Chris Kuflik - ScotiaMcLeod Montreal

“They must be crazy…this is no way to run a country” is a recent quote from a senior executive of one of Greece’s largest companies. This appeared in a Reuters article on Tuesday in response to Greek Prime Minister Papandreou’s decision to call a referendum and a confidence vote on the European bailout package that they had originally agreed upon last week. His surprise decision, which shocked both members of his parliament and the EU, caused global equity markets to sell off yesterday. What does this mean for your RRSP and cash investments?

The media has speculated as to the reasons for Papandreou’s snap announcement less than five days after he agreed to more austerity measures for Greece to ensure additional bailout funds. Faced with increased rioting by his people, he is pandering to his people with the hopes of remaining in power, but at the risk of enraging the other EU members who have pushed out a default on Greek bonds. Last night President Sarkozy firmly stated that the only solution for Greece is the one agreed upon last week.

It is no secret that the Greeks have been living well beyond their means for years, as evidenced by increasing debt levels while paying little in taxes. One example, found in an article in the Telegraph (click here to view article), illustrates this point. You should note that it was written prior to Mr. Papandreou’s announcement. It states that there are more Porsche Cayennes registered in Greece than taxpayers declaring an income greater than 50,000 Euros. With statistics such as these, which were compiled by a former head of the Greek prime minister’s economic office, who can blame the outrage of the other EU member nations? In addition, can you blame the BRIC countries, Brazil, Russia, India and China for not pledging money towards the EU bailout program? It is time for the Greeks to face reality and for the rest of the EU members to take a tough stance towards this problem. Should the EU not take a tough stance, while at the same time protecting their banks and other nations at risk – read Italy and Spain, the EU could be faced with having to re-negotiate with Portugal and Ireland.

If this were not enough, the Super Committee in the US, which is supposed to agree to cuts to the US budget by November 23rd, has yet to come to an agreement. No wonder some investors are ‘throwing in the towel’. This is a mistake. You should note that over 70% of the companies in the US that have reported earnings thus far have beaten expectations. Earnings are the principal driver of equity prices and demand for equities. I have been encouraged by some specific reports of the ‘building block’ companies. These companies, which include Caterpillar and basic material companies such as Teck Cominco, are telling investors that business is good.

As I previously stated, it would be a mistake to ‘throw in the towel’. While I agree that the volatility that investors have endured due to bickering politicians can be unnerving, it is in times of crisis such as these that good gains can be made. I am not advocating that you should be fully invested at this time, nor is it a time to practice a buy and hold philosophy. Investors will have to be nimble and invest in good quality companies when Mr. Market puts them ‘on sale’. In addition, should the news in the future not be favourable, we will continue to employ stop losses to protect your capital.

Please feel free to share this article with someone you feel would benefit from its contents for guidance with their RRSP and or cash investments.    

Chris Kuflik

Associate Director, Wealth Management

Wealth Advisor

514-287-2931

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