If Wall Street and the financial press are truly good at anything, it would be coming up with pithy abbreviations. First, we had the “BRIC,” which was shorthand for Brazil, Russia, India and China. These were supposed to be the four emerging market growth dynamos that would power the world economy for the next decade and beyond.
Why these four and not, say, Mexico, Indonesia or Turkey? Mostly because the “BRICMIT” doesn’t sound as cool in marketing literature.
Lest you think we’re joking, we are completely serious. The only thing these four countries had in common when the term “BRIC” was invented was that their abbreviations made a word with a nice ring to it. (Of course, today they have disappointing rates of growth in common, but that is a topic for another day.)
Next, we had the “PIIGS,” consisting of Portugal, Ireland, Italy, Greece and Spain. These were the European countries hardest hit by the 2008 meltdown and subsequent sovereign debt crisis. Unlike the BRICs, the PIIGS actually had quite a bit in common. They all suffered from disturbingly high national debts and a lack of investor confidence in their abilities to pay it.
Now “Grexit” or Greek exit from the Euro zone dominates headlines. It is not possible to know whether or when Greece might be kicked out of the Euro zone. However, don’t be surprised if tomorrow’s news flash is that it happened overnight.
With Greece dominating the financial headlines, many investors are asking, “What would a Greek exit mean to my portfolio?” Though an understandable question, it is the wrong question. You shouldn’t spend an inordinate amount of time worrying about specific events like a Greek meltdown because you simply can’t anticipate every possibility.
Think about the Japanese tsunami and nuclear disaster last year. “Acts of God” like that can’t be anticipated, and neither can “acts of man” like a Grexit. This week, one of our peers returned from Athens and shared photos and videos. The main street of central Athens had two empty store fronts for every one that was open. TGI Fridays and Starbucks, while operating, were separated and surrounded by empty shops. It is very conceivable that you will see Athens burning in the weeks ahead.
Instead of focusing on whatever event or trendy acronym has caught the attention of the media, we are focusing on where the buyers and sellers are in the markets. Buyers have accumulating bonds. As a result, the Fixed Income asset class strengthened enough to add bond positions to your portfolio.
Economic uncertainty over China added to Europe’s woes has resulted in unusually high changes in our Dynamic Asset Evaluation rankings. Two months ago our risk concerns almost seemed unfounded. Today, not so much! The S&P-500 and DJIA are back to mid-January levels.
Last week a portfolio update was emailed to all clients. The update had charts showing the market shift into lower zones of risk. The current turmoil will provide opportunity to acquire portfolio holdings with improved pricing and much less risk than during the past half year.