Greece and Europe Update

During the past few weeks, clients have asked how their investments might be impacted by the debt crisis in Greece and other European nations. While the outcome and potential consequences are still unfolding, there are a few things we know with certainty.

First, the basis of the crisis stems from the Greek government overspending.

Next, the primary issue now being debated is whether Greece’s elected officials will implement the necessary spending cuts. The May election has appointed some new officials that were opposed to the cuts and bailout program negotiated in February. The government is now divided about how to move forward and there is an unwillingness to agree to the prior bailout agreement. Since there is no elected majority party, Greece will have another round of elections this month. The outcome of the election could result in either Greece honoring the previous bailout agreement, an easing of the cost cutting specifications in the agreement or Greece deciding to leave the European Union (EU)

If Greece leaves the EU, some analysts believe that it will not create a domino effect with other countries dealing with big debt problems, such as Spain, Portugal, and Italy. This is because the governments of these countries are more willing to work with the EU in implementing the necessary cost cutting actions. It is also believed that a Greek exit would lead the EU and financial markets to create new measures to strengthen the remaining countries’ economies. These measures might boost confidence that a viable long-term solution is in place. Even if the Greek bailout program falls through, the central banks still have the ability to intervene to mitigate some of the financial disruption.

Regardless of what happens with the Greek elections, the economic situations in Greece, parts of Europe and in the U.S. are not healthy and need corrective action. Similar to households, governments cannot overspend nor expect that simply raising taxes without allowing for economic growth will reverse the current debt problems.

How is Sherpa Financial Advisors helping to protect clients’ investments? First, by understanding clients’ goals and risk profiles we’re able to position investments to align with each person’s situation. Next, utilizing Frontier Asset Management, an institutional investment manager, for clients’ stock and bonds positions has helped to minimize investment losses and protect the values of accounts during stock market declines. Finally, opportunistically investing in alternative assets classes, such as private debt, real estate and managed futures, has provided some growth and income opportunities. (1)

If you have questions or concerns about your account or how the current market is impacting your financial goals, please email or call me to schedule time to discuss. Similarly, please forward this email to anybody that would enjoy reading it or might benefit by speaking with me about their financial questions or goals.

Thanks.

Mike

(1) While this investment strategy has been effective with past market declines, no single strategy can guarantee a profit or protection against losses. Since investing involves risk, including the potential loss of principal, and each person’s situation is unique, it’s important for us to communicate often with each client so that we can implement a strategy specific to that person’s goals.