When you said you'd always wanted to see the ruins in Greece, this wasn't quite what you had in mind. Greece's debt crisis has a number of investors worldwide calling out S.O.S. The Eurozone is calling against a contagion (which we'll explain shortly), and we investors at home are calling our advisors for a clue as to what this means for our portfolios.
If you feel like the response you're getting is all Greek to you (pardon the pun), we have you covered. We caught up with FOX Business Network’s Trish Regan to unearth just what Greece's debt means for us international investors and what we can expect to see in terms of portfolio impact. Here's what she had to say...
What Greece's debt crisis means for us all - as explained by FOX Business Network’s Trish Regan...
- Investors are used to hearing the word "risk" when talking markets, but now we're starting to hear the word "uncertainty" floating around. Can you describe what that means for the average investor?
There’s a lot going on in the world right now. The U.S. economy is struggling with an anemic economic recovery, jobs aren’t paying well, the Eurozone is on the brink of a breakup, and there is weakness in China’s economy. U.S. markets have been on a tear for the last several years, in part because the Federal Reserve has left interest rates unchanged for so long - but these global headwinds are causing people to question the fundamentals. The Fed has created an environment that has forced investors into riskier and riskier assets. As such, it’s unclear how long the party will last. So yes - there is plenty of uncertainty right now!
- We know a portfolio is only as strong as its asset allocation mix. Which portfolios might we see impacted most by the news? Which should see the least amount of impact?
Diversification is always critical. Portfolios with exposure to Europe may take some pain in the coming weeks. In the meantime, if the Fed were to indicate that it will move rates higher, investors may decide our market is overvalued. If so, the tech sector could be negatively affected.
- GGF: We can expect advisors are getting a flurry of calls from their investors during these times. What are the right questions investors should be asking?
The big questions to be asking are: What’s my exposure? Am I diversified enough? Should I be considering this a buying opportunity?
The danger always is that people sell when they shouldn’t (when the market is low) and then buy when they shouldn’t (when the market is high). You just want to make sure you don’t overreact.
- GGF: We know the news could point international markets in a number of ways - but we're still not clear on just what those various scenarios may look like. Could you elaborate?
The key issue is: Will Greece stay in the Eurozone - and, if so, what kind of deal can it broker with the Europeans? The danger here is the moral hazard argument. If Greece gets a sweetheart deal, then what is to stop Spain, Italy and Portugal from wanting the same? There are also serious worries about contagion. In other words, if Greece leaves the Eurozone, then there could be others that follow.
- GGF: We know a number of import and export trades have been disrupted by the news as well. Do you expect this to cause a rippling effect across economic borders - or is Greece too small a player, as some analysts are suggesting?
It doesn’t matter how small Greece is. The problem here is what Greece could do to the psychology of the marketplace. Again, it goes back to contagion. It’s not really Greece that investors are worried about - it’s the effect of Greece on the sentiment of every other country in the Euro.
- GGF: Money talks. What is now happening with Greece's monetary system - and what does that mean for the Canadian dollar, U.S. dollar and the Euro?
Greece is still in the Euro. As expected, the Euro has suffered against the U.S. Dollar and Canadian Dollar. The Euro is weaker because of Greece; if Greece leaves, then the Euro theoretically would get stronger. One of the challenges Greece has had being in the Euro is that it doesn’t have the ability to depreciate its own currency. Let’s face it: If it had its own currency, it would be able to depreciate in rough times and all would be fine. But - it can’t. And as a result, olive oil and Greek vacations are just too expensive.
- GGF: How will this impact international retailers?
It will have a negative effect on any multi-national company based in the U.S. The explanation is pretty simple: If you are a U.S. company selling overseas, not only are you trying to sell into a weak economy - your goods are more expensive due to the currency effect.
- GGF: What would you say is the bottom line here?
The Eurozone was a bad experiment. You cannot have an economic union without a political one. The sooner everyone realizes that, the better.
- GGF: Alright - so we may have to put off that Greek vacation for a little while longer. Thanks Trish!
Trish Regan joined FOX Business Network (FBN) as an anchor and markets reporter in April 2015. Regan is the anchor of The Intelligence Report with Trish Regan at 2PM/ET.