The Big Chill

Individual U.S. investors feel the tumult of the troubled Eurozone



COMSTOCK IMAGES

Until recently, when most Americans thought about Greece or Italy, they were planning cruises to the Greek Islands and wine-tasting trips through Tuscany. That changed dramatically when the Eurozone’s debt crisis began affecting U.S. investors.

On Nov. 9, before Italy’s Prime Minister Silvio Berlusconi stepped aside, the Dow fell almost 400 points. When the news of his resignation broke two days later, stocks soared almost 300 points. Reuters’ headlines ranged from “Wall Street sinks as European debt plight worsens” to “Wall Street gains on Italian reform.”

A similar scenario unfolded the prior week. U.S. markets took a beating as Greece’s economy was crumbling into default. Then Lucas Papademos, former vice president of the European Central Bank, became Greece’s new prime minister, overseeing an interim government, and stocks responded favorably. It was clear to those who understood the global economy that Greece was a symptom of greater problems facing the Eurozone.

Many individual U.S. investors didn’t personally feel the impact of the 24/7 global economy until they experienced the real-time bounce of the recent market.   

“I read a lot about the economy. I’ve known for some time Italy was a potential problem. Yet we visited there in September and were reassured when we saw how strong tourism was,” says Ned Roache, the Coachella Valley chapter chairman of SCORE. “The locals were claiming the economy was better because tourism had improved since last year. From what I saw, I think it has to do more with government programs than the economy. I’m a conservative investor with just a small amount of exposure in stocks, yet my portfolio has been impacted even with my conservative investing.”

Brian Amidei, managing director and partner of Hightower Advisors in Palm Desert, explains the Eurozone’s current problems this way: “Not every country in the Eurozone is on the same footing. Within the Eurozone, there is no central government, which I think is the biggest problem, so they can’t print money when they need it.”

Putting together a governing body that could issue new currency could take a few years. That’s time the ailing Eurozone doesn’t have. The 17 Eurozone countries are so closely linked that if one economy falters, a domino effect could follow. If France’s rating is downgraded, U.S. markets could fall even further, because large U.S. banks have exposure by holding French debt. U.S. banking and treasury officials are mum about the amount of debt they’re holding, but estimates range in the many billions.

“We see the U.S. markets trading exclusively on Europe’s problems, and the traditional fundamentals that make sense have gone out the window,” Amidei says.

“We know the U.S. banks don’t have a lot of Greek debt,” says Michelle Gibley, a senior market analyst at Charles Schwab & Co. in Denver. “We also know the French banks hold the largest amount of that debt, and that is where the problem lies.”

Another issue not often spoken about, according to Matthew Tuttle, money manager and author of How Harvard & Yale Beat the Market (John Wiley & Sons, 2009) is “Richer countries who are in good shape economically like Germany balk at bailing out Greece. The Germans feel, ‘We did things the right way, so why should we bail out countries that made mistakes?”

The good news is that Eurozone policymakers are waking up and acknowledging their banks need more capital to withstand losses and continue lending to keep the economies and banking systems up and running.

Comments to this website are moderated by staff. While all comments are welcome, we encourage all to be polite and please do use this system for advertising or business promotions. Any complaint towards a business or service should be directed directly to that business and not posted here. If anyone has a complaint that a comment is defamatory, please contact me at tmay@palmspringslife.com and I will take appropriate action promptly. Thank You

Add your comment:
Palm Springs Life

Related Articles

Top Lawyers

When a legal situation befalls you, the safest turn is to a trusted source for quality attorney referrals.

Intelligencer

Temple St. Clair’s exposure to European influences, so prevalent in her jewelry design, began well before she spent summers in Morocco and Bavaria and studied at a boarding school in Switzerland.

At Salton Sea, North Shore Yacht Club is Alive!

The 53-year-old North Shore Yacht Club is a midcentury modern treasure and a community treasure. The building, recently redeveloped by the County of Riverside, has become a thriving community center serving the residents of the North Shore community.

Intelligencer

Fabulous Figs, Old-Time Rock and Roll, Sunnylands for the Pacific Rim, and Toscana Country Club Sales Soar.

Women With Vision

The mention of Palm Springs usually conjures up images of Hollywood movie stars, a playground for the rich and famous, or the golf capital of the world -— certainly not a hub of women’s entrepreneurship.

Promotions + Contests

90 Days of Summer Romantic Palm Springs Getaway 2014

90 Days of Summer Romantic Palm Springs Getaway 2014

Experience the beauty, romance and excitement of the Palm Springs area when you enter to be the lucky winner of this romantic couple’s getaway
90 DAYS OF SUMMER Instagram Contest 2014

90 DAYS OF SUMMER Instagram Contest 2014

Win a fabulous Palm Springs weekend!

Win a fabulous Palm Springs weekend!

Each month, a first place winner will be selected to win a fabulous Palm Springs weekend!And, each month, three additional runners up will be selected to win a wonderful Palm Springs area Dining certificate!
2013/14 Best of the Best

2013/14 Best of the Best

Palm Springs Life’s annual Best of the Best. Readers tell us who their choice is for the “Best of the Best” of the Coachella Valley in over 40 categories.
Cartoon Caption Contest

Cartoon Caption Contest

Each month, we provide a vintage 1950’s cartoon illustrated by Alice Rovinsky. You are invited to submit a caption or vote for your favorite caption.
Enter to Win A Celebrate Dance Experience!

Enter to Win A Celebrate Dance Experience!

Enter just once for a chance to win tickets to one of the second annual Palm Desert International Dance Festival performances.