The latest deal to rescue the ailing nation will shape the fate of global markets for the next few months. Here's how it could affect your portfolio, writes MoneyShow's Jim Jubak, also of Jubak's Picks.
Let's say Monday's deal on rescuing Greece—again—holds together. Germany's Bundestag votes yes on the deal. Enough private holders of Greek debt decide to take the buyback offer to make the International Monetary Fund happy. Greece actually gets 42.5 billion euros—$55.1 billion US—in December, enough to recapitalize Greek banks and to enable the Greek government to pay suppliers that haven't seen a drachma—I mean a euro—in eight months.
Then what? What does the Greek deal mean for financial markets?
And nearer to home, what does the Greek deal mean for your own portfolio?
Off Center Stage
Usually the answer to that question begins and ends with what's going to happen in Europe? Will Spain go bust or break up? Will Ireland continue its recovery? Will France join the PIIGS—the troubled nations of Portugal, Ireland, Italy, Greece and Spain—even as Greece drops out (to turn PIIGS into PIIFS)?
But let's call a ham a jamón and admit that Europe isn't exactly the center of the financial action anymore, even if it isn't in crisis. It's not, after all, as if anyone is expecting any economic growth out of the Eurozone anytime soon. Greece, Spain, Italy, and France are in recession and likely to stay that way for a while.
But that doesn't mean the Greek deal isn't extremely important to your portfolio. In fact, the Greek deal and the (temporary) move of the euro debt crisis from boil to simmer will be the defining event (or the defining nonevent, if you will) for global financial markets for the next few months. The Greek deal doesn't mean you want to invest in Europe, but it does point the way for where you do want to invest.
10 Things We Get from Greece
I can think of 10 ways that the Greek deal will shape success and failure in global financial markets over the next few months.
- The move of the euro debt crisis to the back burner will reduce the demand for safe-haven currencies such as the yen and the dollar. Oh, I don't expect the euro to soar—everyone knows the Greek deal didn't really fix any of the Eurozone's long-term problems. But a move up from the Nov. 28 close—when one euro equaled $1.2891 US—to something like the $1.3084 of Sept. 18 or the $1.3214 of April 30 is certainly possible. BNP Paribas projects $1.33 for the euro by the end of 2012. That move isn't so big in itself, but any move up in the euro raises the possibility that traders selling euros to buy yen or dollars could see a loss. And that would be enough to restrain the flow into the yen and the dollar.