View - investment newsletter winter 2012

Welcome to our winter edition of Views. In this edition, we have provided an update on the continuing debt crisis in southern Europe and examine in detail how we see the crisis potentially panning out.
There have been many commentaries comparing the current market pullback to the one experienced last year. Certainly from a timing perspective it seems to be a case of déjà vu.

The underlying issues are predominantly the same and the outlook is also difficult and lengthy to resolve at best. 

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What to make of the Greek Election

Hold off on the Champagne!

While the recent election in Greece provided victory to the pro-bailout parties, the win was not convincing showing the obvious disharmony and split of opinions between its citizens. What the election did achieve was to relieve markets of the uncertainty surrounding the future of Greece within the Euro, at least in the immediate future.

From a political standpoint, the new government will need to regain some of the confidence lost over the last couple of years before it can implement any measures to take the economy out of its current mess.

From an economic standpoint, solid restructuring needs to be undertaken as the underlying issue of Greece’s heavy debt burden is still unresolved. The market gave an immediate cheer by sending most markets upwards straight after the election win. However, any relief of this sort will only be short-term, as the hard work has only just commenced.

The austerity measures to reduce government debt from 160% to approximately 120% of GDP by 2020 will be difficult at best. Greece needs its citizens to get back to paying their taxes and for the government to be frugal and disciplined at the same time. Only time will tell if Greece will continue to hold onto its spot inside the Eurozone.

This blog is brought to you by Financial Decisions, a leading financial planning firm offering a diverse range of services that include investments and superannuation, personal insurance, estate planning, mortgages, tax planning and family office.  Please call us today and take control of your financial future.

Greece - To default or not to default

There was a small but interesting article this week in the Australian Financial Review in relation to Greece. With the recent initial public offering of Facebook, the hundreds of millions of younger generation, tech-savvy individuals can even provide their two-cents worth on the Greek crisis through this social media. Amid all the “Greece bashing” about whether or not it should exit the Euro, it is worth looking back at history.

The last time that Greece had fallen into hard times and defaulted was just prior to the start of World War II. In fact, Greece has been bankrupt and defaulted five times before. More alarmingly, Spain has defaulted 19 times with the last time also being during World War II. These figures demonstrate that over the longer term, the world will continue to prosper and these countries may come back again with some form of balance sheet.

Unfortunately, markets have a short-term focus. That’s just the reality. There is no doubt that there will be some significant knock-on effect from any default in the near-term if Greece defaults. Our main concern about this knock-on effect is not about the actual event itself, but about the globalised world we now live in. The threat of contagion and massive market volatility can be triggered by a single click these days. In our view, technology and the psychological aspect this plays on investors is even more far reaching than the event itself of whether or not Greece goes bankrupt.

This blog is brought to you by Financial Decisions, a leading financial planning firm offering a diverse range of services that include investments and superannuation, personal insurance, estate planning, mortgages, tax planning and family office.  Please call us today and take control of your financial future.