No one likes to see our hard fought gains on the stock market wiped out and as of last Friday we were 10 points below where the S&P/ASX200 index started the year. So the question is, how do we play the next four weeks?
Why four weeks? Well, that will take us to Sunday 17 June, which is when the Greeks have another crack at electing themselves a government. Over that time, the European Union and every other heavy hitting country will be trying to sort out this eurozone mess.
It’s good that the G8 met this weekend because it maximizes the time for the leaders of the world’s top eight economies to recognise their financial market interdependence and that collective action is needed to deal with Greece effectively, whether it stays with or exits Europe’s Monetary Union.
It’s good that 80% of Greeks want the euro, but it is bad that nearly the same 80% don’t want austerity, or at least the Germanic kind that has been dished out by Angela Merkel. If a new and improved kind of austerity that has more scope to encourage economic growth and job creation was put forward by EU officialdom over the next four weeks, then maybe the Greeks would elect a more workable coalition government.
So, how do we play it? If you are desperate for income, well you are either top-heavy in term deposits, bonds or good income-yielding stocks. Your income shouldn’t be threatened unless this euro-drama turns into GFC Mk II and even then the threat would be of a lower order.
If you are investing for growth, then you should think back to August and September of last year, which looked like a rerun of Armageddon, but was in fact a great buying opportunity. And a few weeks back was a good selling opportunity, which many might recall was when I suggested a sell-off was on the cards. For long-term players, we are in a ‘buying the dips’ situation and so you could get a bargain over the next four weeks. We have a dollar-cost-averaging situation where you can drive down the average cost of holding a stock you want to hang onto for the long term. A mate who bought Rio Tinto (RIO) at $110 has now brought his average cost per share down to $60, which is a good price for this stock when you look ahead a couple of years.
It could also be a good time to dump dog stocks for really good ones that will pay dividends and that will benefit from the eventual sorting out of the euro-debt disaster.
Greece leaving the eurozone is easier said than done; it would hurt stock prices, devastate the Greek economy and force the EU to embrace a US-style Troubled Asset Relief Program (TARP) to protect the banks. I don’t want to think about that, so I’m hoping the Greeks grow up and the EU gets softer on austerity and gets ready to help Italy and Spain beat this debt monster. The big threat comes from high interest rates for these two economies and that’s why a Bernanke-style solution has to be embraced.
Yep, its four weeks of fear and loathing ahead for us!
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