Eros has left the building

Happy Valentine’s Day!  In honor of this, and since Greece continues to make the news, I thought I’d title this to commemorate both events (quick history lesson – Eros is the Greek god of love; Aphrodite is the goddess). Right now Greece is not on my Valentine’s Day gift list as news there continues to negatively impact things here, but I wanted to talk a little about what’s going on and give my opinion about what this should mean to you.

First, some demographics.  Greece is a country the size of Alabama with about 11 million people and has a very small economy (about ½ of one percent of the world’s GDP), one which barely registers with the other 14 countries in the European Union (EU).  Germany, the UK, and France combined make up 60% of the GDP of the EU, with the other 12 member countries making up the remaining 40%.  So you could say that the average of the other 12 is 3.5% each.  Greece is not even 3.5%.

However, how relevant is this information?  Not really, unfortunately.  There are still issues with Greece’s debt load, which is significantly larger (about 60%) than its GDP.  Although in the grand scheme (i.e., worldwide) of things Greece doesn’t have that much debt, there are many Greek banks, other countries, and non-Greek banks, which hold Greek debt.  Moreover, there are American (and other) money market funds with substantial investments in those same banks.  Worse still, there are CDSs (credit default swaps) that these same banks have used to insure themselves against such a loss, but these instruments are not transparent so there could be concentrations that would be harmful to those insurers – or maybe not, we just don’t know, and that’s the problem. So, if Greece goes down, this could possibly/likely impact more than just Greece.

I saw a reporter say, “Either Greece isn’t that big of a deal, or it just takes the tiniest spark to create a gigantic problem.”  I think the latter can be true, but not in this case.  It’s the difference between HAVING a leaky pipe and KNOWING that you have a leaky pipe.  Greece’s problems reached world headlines nearly 2 years ago, and measures have been, and continue to be, worked on to correct those problems by the IMF and others.  There will be news on Greece for years to come, but I don’t believe in the long run this will have a sizable effect on other economies.  Fear of the unknown drives the news and the markets, but a good long-term diversified investment plan should not be altered due to this.

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