the dollar relative to foreign currencies. However, we expect the value of the dollar to decline relative to foreign currencies over the longer term.
We will take the rally and many of our positions will benefit from it. But don’t be fooled into thinking the issue is completely behind us.
The higher our stock markets go without a meaningful correction (the recent correction was not meaningful) the more vulnerable it becomes for a near term market correction.
Lowe fs continues to talk regularly with our Capital Markets Analyst to evaluate potential strategies for our actively managed accounts. We will keep you informed of any potential shifts that may occur as a result of the current environment.
Enough with the pessimism you say! OK, on a positive note Lowe fs is bullish as we look at our stock markets over the next 24 to 36 months. However, it is very important for you to understand that there are real and inherent risks in the short term that could cause a correction.
Interestingly, we wrote this article on Friday afternoon with plans to post it this morning. As we reviewed data this morning we noticed that the Wall Street Journal had an article sounding the alarm on this issue as well. Although they stole a bit of our thunder, it is a good article and if you are so inclined we suggest you may want to review it. It is entitled Debt Deals Haunt Europe and it is written by Charles Forelle and Susanne Craig. It can be found by clicking here.
Material discussed is meant for general illustration and/or informational purposes only and it is not to be construed as tax, legal, or investment advice. Although the information has been gathered from sources believed to be reliable, please note that individual situations can vary therefore, the information should be relied upon when coordinated with individual professional advice. Not all portfolios are actively managed. If you have a question about how your account is being managed please contact us. Generally accounts less than $150,000 are not actively managed. An Index is a portfolio of specific securities (common examples are S&P, DJIA, NASDAQ), the performance of which is often used as a benchmark in judging the relative performance of certain asset classes. Indexes are unmanaged portfolios and investors cannot invest directly in an index. Past performance is not indicative of future results.
- Not all portfolios are actively managed. If you have a question about how your account is being managed please contact us.
- No diversification can completely protect against market risk or other risk factors with investing. A diversified portfolio could still lose money.
- An Index is a portfolio of specific securities (common examples are S&P, DJIA, NASDAQ), the performance of which is often used as a benchmark in judging the relative performance of certain asset classes. Indexes are unmanaged portfolios and investors cannot invest directly in an index. Past performance is not indicative of future results.
Foreign investing carries additional risk such as currency risk, political risk and different accounting standards.
*Lowe fs is a registered investment advisor.