Greek Overhang Weighs Down on Major Market ETFs

[Chart courtesy of MarketWatch.com]

Further uncertainty in Greece sent major market ETFs into the red, with the S&P 500 falling 0.54%. Despite weakness in equities and the Euro inching back down toward $1.30/Euro, gold and oil were on the upside.

The primary catalyst for the pessimistic mood continues to be delays surrounding the Greek bailout, or lack thereof. There has been talk that EU officials are trying to come up with a way to push the bailout into April in light of Greece’s political dissension.

As if playing a game with no end in sight, I’m afraid that Europe wants to keep pushing its problems out considering the amount of difficulty in arriving at a solution. With this in mind, market risk will most probably heighten significantly in the coming days.

Meanwhile, Germany’s patience with Greece is growing thin.  The German finance minister has highlighted that Greece needs to exhibit a specific plan and strong commitment in making further cuts of roughly $425 million. Although Greece has announced cuts, nothing is set in stone until the actual implementation. As we’ve witnessed in the last several months, it’s hard to accept anything that Greece says at face value anymore.

The cultural clashes between Greece and Germany as well as other Eurozone members are certainly coming to a fore. The Greek finance minister expressed his belief that other Eurozone nations want Greece to leave the Eurozone while the Greek president is angered that Germany wants to exert more control in the bailout process. Unfortunately, Greece doesn’t have much bargaining power given the amount of help they’ve already received from the rest of the Eurozone.

In U.S. economic news, there was some cause for cheer. Factory production went up in January while the New York manufacturing index also showed gains.

With regards to using monetary policy to stimulate the economy, it appears that the Fed is still unsure about proceeding with QE3 as some FOMC members remain skeptical of further quantitative easing. Regardless, we will be in a near zero interest rate environment until the end 2014 according to Bernanke.

Ultimately, a beneficial outcome in Greece will depend on overcoming political and cultural differences to achieve a compromise. Otherwise, international and domestic ETFs should be prepared to take a big hit. I know that we’ve positioned ourselves in case the downside scenario comes to fruition. Have you?

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