Europe’s “Greece fire” Has Been Burning For Well Over A Year

greecefire06/20/11: In the markets, as in life, there are no guarantees but everyone is entitled to their opinion. Here’s my opinion on the financial markets today.

The Nitty Gritty Details:

The market is mixed at the open on more “tough love” for Greece.  EU finance ministers voted overnight to delay a July payment to Greece, part of the bailout plan that would help avoid a default, until more austerity measures are approved.  European markets are about 1% lower on average in mid-day trading.  The euro is rallying this morning after showing overnight losses against the dollar.  After being down more than 1% in early trading, crude oil has rallied back near $93 on the dollar weakness, while gold and silver are showing modest declines near half a percent in early trading.

Looking back at Friday, the S&P 500 posted its first weekly gain in seven weeks, but just barely.  Stocks opened higher Friday on positive news out of Europe regarding Greece, but could not sustain initial gains and slowly moved over the course of the day.  It looked like the market would go negative late in the day, but rallied in late trading to close in positive territory.  Friday’s session was mixed from a leadership perspective, as Financials and Telecom fared best of the 10 S&P sectors, though defensive sectors tended to do better.  Energy, Materials and Technology were the only three sectors in the red.  For the week, the S&P 500 gained 0.1%

Around our financial planning services firm this morning, we were discussing three items that we thought would be of particular interest to our readers:

The Markets Broken Down:

1. The “Greece fire” continues to burn despite attempts by the ECB and IMF to put it out. Investors are feeling the heat of the Greece fire as it has added to the pressures on the markets in recent weeks.  However, after having spilled over into some European banks, it is highly unlikely to spread to the rest of the world in a dangerous fashion and trigger another global financial crisis.  There are many factors that are likely to avoid a financial crisis stemming from Greece’s financial problems: (1) the banks have already cut their exposure to the troubled peripheral European nations in half, (2) a rescue package is emerging that avoids restructuring until banks are further braced for it, and (3) money market funds are insignificantly exposed to European lenders most at risk of losses on Greek debt.

2. The Federal Reserve is in focus on an otherwise quiet week for economic data. This week’s relatively quiet economic calendar in the United States (new and existing home sales, along with durable goods orders and shipments for May) will allow markets to focus on the Fed, Greece and the fiscal debate in the United States.  In many ways, what the Fed does next (after QE2 ends next week) will depend on the outcome of the situation in Greece (and elsewhere in peripheral Europe) and on the outcome of the fiscal debate in the United States.

3. The regulator is down the hall. As part of a push to prevent another financial crisis, the Federal Reserve Bank of New York and the Office of the Comptroller of the Currency are increasing the number of examiners who go to work every day at the companies they regulate.  Much like a reporter assigned to a military unit during war, these regulatory “embeds” get unprecedented access to financial firms such as Bank of America, Goldman Sachs and Morgan Stanley.  About 150 such regulators are scattered across banks and securities firms, a number that will double by this fall.

As always, email me here with your questions or comments.  I love to hear from you and thoroughly enjoy the “intellectual debate” with our clients and friends that these opinions generate.


Greg Powell, CIMA
Wealth Consultant

Note: The opinions voiced in this material are for general information and are not intended to be specific advice. Any indices such as the S & P 500 can’t be invested into directly. Past performance is no assurance of a future result.

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