3Q15 Greexit and Economic Update

The year-to-date returns for the quarter ended are positive, but not by much. The broad US Morningstar Index was up 1.85%, the DOW .03%, and the S & P 1.23%. The Small Cap sector lead the way with a 3.59% return. Volatility is an important factor this year. The returns just a few weeks ago when the DOW was 18,000+ were around 5%. So why the drops and rapid recovery’s? There are several reasons people talk about; the true unemployment numbers, market valuations and Greece, often called the “Greexit”, referring to Greece leaving the European Union. I believe it is the latter. Valuations are reasonable given our low interest rate environment. Stock dividend yields were higher than the yields on the 10-year US Treasury until a few months ago. This has not happened since 1957. With unemployment, the real number of people not working vs the government figure is troubling. However, it is getting better. The rest of the economy is continuing its slow improvement. That leaves Greece. Beware of Greeks bearing gifts, so goes the sayings from several sources about the Trojan Horse. Greece has the dubious award of being the first developed country to default on a loan from the IMF (International Monetary Fund). They missed a 1.73 billion payment due last Tuesday. Greece owes a total of 245 billion Euros for its bailout. They have additional payments of 32 billion owed later this year and next. When you consider this is their 3rd bailout in five years you get the picture. Thus all the speculation on will they actually default (they just did) and leave the EU. I think they will default after several “saves” and then leave. Greece is a small country from an economic perspective and the fallout from their default and leaving will cause lots of noise but the pain will mostly land on the Greek population. Detroit and now Greece are good examples of beware of what you vote for because there are consequences. No government can give you anything that you are not willing to eventually pay for.

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