THE ISSUE: Fears of a Greek default have shaken global financial markets; relief over even temporary fixes has triggered big rallies like on Wednesday. What can investors do to position themselves?
By Sam Forgione
NEW YORK, Sept 14 (Reuters) - U.S. Treasury Secretary Timothy Geithner said Wednesday Europe won’t allow a Lehman Brothers-like collapse in its own back yard.
Geithner says he is certain the EU will deal with the Greek debt crisis and avoid any contagious effects for European banks and Europe’s sovereign debt.
“They recognize that it will take more force behind their commitments,” he said in an CNBC interview ahead of a meeting with EU finance ministers on Wednesday.
But some investors worry about a ‘kick-the-can’ attitude and fear that the unsolved problem will keep returning. Here are ‘eurostrategies’ for skeptics and optimists alike.
ETF STRATEGIES: Staying away from Europe
Michael Jones, chief investment officer of Riverfront Investment Group, which oversees $640 million in ETF assets, views the Greek default as a given, and has cut ETF exposure in Europe accordingly.
“We’ve been feeling like a Greek default is inevitable in the last 14-16 months,” Jones said. “We have less than 3 percent European exposure in most popular portfolios.”
He has gone long on a fund that gains if the euro declines, the PowerShares DB US Dollar Index Bullish Fund (UUP.P). He also likes 30-year Treasuries at 3.35 percent, unlike the 10-year, which is at 2 percent. “So, if there is a disaster out of Europe, the long bond has the potential to rise in price and help protect your portfolio.”
John Largent, chief investment strategist at Members Trust Company, says “the Greek default is priced into the market already.” So he sees value in the iShares MSCI EAFEA (EFA), tIndex, and the iShares MSCI Emerging Markets Index (EEM).
STOCKS: Safety in U.S. blue chips
Is the United States the ‘safe haven’ for equities now?
Keith Wirtz, chief investment officer at Fifth Third Asset Management, with $18 billion in assets, said Europe’s debt woes could persist for years.
“Investment opportunities often surface during moments of emotion and I think the markets have discounted a lot of bad news,” Wirtz said.
GOLD: The timeless safe-haven
When all else fails, some still grab for gold, which has been on a long win streak to all-time highs during the financial crises of recent years.
“Gold prices will go higher to $2,000 by the end of the year -- with some corrections coming back -- and $2,250 by the middle of 2012 to the third quarter of 2012,” said Craig Smith, chairman of Swiss America Trading Corporation, a national investment firm that specializes in U.S. gold and silver.
Tony Battista, who co-anchors a show on Chicago-based tastytrade.com, said the SPDR Gold Trust (GLD.P) ETF is an attractive hedge in this volatile environment.
The GLD is the world’s largest gold-backed exchange-traded fund.