Second Quarter 2015 – “Contagion”
Equity markets ended the quarter with modest gains as investors’ attention shifted between crises in Greece, China, and Puerto Rico. During the month of June the aforementioned captured headlines on a nearly daily basis, while discussions about the timing and amount of the Federal Reserve’s first rate hike took a back seat. Undoubtedly, each of these crises has its own set of extenuating circumstances and risks, but long term investors have good reason to believe that their long term impacts can be contained. In the case of Greece, there is the risk of “Grimbo”, i.e. Greece failing to resolve its debt situation, but Greek Debt is primarily held by the IMF and the ECB making it likely that those organizations will bear the brunt of the impact. While, China’s domestic equity market correction has the potential to derail its growth; Chinese authorities have a very deep commitment to stability and a wide array of monetary and fiscal tools at their disposal which can be used to jump start economic growth. Unlike Greece and China, due to the number of entities involved and Puerto Rico ‘s status as a commonwealth, its debt problems don’t lend themselves to an elegant solution, but they also aren’t likely to spread across the municipal bond market as its situation is widely viewed as independent.