European Exposure

If the bankruptcy of Greece were to wreck the financial system in Europe, or strain liquidity to a point where it caused a lending decrease and it resulted in restrained growth, would the effects trickle to the United States?

As is the case in most things financial, it is difficult to tell how one problem might impact the global system. While the point has been made that Greece has a GDP roughly equivalent to that of New Hampshire, we have seen problems in small countries cause bigger issues on a global scale. The Asian contagion comes to mind when problems in Thailand (less than twice the size of Greece) spread to 13 other Asian nations.

The current focus of Greece’s European Union neighbors and many other industrialized nations seems to be on how any problems will be contained. The European Financial Stability Facility (EFSF) is looking to provide low-cost loans to banks exposed to Greek debt if needed. Ultimately, we do not know how this may play out, but it seems every government official involved, and some who are not, are adamant that no company will be allowed to fail if it can be avoided. It should be noted that similar stability programs have been used successfully in the past. Remember TARP?

Another concern is the European exposure for short-term funds placed in money market accounts. The average holding in a money market fund is 45 to 50 days. They often hold a lot of overnight lending, commercial paper and repurchase agreements. While some of these investments may experience defaults, generally, money market funds are backed by large brokerage firms like Fidelity or Schwab. Therefore, the exposure is kept to a minimum.

However, it is difficult for the average investor to really know what is going on inside a money market fund, and how much exposure the funds may have to European debt. As an asset management firm, we talk to the fund managers to determine their foreign exposure.

For the average investor, we suggest choosing money market funds that invest 100% in U.S. securities.

At Henssler Financial we believe you should Live Ready, which includes understanding why you are making the investment decisions and your exposure to risk. If you would like to talk to one of our experts at Henssler Financial regarding your investments, call us at 770-429-9166 or e-mail at experts@henssler.com.

Disclosures

This article is meant to provide valuable background information on particular investments, NOT a recommendation to buy. The investments referenced within this article may currently be traded by Henssler Financial. All material presented is compiled from sources believed to be reliable and current, but accuracy cannot be guaranteed. The contents are intended for general information purposes only. Information provided should not be the sole basis in making any decisions and is not intended to replace the advice of a qualified professional, such as a tax consultant, insurance adviser or attorney. Although this material is designed to provide accurate and authoritative information with respect to the subject matter, it may not apply in all situations. Readers are urged to consult with their adviser concerning specific situations and questions. This is not to be construed as an offer to buy or sell any financial instruments. It is not our intention to state, indicate or imply in any manner that current or past results are indicative of future profitability or expectations. As with all investments, there are associated inherent risks. Please obtain and review all financial material carefully before investing. Henssler is not licensed to offer or sell insurance products, and this overview is not to be construed as an offer to purchase any insurance products.