No alarm by Bogleheads over Grecian debt crisis?
One small thing I find sort of humorous about the situation... I know some people in Europe who have spent the last three years whining about how the whole word economy was supposedly ruined by the US... Now they seem to be strangely silent. But I'm sure it will still end up being our fault somehow. :-)
Re: No alarm by Bogleheads over Grecian debt crisis?
For me: I have no special inside knowledge about the Greek situation. I assume all the available information is already accounted for (discounted) in the market, so anything I do would be a guess.golfallday wrote:Personally, I'm terrified about what will happen when Greece defaults on their soverign debt obligations. Very little transparency as to who those bondholders are and how much exposure US has to the worthless paper. Some alarmists see global runs on banks and SP500 tanking >50% when the floor-trapdoor is sprung.
Haven't noticed that concern amongst the seasoned contributors on these boards. Why not?
Of course I am concerned about the situation. But, I see no justification for me to take special action. In the words of the great Dr. Deming, "How could I know?"
Keith
Déjà Vu is not a prediction
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Re: No alarm by Bogleheads over Grecian debt crisis?
There is nothing wrong with being alarmed. The question is what to do. I still believe in being diversified and sticking with your asset allocation. That is what I am doing.golfallday wrote:Personally, I'm terrified about what will happen when Greece defaults on their soverign debt obligations. Very little transparency as to who those bondholders are and how much exposure US has to the worthless paper. Some alarmists see global runs on banks and SP500 tanking >50% when the floor-trapdoor is sprung.
Haven't noticed that concern amongst the seasoned contributors on these boards. Why not?
However, I do have an allocation to precious metals and find comfort in the protection it can give to threats coming from currency problems...something I think the debt crisis world over is pointing to.
Whatever you do, just make sure you have an asset allocation you believe will provide the necessary diversification. What else can we do, financially speaking? Market timing has never been my talent.
I'm not sure why, time after time, people point to Greece's GDP as somehow the key piece of information in this whole issue.
Everyone knows that Greece's GDP is tiny in the relative scheme of things. If Greece wasn't part of the Euro, this would be a non event. Period.
Except, Greece is part of the Euro. That's the whole point. And because it was part of the Euro, it experienced major capital flows into its economy. That was when everyone believed that all Euro country debt should be priced, in terms of risk, exactly the same way (or thereabouts). So lots of Greek debt got financed, by... major Greek (big problem for Greece, not for everyone else), German, and French (big problems) banks. One other small problem. Greek bonds, like the rest of the Euro countries, had its soverieign debt rated as riskless by Basel... So, the banks in question could lend to Greece to their hearts content, say it was riskless, and use it as part of their highest tier, no way no how default risk, asset capital base.
And then it all came apart. Greece will default, one way or another. Who knows when. And when it does, the hit to the Greek banks will be enormous (insolvent, which they already are, will become acutely obvious). Likewise, the hit to many major lenders in Europe will be painful, though not, in and of itself, crippling.
So here we are. GDP is NOT what matters. It is counterparty risk. It is credit contraction.
I don't trade on this or change my IPS, or asset allocation. But it does matter to remain curious and understand what is going on.
http://streetlightblog.blogspot.com/201 ... -part.html
http://streetlightblog.blogspot.com/201 ... olicy.html
Everyone knows that Greece's GDP is tiny in the relative scheme of things. If Greece wasn't part of the Euro, this would be a non event. Period.
Except, Greece is part of the Euro. That's the whole point. And because it was part of the Euro, it experienced major capital flows into its economy. That was when everyone believed that all Euro country debt should be priced, in terms of risk, exactly the same way (or thereabouts). So lots of Greek debt got financed, by... major Greek (big problem for Greece, not for everyone else), German, and French (big problems) banks. One other small problem. Greek bonds, like the rest of the Euro countries, had its soverieign debt rated as riskless by Basel... So, the banks in question could lend to Greece to their hearts content, say it was riskless, and use it as part of their highest tier, no way no how default risk, asset capital base.
And then it all came apart. Greece will default, one way or another. Who knows when. And when it does, the hit to the Greek banks will be enormous (insolvent, which they already are, will become acutely obvious). Likewise, the hit to many major lenders in Europe will be painful, though not, in and of itself, crippling.
So here we are. GDP is NOT what matters. It is counterparty risk. It is credit contraction.
I don't trade on this or change my IPS, or asset allocation. But it does matter to remain curious and understand what is going on.
http://streetlightblog.blogspot.com/201 ... -part.html
http://streetlightblog.blogspot.com/201 ... olicy.html
I think a good AA for someone who might do something drastic whenever they hear the gloom and doom newscasts is a 50/50 AA.
This way if the stock market loses everything you still have 50% of your savings. If the stock market does well, you also can benefit from the bull market.
Scott Burns invented this portfolio where he advises 50% in Vanguard S&P 500 or Total Stock Market Index and 50% in the Vanguard Total Bond Market Index.
Pick a date once a year and rebalance to the original 50/50 AA and don't look at it for another year. This is the only portfolio you will need for your natural life.
Here is a link for more info:
http://www.investopedia.com/articles/mu ... z1ZKAqaJ1t
This way if the stock market loses everything you still have 50% of your savings. If the stock market does well, you also can benefit from the bull market.
Scott Burns invented this portfolio where he advises 50% in Vanguard S&P 500 or Total Stock Market Index and 50% in the Vanguard Total Bond Market Index.
Pick a date once a year and rebalance to the original 50/50 AA and don't look at it for another year. This is the only portfolio you will need for your natural life.
Here is a link for more info:
http://www.investopedia.com/articles/mu ... z1ZKAqaJ1t
And ironically... That's the one thing that eventually happens with everybody, to make it end. :-)jh wrote:No, I'm not concerned. When the whole great recession thing started out I was scared, and it stressed me out a lot. However, this crap (the great recession, greece, jobless recovery, etc) has been dragging on so long it has worn me out to the point where I no longer give a damn.
I really don't pay any attention to it any longer.
If you read the Guardian, the standard claim is that a derivative deal with Goldman Sachs allowed the Greeks to hide the size of their budget deficit, thus European banks who lent to Greece were unaware of the size of the risk they were taking. So yes, they've already found a way to blame the odious Americans for their problems.dave66 wrote:One small thing I find sort of humorous about the situation... I know some people in Europe who have spent the last three years whining about how the whole word economy was supposedly ruined by the US... Now they seem to be strangely silent. But I'm sure it will still end up being our fault somehow.
Oh, well there you go! I knew it had to be our fault somehow. The world would just be such a better place without us. ;-)plnelson wrote:If you read the Guardian, the standard claim is that a derivative deal with Goldman Sachs allowed the Greeks to hide the size of their budget deficit, thus European banks who lent to Greece were unaware of the size of the risk they were taking. So yes, they've already found a way to blame the odious Americans for their problems.dave66 wrote:One small thing I find sort of humorous about the situation... I know some people in Europe who have spent the last three years whining about how the whole word economy was supposedly ruined by the US... Now they seem to be strangely silent. But I'm sure it will still end up being our fault somehow. :-)
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Yep, without the US we'd be celebrating 70 years of European Unification.plnelson wrote:Oh, well there you go! I knew it had to be our fault somehow. The world would just be such a better place without us.dave66 wrote:If you read the Guardian, the standard claim is that a derivative deal with Goldman Sachs allowed the Greeks to hide the size of their budget deficit, thus European banks who lent to Greece were unaware of the size of the risk they were taking. So yes, they've already found a way to blame the odious Americans for their problems.
I've never been a big fan of keeping part of my AA in international index funds. However, several years ago I finally decided to put 20% of my investable equity assets into international index funds (partly due to my readings of this forum). The rationale was that this would help diversify my portfolio. As far as I can tell, international funds certainly didn't help me during the 2008 meltdown since they melted down just as fast as the domestic funds (in some case even worse). Three years later they're melting down again. Perhaps in the long run they will prove a good diversifier but I'm somewhat sceptical. Part of my frustration is that I don't really understand the situation because it's much more difficult to grasp the economic dynamics of many countries than of the U.S alone. Greece sounds like a red-herring in the grand scheme of things. An absolutely irrelevant country that has defaulted on its debt 6 times in the last 100 years and that outright lied to ECB regulators about it's outstanding fiscal situation. It's GDP is so tiny compared to either Europe at large or the U.S that it's hard to believe that it's generated such a fuss. In the past, third world countries that found themselves in such a mess would devalue their curency which would, in effect, act like a universal tax. This is not an option this time since they are in the Eurozone which leaves various possibilities: default now, get booted out of the eurozone or receive a bailout and default later. Very few people actually believe that Greece will clean up its act and use the bailout to emerge from this crisis. Therefore, assuming that there will be a crisis of some sort ie: dropping a euro member, default etc do the other countries have good staying power? Are they financially stable enough to weather this setback and to come roaring back when the world economy improves? Or are they teetering on the brink as well? I for one don't know the answer, can't even begin to research the topic and don't really want to familiarize myself with the byzantine workings of a sytem that appears more political than economical. I will be curtailing my international exposure in the future and concentrating more on home turn which I can at least understand better.
I hear what you say, but the point is not so much the contribution to your return as it is the reduction in your risk. That's what diversification does. But, as a practical matter, it seems to be incredibly difficult to quantify in an actual portfolio.ilan1h wrote:I've never been a big fan of keeping part of my AA in international index funds.
Try this conversation at lunch: "Yes, you got 7.8%, but I got 7.5% with a lower standard deviation."
Last time you'll have lunch in this town! :lol:
Keith
Déjà Vu is not a prediction