Greece is among the many factors influencing the markets as we enter the second half of 2015. Powerful lessons about indebtedness, labor, pensions, and politics are available to anyone willing to have a close look. As politicians struggle to negotiate a deal that will avert a missed debt payment, much damage to the Greek economy has already been done. Many talented and educated young citizens have left Greece right along with bank deposits. In fact, a steady flow of withdrawals have left Greek banks so vulnerable to failure that it remains uncertain if they will open for business from day to day (banks closed as of June 29, 2015). Just like refugees from the war-torn Middle East, capital seeks a home where it is not abused.
There is an eerie similarity between Greece and bankrupt cities right here in the US. Detroit, Michigan is the most notable among them. Problems that lead to bankruptcy are multidimensional for sure, but underfunded pensions show up at the heart of the matter with remarkable persistency. Now, pension reform remains as unpopular as ever but even uninformed citizens eventually sense a false promise. The humble rules of arithmetic apply even as they are ignored by elected officials.
Americans can celebrate the Fourth of July knowing that they can create their own pensions with an intelligent investment strategy. Investing is fully democratized. In other words, anyone can become a member of the investor class. The sky is the limit for those who place individual responsibility above the divisive politics of the day.
In closing, we would be remiss if we did not mention the Federal Reserve. When the Fed will move interest rates from what is essentially zero is difficult to predict. Economists at the TD Ameritrade Institutional conference in January forecast September as the month in which the Fed would begin raising rates. The overall consensus is that the self-described data dependent Fed will raise rates slowly and over a longer period of time than in the past. Investors are well served to expect a temporary price decline in bonds as rates rise, as well as elevated stock market volatility. In the meantime, a properly balanced portfolio can absorb both. Now is as good a time as ever to review your portfolio with us to make sure you are on track to meet your goals. At ASG, we are committed to goals-based investing as we monitor portfolio performance and recommend adjustments accordingly.