Pattie's Blog: What to do amid market chaos
A man checks a stock exchange monitor in Milan, Italy, Monday, May 14, 2012. Italy raised (euro) 5.25 billion (US$6.8 billion) from the bond markets Monday as the country's borrowing costs remained steady.
Published Monday, May 14, 2012 2:21PM EDT
Last Updated Thursday, June 7, 2012 12:56PM EDT
If I had to think of two words to characterize this market…they would be "fear and loathing." The fear mounting regarding the outcome of Greece's election and the loathing associated with JPMorgan's $2 billion (maybe higher) loss.
Investors are angry and moving into the US greenback for a safe haven to wait out the storm. The problem is this storm could take months and maybe even years to resolve itself. Recent elections have created roadblocks in Europe and clearly there are challenges with a key question continuing to be, have the political leaders the will to follow through with the austerity packages already put into place?
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Nothing has really changed -- there continues to be sovereign debt issues, personal debt issues and labour problems.
Here is what we know for sure -- money is sensitive, mobile and scarce. That means dollars will move to where it is perceived to be the safest and there isn't a lot of money so it moves quickly and can leave the retail investor behind.
As we struggle with the fact Greece is unlikely to form a government and will likely be headed back to the polls on June 17th, investors are beginning to doubt that Greece will adopt the austerity package. There is a huge divergence of opinion here. What does seem clear is if they don't adopt the tough austerity measures the bailout package will not be an option.
European markets are trading at four-month lows today.
China in the meantime, has reduced the bank reserve requirement which allows for more liquidity to flow back into the system. While China has been slowing, if there is good news out there it is the fact we will likely see China grow around 7-8 per cent and it will continue to be one of the fastest growing economies.
Japan on the other hand is rebuilding after a very difficult year and in areas hardest hit like autos and tech we are starting to see a contribution to global growth and we may see GDP of around 2 per cent.
So as an investor I'm asking myself if there will be the political will to follow through with the austerity packages required for the bailout funding to continue as is? I'm reminding myself that valuations are cheap and the emerging markets are actually more in line with the developed world and we can't forget they are the leaders in technology. Resources are more attractive due to recent sell offs and telecom has positive cash flow.
We will all be watching Greece, Spain, Italy and possibly France. As a result, I'm proceeding with caution and may sit in cash a little longer. That is not to suggest I've sold out of our positions in the market. The markets were trading on company fundamentals which I believe still are very good with balance sheets very strong. What we are seeing is an investor who can no ignore the macro economic news.
So here is some speculation based on a number of opinions out there:
- Greece could exist the eurozone as early as next month – but then what?
- Large withdrawals from Spanish and Italian Banks with more money flowing into German banks
- Possibly huge draws on the ECB to keep European Banks from collapsing
- And the ultimate question – Are we going to see the end of the Euro?
- With all this speculation I'm sticking with quality investments, companies who are leaders in their industries, pay and continue to increase their dividend and I don't feel compelled right now to look for deals.
Pattie Lovett-Reid is the host of The Pattie Lovett-Reid Show which airs on CTV News Channel at 8 p.m. ET on Thursdays. You can also interact with Pattie directly during Lunch With Pattie, a livechat that begins at 12:30 p.m. ET on Thursdays at ctv.ca/askpattie