Subprime
Greece
Why do our markets care about protesters in Greece?
The financial world's focus is on Greece because that's where the
fire is. Greece may not be a big nation or a huge economy, but that matters
little. If fires are not put out quickly, they can spread out of control.
After all, subprime mortgages were just a tiny portion of the overall mortgage
market. Having witnessed the chain reaction of Bear Sterns, Lehman Brothers,
AIG, etc, it is not difficult to imagine how the dominoes may fall.
Instead of financial institutions with too much debt, this time around we are
dealing with governments with too much debt. Essentially, the government intervention
to rescue the financial system resulted in a massive transfer of debt from
the private to the public sector. The IOUs are still out there, just in different
pockets.
Markets are spooked because the list of countries with too much debt includes
not just Portugal and Spain, but also the UK and the US. The longer the situation
in Greece goes unresolved, the higher the likelihood the fire may spread around
the world.
How do these events affect my investments with
Fragasso Financial Advisors?
In November of last year we heard an alarm bell: the city state of Dubai announced
it would delay the repayment of $59 billion in bonds. Stock markets took a
brief tumble, but quickly resumed their march forward and by in large ignored
the event.
Believing that there was more to come in the sovereign debt story, we allocated
portfolios in a more defensive fashion. We did so in two stages: November of
2009 and March 2010.
The defensive positioning included:
- Increased allocation to absolute return, hedged type strategies
- Focus on higher quality dividend paying stocks
- More conservative allocation to international equities
- Reduction in emerging markets stocks
- Reduction in exposure to Financial Stocks
As a result, we believe portfolios are positioned to weather the storm much
better than the stock indicators seen on TV (S&P 500, Dow Industrials,
etc).
How can the Greek crisis be resolved?
As I was writing this newsletter on Friday (May 7, 2010), we believed
that putting out the fire will require the ECB (European Central Bank) to
follow in the footsteps of the US Fed. The ECB needed to go all out in flooding
the markets with money and liquidity by engaging in quantitative easing (purchases
of bonds in the open markets).
By Monday morning (May 10, 2010), the ECB has done just that in
a coordinated effort with the European Union. An unprecedented $1 Trillion
in emergency relief funds are forthcoming. Having the benefit of a blueprint
for action from dealing with the toxic mortgage assets crisis in the US,
this rescue effort is moving fast.
Despite the swift actions, the debt crisis in Europe is unlikely to be resolved
overnight. While the rescue package has the green light, the details of how
it will actually work need to be worked out. As in any intervention, there
will be unintended consequences. The crisis may still morph and possibly spread.
The road ahead may well remain bumpy for a while.
We believe it is prudent to remain defensive at this point. We continue to
evaluate what areas are most likely to be negatively impacted and opportunistically
trim them.
There will come a time when we will reverse our defensive stance. After any
crisis there are many opportunities to find good values. As we have done before,
we will be on the lookout for investments likely to benefit during the eventual,
inevitable recovery.
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Eliminate
Paper LPL Statements & Shareholder Communications
To turn off your paper statements and quarterly advisory reports from LPL
Financial and view online:
1. Log on to LPL Account View via our web site www.fragassoadvisors.com
2. Select the Statement Tab. 3. Select the Paperless Option Button.
4. When consent form appears, select Agree
5. Place a check mark next to the Selected Accounts and select Done.
You will continue to receive 1099 and tax related statements by paper.
Statement notices will now be sent by e-mail instead of regular mail. You will
receive an e-mail from LPL confirming paperless.
To turn off shareholder communications including fund prospectus, annual reports
and proxy statements and view online:
1. You will need to have your LPL Financial Account numbers available.
2. Log on to:
https://www.icsdelivery.com/
lpl/formNew3.asp
3. Enter your LPL Financial Account Number on the right hand side.
4. Enter your e-mail address and pin.
5. Click Submit.
You will be notified by e-mail when these communications become available on
the Internet. Printed copies of these communications may still be requested.
Documents that are not available on the Internet will continue to be sent to
you by mail. You will receive a notice in the mail that you have requested
this option and be asked to log on to activate the process.
As always let us know if we can help in any way.
Enhanced
Security for the LPL Financial Account View
Providing you with valuable account tools like the LPL Financial Account View
is important, but protecting your personal information is even more important.
With that in mind, we are pleased to let you know about some upcoming security
enhancements being made to LPL Account View that will further protect your
personal account information.
These security enhancements will become effective May 22, 2010 and include
the following key measures:
• For 30 days beginning May 22, you will be prompted to change your password
when you log in to LPL Account View. If you do not log in and create a new
password within the 30 days, your old password will expire and you will need
to follow the new temporary password procedures (see next bullet point).
• The password hint feature that allowed you to retrieve your password by
successfully answering hint questions will be removed and replaced with a more
secure “Forgot my password” procedure in which a temporary password will be
emailed to you.
• Any temporary password you receive will no longer be sent to our office,
but will ONLY be emailed directly to you.
Please make sure that your email address is updated and accurate in LPL Account
View as soon as possible by clicking on the My Profile tab located in the upper
right-hand corner of Account View.
Please contact your advisor if you have any questions.
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