When it comes to where we are in the economic cycle, expert opinions vary widely. Some experts think the economy could be headed for a double-dip recession, while others say it’s headed for a slow but steady recovery.

Rose was interviewed on this topic by Ben Baden, who wrote the following article published in Yahoo! News on June 21.

Article Highlights

• Be realistic.
  “The last of the last recovery dollars are being distributed out to the states and [it's] the end of the tax credits for home buyers, which were huge stimulators for the economy and helped it rebound last year,” says Rose Greene, certified financial planner with Rose Greene Financial Services in Los Angeles, an affiliate of LPL Financial. “It will not feel good, but it makes sense. This isn’t something that just happens when you wake up one day.”
• Don’t try to time the market.
  Greene says, investors shouldn’t gamble their money by trying to time the market. “The average investor needs to know that trying to time the market is a fool’s following,” she says. “We might get lucky once, but it will ultimately bite you.”

Read 5 Tips for the Average Investor on Yahoo! News, or download a copy saved as a PDF.

Why the crisis has Wall Street stressed.
Provided by Los Angeles Financial Planner, Rose Greene, CFP ®

It would be wonderful if the U.S. financial markets could “decouple” themselves from what is going on in Greece, Portugal and Spain. Unfortunately, the debt situation in these countries is like a ripple in a pond. The question is, how strong will the ripple ultimately be and will its full force reach our markets?

The problem. Greece, Spain, Portugal, Italy and Ireland are all carrying enormous debts. On May 1, the New York Times put up a chart breaking this down: Greece owes $236 billion, which believe it or not is the smallest debt among these five countries. Portugal’s debt stands at $286 billion – and it owes roughly a third of that to Spain. Spain carries around $1.1 trillion in debt, and its economy is in horrible shape (20% unemployment). According to the Bank for International Settlements, it owes $220 billion to France and $238 billion to Germany. Ireland has $867 billion in debt, with about 40% of that owed to the U.K. and Germany. Italy owes $1.4 trillion, including $511 billion to France (almost 20% of France’s GDP).₁

After the euro was launched, Greece had access to a whole bunch of cheap debt - and the country used it nonchalantly. In the years since the establishment of the euro, Greece’s debt-to-GDP ratio has remained repeatedly above 100%.2

Europe’s biggest banks are heavily exposed to these debts, and so are some of ours: names like Citigroup, Bank of America, Goldman Sachs, JPMorgan Chase and Morgan Stanley. In fact, these five banks have $2.5 trillion of cross-border exposure in the crisis, with Citigroup the most exposed. So you have potential risk to these banks, the euro, and the European and world economy.₃

The offer on the table. Fortunately, Greece has the chance to accept a $146.5 million bailout from the International Monetary Fund and the European Union in exchange for austerity measures (less government spending and a lower standard of living). This would help Greece avoid default – that is, having to renegotiate its debt and possibly assume more. (As a sovereign nation, Greece cannot go bankrupt.) Many economists think Greece will go into a deep recession (or depression) which could last most of the decade._2,4

The potential ripple. It looks like the bailout will be accepted by Greece and its EU partners. This means some confidence will return and other Eurozone nations with big debts will be slightly less threatened. However, Greece still has a risk of default.

Should Greece default even with the bailout, some major lenders in France and Germany would be hit very hard. They would have to raise capital ratios and reduce the frequency of loans. That would hamper economic growth in France, Germany and in turn across Europe. In coming months, the U.S. and other nations could feel the pinch from such a slowdown.₄

Keep in mind, Greece only represents about 2% of the Eurozone economy.2 In the roughest scenario, Spain or Italy defaults and the shock wave to European banks (and U.S. banks exposed to the debt) is significantly greater. What would happen then? A credit freeze across Europe? Diving stocks? A trashed euro? A flight to gold?

These are merely scenarios, not present realities – but in a nutshell, this is what had Wall Street biting its nails this spring.

So is the bailout truly a solution? It was unpopular throughout the EU, but the right step to take. The move certainly helped defend the stability of the euro; in fact, German Chancellor Angela Merkel and French President Nicholas Sarkozy have jointly pledged to preserve the euro’s value.₅

The worry is that other bailouts will be needed to preserve the fiscal health of other Eurozone nations. We all hope these

countries can effectively manage their debt levels, for the sake of the stock market and the economy in our country.

Rose Greene is a Representative with Rose Greene Financial and may be reached at www.rosegreene.com, (310)399-1200or rose@rosegreene.com.

This material was prepared by Peter Montoya Inc, and does not necessarily represent the views of the presenting Representative or the Representative’s Broker/Dealer. This information should not be construed as investment advice. Neither the named Representative nor Broker/Dealer gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information. petermontoya.com, montoyaregistry.com, marketinglibrary.net
 
Citations
1 – nytimes.com/interactive/2010/05/02/weekinreview/02marsh.html [5/1/10]
2 – sfgate.com/cgi-bin/article.cgi?f=/g/a/2010/05/07/investopedia44011.DTL [5/7/10]
3 – msnbcmedia.msn.com/i/CNBC/Sections/News_And_Analysis/_News/__EDIT%20Englewood%20Cliffs/Bove2.pdf [5/5/10]
4 – marketwatch.com/story/greek-president-the-brink-of-the-abyss-2010-05-06?dist=countdown [5/6/10]
5- washingtonpost.com/wp-dyn/content/article/2010/05/07/AR2010050701987.html [5/7/10]
6 – csmonitor.com/USA/Politics/2010/0428/Republicans-relent-clear-financial-reform-bill-for-debate/%28page%29/2 [4/28/10]

Overall, the buying and selling in the stock market has been balanced over the past month as the S&P 500 has remained in a range of 1090-1125. While there are many factors influencing our outlook for 2010, including the pace of economic and profit growth and the changes in global monetary and fiscal policy, we believe the buying power is likely to win out over the forces of  selling in the coming months.

Some Highlights:

- At the heart of it, all markets come down to buyers and sellers.

- Since March of 2009, buying from individual investors has been rising and may mark a multiyear turning point for individual investor inflows.

- Purchases of U.S. stocks by foreigners have risen back to the prior peaks in 2000 and 2007.

- The sellers include companies and insiders, or top executives, of S&P 500 companies.

- We believe the buying power of individual investors is likely to win out over the forces of selling in the coming months.

Weekly Market Commentary 01_04_10