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Tuesday, July 3, 2012

GREECE is the word!

………or is it Spain?........Portugal?........USA?...

In the olden days it used to be said that sharemarkets were efficient (because all investors had the same information on which to base decisions), and that today’s news didn’t effect sharemarkets because the markets worked on expectations of the future.

In these modern times, you could be forgiven for thinking that these long-held truths no longer apply, as markets gyrate to the latest news reports issuing particularly from the European scene.

John reckons he can lay the blame for all the ups and downs at the door of the communications industry. In the 70s, 80s, and even the early 90s, news travelled relatively slowly, and economics was not a regular feature of our daily news broadcasts.

The spread of computers, the advent of the internet, and the development of broadband have led to a situation where news of what’s happening in the world of finance anywhere around the globe reaches us almost instantaneously.

Couple this ready access to information with a dramatic increase in the number of small investors who can trade with ease over the internet, and we have a situation where daily market movements can be determined by these small traders, while the larger, longer term institutional investors sit back, and watch and wait.

We’re lucky, aren’t we????

Anyway… Greece.

For now, at, least the election result has averted a messy Greek default and exit from the Eurozone, which would likely have had a contagious effect on other European economies. European leaders met on 28/29 June, to hopefully can devise an acceptable plan for a sustainable solution to their systemic problems.

As part of this meeting they agreed to allow aid to be delivered directly to struggling banks, rather than through national governments. The upside being that banks can be re-capitalised without adding to the debts of individual countries.

The leaders also agreed to set up a joint supervisory body for banks across the Eurozone and approved a $160 billion stimulus package.

Meanwhile, across the water, the US economy has been showing signs of slowing, and may take a further hit in the new financial year as planned budget cutbacks settle in. The saving grace here is that, compared to Europe, the US is not fragmented in the same way (even though the political parties can sometimes make it seem that way), and no one fears a credit default by the US government.

With all that said, expect market gyrations to continue for some time, while the financial world settles down and anticipated stimulus packages kick in. Invest in the downturn, and wait for better times.