No alarm by Bogleheads over Grecian debt crisis?

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golfallday
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No alarm by Bogleheads over Grecian debt crisis?

Post by golfallday »

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?
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Post by tludwig23 »

I think the "some alarmists see..." part of your statement answers your question. Bogleheads have seen the failed predictions of these alarmists over and over and over, and generally fail to be moved by them.

I'm sorry you are terrified. You should sell securities until you get to the point where you can sleep at night.
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Re: No alarm by Bogleheads over Grecian debt crisis?

Post by Sidney »

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?
Nothing we can do about it. Try not to worry about things you can't control. Focus on those things you can control.
I always wanted to be a procrastinator.
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Post by FredPeterson »

tludwig23 wrote:I think the "some alarmists see..." part of your statement answers your question. Bogleheads have seen the failed predictions of these alarmists over and over and over, and generally fail to be moved by them.
And this kind of statement brings up the wonderful "but this time is different" argument.

Technically, everytime is different. But people like to make the argument "no its not" because its always worked out in the past. That just simply means its worked out in the past. It says nothing about this time and these conditions. Some would call it receny bias, or selection bias. Its worked out recently and its worked out in these select times but it says nothing about now.

To bring out the wonderful investing adage: "Past performance is no guarantee of future results"

This time is different? You better believe it is. Will it work itself out in the long run? Perhaps, but it may likely not play out very nicely and "the long run" might be too long for many people.
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Midwest_Investor
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Post by Midwest_Investor »

how much money are we talking about here, and how does that compare to the world GDP??
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Post by Ice-9 »

I don't think I qualify as a seasoned contributor, but my $0.02...

Thirty percent bonds, composed of 50/50 TBM and TIPS. If the alarmists are right and worldwide stocks go into a downwards spiral, it won't be fun, but I'll be selling some bonds and buying cheaper equities to return to this allocation.

It's all I can do if that happens, and while it very well could happen it's not written in stone as of today, so why should I write post after post worrying about it.
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Post by neverknow »

tludwig23 wrote:You should sell securities until you get to the point where you can sleep at night.
This is correct. Your allocation does not match your risk tolerance. Risk tolerance does not have a precise definition. It is a fuzzy concept, such as "things are okay" (what ever is okay - okay, is a fuzzy concept ... the word table or lamp is not a fuzzy concept).

Folks like to use the rule of thumb, 100 minus your age, or back when I began investing in the 80's 60/40 was considered middle of the road, but either of these guide lines, or others -- may not be right for you and your family at all.

Fix your allocation, so that you don't care ... either way, that the market tanks without you, or rockets higher without you. And to figure out just what this allocation is, may take you a lifetime to figure out.
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Erwin
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Re: No alarm by Bogleheads over Grecian debt crisis?

Post by Erwin »

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?
You are absolutely right should the key big countries do nothing. But, if for nothing else than for selfish reasons, specially the Germans, will not let that happen. Their future is so tight to each other that letting Greece fall would be as painfully for them. There is a terrific article in Times this week that may give you some idea of the potential impact to Germany should Greece be allowed to just go without protecting somehow the other risky countries, specially Italy and Spain, which are after all the reason that the world is so scared.
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Re: No alarm by Bogleheads over Grecian debt crisis?

Post by yobria »

golfallday wrote:Haven't noticed that concern amongst the seasoned contributors on these boards. Why not?
No more than I'm concerned about any other low probability event (eg being hit by a car today).

I'd focus on living a fulfilling life, and not worry that the sky is falling. It usually isn't.

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Taylor Larimore
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Stop being "terrified"

Post by Taylor Larimore »

Hi Golf All Day:
Personally, I'm terrified about what will happen when Greece defaults on their soverign debt obligations.
Perhaps you should stop listening to the media and your golfing buddies. :wink: Instead, step back and look at the big picture:

The US Gross Domestic Product in 2010 was $14,526,550 million. Greece had a GDP of $318,908 (less than 3% of US GDP).

http://wiki.ask.com/List_of_countries_by_GDP_(nominal)

I remember after WWII when ALL of Europe was in shambles. I have no doubt the world will survive no matter what happens to Greece.

Design a personal asset allocation plan--then Stay The Course.
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Post by ObliviousInvestor »

If you haven't read it before, I'd encourage you to read this post from nisiprius: http://www.bogleheads.org/forum/viewtopic.php?t=79939

Yes, a Greek default could happen. And yes, that would be a genuinely scary event. But never-before-happened, genuinely scary events are nothing new.
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Post by sschullo »

If Greece defaults sending a shockware throughout Europe and hitting the financial markets here, my 30% equity /70% bond allocation (TIPS, TBM, GNMA, Short and Intermediate Treasuries, investment grade and some MM) will work just fine. How do I know? Because it worked during the last crisis, was down only 15% and it RECOVERED.
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Post by Cloud »

Maybe Greece should default and get it over with.
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Re: No alarm by Bogleheads over Grecian debt crisis?

Post by Epsilon Delta »

mpt follower wrote:
golfallday wrote:Personally, I'm terrified about what will happen when Greece defaults on their soverign debt obligations.
You are absolutely right should the key big countries do nothing.
I worry that the key big countries will do the exactly wrong thing.

Greece is only a problem because it is a member of the Euro. If Greece still used the Drachma the default or devaluation of a small country could be taken in stride.

The Euro is more political statement than economic policy. Fighting over the ideals of European integration will do more harm than a Greek default. Remember that it took a civil war to change the US from plural to singular.
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Post by livesoft »

There is an article on the front page of Vanguard.com discussing Greece. What did it say?

For more fun though, read this: http://www.bloomberg.com/news/2011-09-2 ... pesek.html
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Post by Leesbro63 »

I agree with the sentiment of the replies here. It's another train wreck waiting to happen or not. There's nothing we can do about it other than pick an asset allocation that we can live with in the event the train actually does wreck this time. That being said, the real issue is not the magnitude of a Greek default, but the potential domino effect of the other PIIG countries.
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Post by bob90245 »

Crisis is not the exception, but the norm. I stole that quote here:
Larry Swedroe wrote:... we have 15 crises in less than 40 years, or about one every three years. Experiencing crises is the norm, not the exception. And note that this list isn’t even close to being all-inclusive. ...
Source: http://moneywatch.bnet.com/investing/bl ... ntent;col1
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Re: No alarm by Bogleheads over Grecian debt crisis?

Post by tadamsmar »

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?
A 50% drop in the SP500 is typically not of real concern to a Boglehead.

The only thing a Boglehead is concerned about is not being able to fund their retirement costs. A 50% drop would probably not disrupt this, depends on how long the market is down.

I suppose it might give pause to a Boglehead near retirement who is trying to retire with a nest egg of a certain minimum size at retirement. Might prompt delay of retirement or some short term belt tightening.

For younger Bogleheads, 50% drop due to a Greek default now would probably lead to a larger nest egg at retirement.
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Re: No alarm by Bogleheads over Grecian debt crisis?

Post by Sbashore »

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?
I'm sorry you're terrified, but look at the emotion as an indicator. The advice for you to review your risk exposure and adjust it is good advice. Where you want to be is to look on with interest at what is happening in the news, without any concern for what the implications are to your portfolio. Why? because your asset allocation is well thought out and you have the courage of your convictions. That should be your goal.
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Re: No alarm by Bogleheads over Grecian debt crisis?

Post by plnelson »

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?
At least the Greek crisis is a risk that can be foreseen. What about the risks you can't foresee? Read The Black Swan http://www.amazon.com/B ... 1400063515

The bottom line is that disastrous things happen and we all have the responsibility of making our portfolios as bullet-proof as possible. But worrying won't do you any good and you have to put your money somewhere, and no matter where you put it (including under your mattress) there are potential risks.
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Post by daytona084 »

I'm surprised no one has mentioned this yet... My IPS does not instruct me to take any action in the event of financial problems in Greece.

http://www.bogleheads.org/wiki/IPS
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a broken ankle in the presence of organ failure

Post by bobcat2 »

I am very concerned about economic problems in Europe. I am not very concerned about Greek debt problems, because the Greek economy is very small. Financial problems in the much larger economies of Spain and in particular Italy concern me greatly. If economic problems in those countries get out of hand we could see something very similar to the global financial crisis of 2008 in the relatively near future. I am not going to recommend what others should do with their personal finances in considering this possibility, but they should be aware that something very bad is possible.

Here is a portion of the WSJ report on Larry Summers addressing the annual Fall meeting of the IMF in Washington last Friday on the economic problems of Europe.
Larry Summers, the sharp-tongued former Treasury secretary and former White House economic policy coordinator, says the role of yesterday’s policymakers is to sound the alarm loudly enough so today’s policymakers act in time to avert catastrophe. So he did his best to sound the alarm loudly at Friday’s afternoon at a gathering of bankers, former policymakers and journalists in the ornate ballroom of Washington’s Willard Hotel....

“Our problems are as much intellectual as they are political,” he said, arguing that “a generalized misunderstanding has done and continues to do as much” to threaten global economic prospects as the obvious political tensions in U.S. but primarily in Europe, which he accused of “too much collective [fiscal] belt-tightening.”

The barrier to faster global growth, he argued, isn’t lack of capacity or skilled workers or ideas, but an overwhelming lack of demand. Calls for a return to fiscal virtue, if heeded, he said, would continue the currency economic downturn. “We are closer to the edge of a deflationary spiral than anyone would have anticipated six months ago.”

Referring to Greece, Summers said, “We are discussing a broken ankle in the presence of organ failure,” he said. “If a generous sovereign from Mars paid off Greek debt, the fundamentals of Europe in crisis would not be altered.” The creditworthiness of large European governments and of European banks is now being questioned, and that is crippling growth in Europe. The sign that Europe is grappling with its problems will be when the focus of European negotiations moves beyond the next chapter in the Greek rescue, he said.
Link to article:http://blogs.wsj.com/economics/2011/09/ ... od=WSJBlog

Here economist Robert Waldmann, who lives in Italy, comments on Summers' address to the IMF.
See I live in Italy. We aren't discussing a broken ankle in the presence of organ failure, we're discussing who the Prime Minister is screwing. Good fun and the US could afford it in the 90s, but not a hobby within the means of a country paying 400 basis points more than the Germans.

It is very painful to have to beg for help from Germans. It became even more difficult after the Italian Prime minister called the German chancellor a "colorful but unprintable vulgarity for gentle Boglehead sensibilities".
Link to full Waldmann comments.
http://delong.typepad.com/sdj/2011/09/g ... ilure.html

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Post by nisiprius »

:idea: Perhaps we should divide our attention to the financial news in about the same proportions as we allocate our investments... that is, if we are going to be true global citizens and invest about half our equity allocation internationally, maybe we should spend as much time reading the Financial Times as we do reading the Wall Street Journal, and maybe we should spend as much time worrying about a Greek default as we did worrying about a U.S. default.

(I'm even more ignorant about global finance than about U.S. finance. I'm 20% international, but I'm sure I spend less than 20% of my financial-news-reading-time on the international news. I only discovered the Planet Money podcasts recently and I must say I find them to be just excellent. Switzerland devalues the franc and they literally send someone to a storefront foreign-exchange office with one Euro to see how many francs they will get in exchange for it... I love it).
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Re: No alarm by Bogleheads over Grecian debt crisis?

Post by VictoriaF »

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?
It's all Greek to me :confused

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Post by Sidney »

the right formula is to urn enough.
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Post by Fallible »

I'm concerned about Greece, but it's highly tempered by the fact that I have no control over it. I do plan to read Michael Lewis's ("The Big Short") new book just out, "Boomerang," which includes a description of what would happen to European banks and other countries if Greece defaults.
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Post by kommisarrex »

Please delete if this is construed as "political," but the Economist had a throwaway line in one of it's articles last week that basically said the Germans were fully committed to a united Europe (and the Euro) because of Germany's previous adventures in WWI and WWII. The gist was if the Germans don't embrace a big European family they have a tendency to embrace one big German family.

Again, apologies for being off-topic, but I thought it was an interesting insight/opinion.
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Post by mamster »

Has Greece considered posting its portfolio over on the Help with Personal Investments forum? I have a feeling retiredjg and Landy could get everything straightened out for them.
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Post by cheese_breath »

I guess I'd really be worried if I lived in Greece. But compared to the world economy Greece's is a drop in the bucket. What concerns me more are the talking heads and columnists preaching armageddon who panic people into dumping their investments, thereby upsetting the natural functioning of the markets.
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Post by bob90245 »

cheese_breath wrote:What concerns me more are the talking heads and columnists preaching armageddon who panic people into dumping their investments, thereby upsetting the natural functioning of the markets.
Not to worry. It is the natural mechanism to transfer stocks from weak hands to strong hands. :lol:
Ignore the market noise. Keep to your rebalancing schedule whether that is semi-annual, annual or trigger bands.
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Post by Sidney »

mamster wrote:Has Greece considered posting its portfolio over on the Help with Personal Investments forum? I have a feeling retiredjg and Landy could get everything straightened out for them.
Greece doesn't have a portfolio :wink:
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Post by nisiprius »

kommisarrex wrote:Please delete if this is construed as "political," but the Economist had a throwaway line in one of it's articles last week that basically said the Germans were fully committed to a united Europe (and the Euro) because of Germany's previous adventures in WWI and WWII. The gist was if the Germans don't embrace a big European family they have a tendency to embrace one big German family.

Again, apologies for being off-topic, but I thought it was an interesting insight/opinion.
A recent Planet Money podcast, The dream of Europe and the Bailout of Greece, said much the same thing.
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Post by yobria »

kommisarrex wrote:Please delete if this is construed as "political," but the Economist had a throwaway line in one of it's articles last week that basically said the Germans were fully committed to a united Europe (and the Euro) because of Germany's previous adventures in WWI and WWII. The gist was if the Germans don't embrace a big European family they have a tendency to embrace one big German family.

Again, apologies for being off-topic, but I thought it was an interesting insight/opinion.
I think that's a bit like saying Americans have a tendency to embrace slavery. Right place, but wrong time, and wrong generation.

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Re: a broken ankle in the presence of organ failure

Post by 3CT_Paddler »

So is the issue that most of Europe outside of a few wealthy countries live outside their means or is the issue that the Germans and other wealthy countries might not foot the bill?

Everyone assumes that Europe is a more dangerous place without the Euro, but I think it is more likely to create problems if states are forced to yield total state sovereignty to an EU bureaucracy. The US was much more unified than the EU, and they had a bloody civil war. The monetary system is at a cross roads and their two options are --economic policy comments deleted--
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Post by TrustNoOne »

My impression is that no one is really that worried about what happens to Greece (other than the Greeks). The real fear seems to be that Greece is the loose rock that starts the avalanche.
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Post by Dandy »

International debt exposure and its impact on the rest of the world is beyond my comprehension. That is an example why I have a relatively conservative equity allocation and a decent allocation to Cash/CDs.

I can't say I am not anxious but don't have another credible plan so I stay the course.
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Post by Jacobkg »

I'm definitely worried about what's going on in Europe. What I'm not doing is changing my investment plan in response to this worry.
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Post by MossySF »

We've been hearing about possible Greece default for a year and a half now. If you're terrified about Greece and the effects on the PIIGS, you should have sold way earlier before the recent 25% drop (for Vanguard European Stock index). Seems to be a bit late to start panicking about it now.
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Post by m_j_paquette »

I'm alarmed that I might have to do tax loss harvesting, AND rebalance my portfolio, all in the same year. I'm just not used to that sort of intense activity.
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Re: Stop being "terrified"

Post by Noobvestor »

Taylor Larimore wrote:Hi Golf All Day:
Personally, I'm terrified about what will happen when Greece defaults on their soverign debt obligations.
Perhaps you should stop listening to the media and your golfing buddies. :wink: Instead, step back and look at the big picture:

The US Gross Domestic Product in 2010 was $14,526,550 million. Greece had a GDP of $318,908 (less than 3% of US GDP).

http://wiki.ask.com/List_of_countries_by_GDP_(nominal)

I remember after WWII when ALL of Europe was in shambles. I have no doubt the world will survive no matter what happens to Greece.

Design a personal asset allocation plan--then Stay The Course.
To give it a visual/investing spin, Greece is hovering right down there with Bermuda and Luxembourg with its .1% representation in Vanguard's Total World Index Fund:

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Post by BTDT »

A late night home intruder with a gun might 'terrify' me, but Greece defaulting, not even close. Concern yes, terrified no.
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Post by 3CT_Paddler »

It's not so much the Greece defaulting, as much as it is what Greece defaulting does to the balance sheets of Europe's banks.

And if the debt of Spain and Italy gets marked down significantly based on fear of a possible default, chances are pretty good that several large European banks will go down unless a large rescue package is brought together.
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Post by 3CT_Paddler »

Ryuns posted this on another thread. It's an interesting (and scary) Planet Money take on Greece...

http://www.npr.org/blogs/money/2011/09/ ... e-scenario

Edit: Fixed the link...
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Post by jebmke »

TrustNoOne wrote:My impression is that no one is really that worried about what happens to Greece (other than the Greeks). The real fear seems to be that Greece is the loose rock that starts the avalanche.
That's my take as well. Nobody knows the knock-on effects - especially with the potential that there are multiple layers of credit swaps that could unwind in an ugly way. Therein lies the problem - nobody really knows.

But it isn't changing what I do anyway so it is more a spectator sport.
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Post by Easy Rhino »

If I was despot of Greece, I'd think default would be the smartest option right now. The country's finances seem too broken.

I worry about inevitable financial panic that this would trigger. As we saw from '08, institutional investors are a bunch of nervous nellies. But I don't worry enough to change anything fundamental about my investments, because there doesnt' really seem to be anything useful to be done with them.
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Post by monkey_business »

To react now to what is going on in Greece is to violate Boglehead principles. Bogleheads don't actively adjust their investments based on what is going on in the news or what might happen.

Some of you express concerns stating something very bad could happen. When is that not the case? Something very bad can always happen, your investment portfolio should be designed with such an assumption. Is it that something very bad is more likely to happen now than normally? So what? Should someone shift their strategy because the chances of something very bad happening are now 10% instead of 5% (completely random figures)? What probability of very bad events should trigger a shift in one's investment strategy? Seems to me it's just market timing driven by the level of fear one experiences, i.e. not Boglehead.

I'd say if you're not a resident of Greece, just keep doing what you've been doing.
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Post by BigD53 »

The Europe mess won't concern me too much until if/when the domino effect starts taking place.

And even after all those countries are bailed out, they still may not change their ways. Just look at the US for example. :roll:

It concerns me. But I'm only half a Boglehead. :lol:
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Post by MP173 »

3CT:

Thanks for the link to the podcast. I think you have made a far more important point tho.

Who holds the Greek debt? All indications are that the European banks do. What will that do to their balance sheets? Do they have mark to mark accounting rules? In that case, are they already marking it down? Are the Eurobanks highly leveraged? Recall that one of the main issues in our meltdown in 08 was the highly leveraged conditions of our financial institutions.

As the album cover said "Who's next"? After Greece that is. If the PIGS go off to slaughter, the entire banking structure in Europe will no doubt experience great stress....and possibly reach us to a certain extent.

John Hussman's weekly blog often addresses the Greek situation and also places great overview in how we handled it. He has always asked the question as to why the bondholders are sacred.

Ed
awval999
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Post by awval999 »

kommisarrex wrote:Please delete if this is construed as "political," but the Economist had a throwaway line in one of it's articles last week that basically said the Germans were fully committed to a united Europe (and the Euro) because of Germany's previous adventures in WWI and WWII. The gist was if the Germans don't embrace a big European family they have a tendency to embrace one big German family.

Again, apologies for being off-topic, but I thought it was an interesting insight/opinion.
This is an interesting thought. Especially since WWII and the aftermath is probably still in the minds of the older, elected officials. Perhaps they feel they "owe" it to Europe to keep the Eurozone together.
richard
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Post by richard »

Greece and the problems in Europe generally, have the potential have a very very bad effect on the world economy, including the economy in the US.

There's nothing useful to do about your portfolio at this point, especially given how well known the issues are. It's not a coincidence that the 10 year treasury is under 2%, that 10 year real rates approximate zero and that equities are where they are.
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