Author: Bill Deshurko, 401 Advisor
Covestor model: Dividend and Income Plus
Just thought I’d get a thought or two in before Ben Bernanke and President Obama give their much anticipated speeches on the economy and job creation this evening.
It doesn’t matter what either of them say. Period. I will not make any investment decisions based on how eloquently either of them lay out their brilliant plans for economic recovery. There are two reasons for this, one minor but closer to home, literally. And the other is really THE major issue.
Reason Major: Europe. I am not an expert on international banking systems or the European Union’s economy. What I do know is that there just is not enough money to bail out Italy’s economy, let alone the dominoes that will fall along the way – Greece, Spain, Ireland, Portugal, maybe also Belgium and France. If Greece leaves the European Union (as in “Don’t let the door hit you in the — on the way out”) then it becomes very likely that the Euro dissolves.
And if that should happen? Love him or hate him, George Soros generally knows what he is talking about: “If the euro were to break up, it would cause a banking crisis that would be totally outside the control of the financial authorities. So it would push not only Germany, not only Europe, but also the whole world into conditions very reminiscent of the Great Depression in the 1930s, which was also caused by a banking crisis that was out of control.” (“SPIEGEL Interview with George Soros” 8/15/11 Spiegel.de http://www.spiegel.de/international/europe/0,1518,780189,00.html)
So how close is Greece, the lead domino, to default? As of 9/7/11, Reuters reports the two year Greek government bond is trading at a yield of over 60% (“Bunds up ahead of ECB, room for disappointment” Reuters.com 9/8/11 https://www.reuters.com/article/2011/09/08/markets-bonds-euro-idUSL5E7K80Z120110908). Nobody, individual, business, or country stays solvent with such a lack of trust in its debt. Greece is dead man walking.
Bottom Line: It doesn’t matter what the Fed, Congress or the President can come up with to jump start our economy, if Europe breaks apart. And since that seems like a true possibility, if not probability, we are staying minimally invested, short with ETFs, or hedged with short ETFs and dividend paying stocks in all of our portfolios, until we have some clarity from the other side of the pond.
Not only can’t Europe survive a Greek default, I’m not sure we can either, as weak as our economy is today.