The daily drama with Greece and the EU has become the daily soap opera of the financial world. As is the the case with soap operas, there are numerous story lines with no real ending in sight. At the time of this writing it appears Greece will not allow its banks to open tomorrow. Let the chaos begin.
We certainly don’t want to make light of the serious situation in Greece for its citizens, especially the lower class ones. It appears the government they elected will inevitably let them down. But the risks to actual investors seem to be fairly minimal. There is no doubt the we are seeing short term market reactions lead to some short term pull backs in the markets. In our opinion no investment allocation changes should be made based on the Greek drama we are watching play out.
We can’t see many scenarios where this has a big effect on long term investors.
Greece’s direct economic impact to the world is miniscule. They barely make up 2% of the Eurozone GDP. According to the Wall Street Journal, the following cities have a larger GDP than Greece: New York, Los Angeles, Chicago, DC/VA/MD, Dallas, Philadelphia, San Francisco & Boston.
We do see potential scenarios where the Greek fallout could spread. Countries like Spain, Slovenia and Malta have exposure to Greek debt. A complete Greek default could send some aftershocks. There is also the concern of civil unrest. We all remember the Arab Spring and although somewhat different, there are scenarios where major uprisings could occur.
Are any of these reasons to change your investment strategy? It shouldn’t be as long as your investment strategy was appropriate in the first place. Even if you have relatively high exposure to Europe, you can take solace in the fact that European markets have enjoyed a tremendous year so far.
Are you a trader or investor? You are most likely and investor so stay the course.