How The US Markets Got Greece'd

The US has officially become the tail of the dog. Our markets are being held hostage to the Euro zone, Spain and now Greece specifically as we head into the weekend. The Greek elections happen on Sunday and we should have an idea of the outcome by 3pm our time EST.

The economic news at times seem at odds domestically. The economy is ok, not stellar by any means but we appear to continue to just slog along in a 2% to 2 1/2% growth rate. Retail sales have held up well even as job growth has hit a soft patch. I'm still waiting to see if we are setting a trend with the jobs figures as we seem to be getting conflicting signals. On the monthly reported non-farm payrolls we've seen a few months of disappointing growth of +69,000 in May, 77,000 in April and 143,000 in March after averaging 226,000 in the first quarter, while real time figures on weekly unemployment claims have settled in a recent range of 265,000-286,000. Also, car sales are hitting close to a 14 million run rate and finally, home prices and sales seem to be in a bottoming pattern. Another positive just released today was data from FTR that showed their index of US truck loadings inched up 3% to 115.9 the highest since 2008 which would go hand in hand with a modestly expanding economy thesis.

However, we don't live in a vacuum and the global economy is feeling the effects of a weakened EU economy. The EU has stumbled along with their response to the "unions" crisis. Push has finally come to shove and the line in the sand to ring fence the potential contagion should come shortly. The fear has become reality. The financial market lockout threat of the PIGS has gotten to the S, Spain the EU's 4th largest economy and threatens to move onto Italy. Either the Euro will exist or it won't. Germany is finally blinking as they've lost one of their austerity champions in Sarkozy and France. France with new leader President Hollande realizes austerity must be coupled with growth initiatives as austerity alone has exacerbated the zones painful contraction and with it the threat of a full blown protracted recession. The markets action today is in response to rumors of a planned Euro rescue fund along with the Greece election polling and results swirling about. Another positive recently we've seen a reversal by hawkish global central banks in China, India, Brazil and Australia to ease lending to help jolt their own respective economies.

So, while I'm much more concerned than earlier, I still see enough good news out there to warrant a balanced allocation approach to the market substituting treasuries with high yielding preferred securities.

One last note. Our recommended high yield portfolio has provided an excellent cushion and ample income for our clients over the years that had been willing to accept the volatility. In the past banks were allowed to own the very preferred securities we do as part of their capital base. That changed with the financial crisis which partly helps explain why these still yield close to 8% in some cases. I am constantly on watch for other income opportunities in bonds, REITS or other quality high yielding investments that are appropriate and fit our needs. As banks and other issuers heal I'm sure they'll look to retire or "call" some of our holdings which we'll then need to reinvest. Some have already been called away, but we've been fortunate in that the recovery has been less than robust which keeps that pace manageable. As part of a balanced portfolio swapping out treasuries yielding 1 1/2% -1 3/4% for high quality preferreds yielding 7 3/4%-8% makes for a good base to build upon.

We'll be watching closely on Sunday for election results, the details of an EU rescue fund and for signs the Big Dog has got its swagger back.


Yours in pursuit of the KWAN!!