Among the number of things effecting the markets (JPMorgan Chase hedging losses, FaceBook’s failed IPO, China slowing by just a bit, etc.), the EuroZone (the 17 countries that share the common currency) Debt Crisis is still the major problem that has created anxiety in World Financial Markets. And, it is not just the question of Greece leaving the EuroZone.
First and foremost IS the question of what happens if Greece goes back to the Drachma? There are many viewpoints; but, who really knows for sure? This hasn’t happened before–since there has never been such a (I believe) convoluted combination of countries. Finance Ministers, Bureaucrats and Heads-of-State have been meeting and talking since February of 2010; but, there just doesn’t seem to be any progress.
But, it is not just about Greece. The entire Zone is pretty much in a recession and, Germany, perhaps the healthiest economically of the 17, might be close to it. Other countries, such as Ireland, Italy, Portugal and Spain are already in a troubled state. And, the Austerity measures that have been used have not worked. A previous post, “Stimulus vs. Austerity” might shed some light on this topic.
The OECD (Organization for Exporting Cooperation and Development) recently pointed out that many banks in the EuroZone need to increase their capital. In early 2009, when World Financial Markets were beginning to recover from The Great Recession, many banks in the US sold stock to build their Equity Capital (perhaps still not enough); however, most banks in Europe did not. There has always been the belief that the various European Countries would act as a back-stop for their nation’s banks. But, given the fiscal problems that many Nations in the EuroZone are having, how are they going top bail-out their banks, as well as themselves?
Many US-based investment portfolios distribute the overseas portion according to the EAFE (Europe, Australia and the Far East ) Index. The problem with that is that it includes a considerable amount of exposure to Europe–and the Euro. Be sure to check your portfolio and ask questions of your Financial Advisor regarding the Regional Distribution of the securities that you own. Personally, I would suggest even shying away from European companies that are not part of the EuroZone because of the fact that there is a lot of economic interaction between the countries.
Outside of the US and many countries in Europe, most other parts of the World have not been too effected by The Great Recession (2008-2009) and have reasonably good balance sheets. And, don’t overlook the Developing Markets. Also, now might be good time to focus more on good quality stock. But, again, don’t just look for a well-known name (many from the past went out of existence), ask your FA for reasons why they would make good sense for your portfolio.