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June 30, 2015

Greece! How a tiny country and their microscopic economy can cause such worldwide panic is a phenomenon that we cannot explain. The Greece situation is analogous to the State of Rhode Island defaulting on their municipal bonds. If Greece were to ultimately leave the Eurozone, it is unlikely to have a lasting effect on the overall European economy. The three countries that make up the largest percent of the Eurozone economy-Germany (20%), the U.K. (16%) and France (15%)-are all fairly stable.


We have seen this showdown before. Market shocks are always better opportunities to buy than bail. These events do not dramatically alter the course of global economic growth.


The European Central Bank (ECB) has been implementing a version of QE or Quantitative Easing (aka, a stimulus). Despite Monday's drop, the trend in European stocks is upward, and, we believe bullishness on European stocks will continue. Greece, hopefully, is just an "event".


The ECB has promised to do "whatever it takes" to improve the economy. Regardless of the situation in Greece, the ECB is lending money at low interest rates and printing massive amounts of cash to stimulate European markets. Similar Quantitative Easing policies in the U.S., resulted in a seven-year bull market, overall economic improvement, higher home prices and employment growth. Despite Greece, the European continent is planning on experiencing the same growth.


On Monday, June 29, following European markets, the U.S. stock market declined as the market worried about Greece's escalating financial troubles. Negotiations between that country and its creditors took a negative turn over the weekend, as the Prime Minister failed to make an agreement with its creditors. Further problems, June 30th (today) marks a deadline for large payments on its outstanding loans, and the European Central Bank has also limited its emergency funding for the country. Note: the Greek debt is mostly owned by organizations like the International Monetary Fund (IMF) and the European Central Bank (ECB). Most privately held debt was restructured a few years ago. This fact should also lessen a market impact.


In an effort to prevent a run on the banks, Greece closed the nation's banks. The Greek government also announced that the country's stock market and banks would remain closed until Monday, July 6. The government also instituted "capital controls," including a 60-euro-per day limit on ATM withdrawals.


Greek Prime Minister Alexis Tsipras broke off talks late Friday night (June 26), which sent markets spiraling Monday morning. On Tuesday, Greece will get cut off from international rescue loans for the first time in more than five years, and Greece will default on a large IMF payment (the 1.55 billion euro or $1.73 billion) due the same day.


After the failed negotiations, Greek Prime Minister Alexis Tsipras declared July 5 "referendum" day on the EU's latest offer. Referendum means a vote by the citizens of Greece on whether to accept the terms of the latest bailout offered.


A "yes" or "no" votes are both complicated outcomes. A "no" vote on the referendum would be interpreted by many as the end of the effort to save Greece from bankruptcy resulting in an exit from the European union. However, a "yes" vote wouldn't necessarily save Greece, because no one trusts that the Alexis Tsipras government will implement a set of austerity measures. The outcome of the vote might also mean a potential end to the current Tsipras government. If that happens, the country may either have elections or a coalition government may be formed. Expect pandemonium in the streets of Athens. Thank God, this is an insignificant market economy (less than 1% of world's economy). Our hearts goes out to the citizens who live there though.


We believe the Greece situation will be resolved, and Greece will remain in the Eurozone. Despite the noise you read in the newspapers, European politicians desperately want to keep the Eurozone intact. They've spent decades building the union. A member leaving the union would be a disaster to this governmental experiment. While we do not know the future, crazy things can happen in the world and world markets from time to time. Hopefully, Greece and the rest of Europe will not let their disagreement lead to disaster.


If a so-called disaster occurs, we anticipate markets will decline in the short run and the central banks around the world will quickly respond with giant monetary stimuli. At which point, it should bode well for markets.


We will continue to monitor the situation in the Eurozone. We do not recommend making any moves at this point in time, especially for investors who have a longer-term view.

Please advise us promptly if there are ever any changes in your financial situation or investment objectives.


Feel free to give us a call at 888.797.9009 if you want to discuss anything further.


Happy Independence Day!

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