Markets around the world are gyrating, as Greece prepares to begin defaulting on its debt Tuesday. The S&P 500 index dropped 2.1 percent Monday before stabilizing Tuesday.
So how should we U.S. investors react, sell all our financial assets and head for the hills? Not quite, says financial author and former banker Jeremy Josse.
"The big question for your average investor is how do you react to [the Greek] puzzle? What portfolio adjustments do you make?" he writes on TheStreet.com.
"Well, in spite of some short term turbulence, the best answer is: it perhaps no longer matters very much."
It matters a great deal to the Greeks, of course. "But for most U.S. (or even non-Greek European) investors, Greece has already been significantly taken out of the financial equation," Josse explains. Only $14 billion of Greece's $350 billion debt is owed to U.S. banks.
He points out that banks in general have vastly curbed their lending to Greece over the past few years, and investors have largely steered clear of Greek stocks and bonds.
As for us American investors, Puerto Rico's debt woes — it's on the hook for $72 billion — pose a much bigger threat than Greece, writes Ellie Ismailidou of MarketWatch.
Puerto Rico has announced that it can't pay back its debt on current terms, and as a U.S. territory, its government bonds are U.S. municipal bonds. And therein lies the problem: Americans own an almost all of Puerto Rico's debt.
"Exact numbers are hard to come across, because hedge funds do not have the same disclosure obligations as traditional muni-bond owners," Daniel Hanson, an analyst at Height Securities told Ismailidou.
"But according to most recent estimates about 60 percent of the island’s bonds are owned by traditional municipal bond investors and the rest is in the hands of hedge funds and other crossover investors." Traditional investors means individuals like you and I.
The Puerto Rican crisis hits a muni bond market already roiled by the financial difficulties of many cities and states, including Illinois and New York. Recall that Detroit filed for bankruptcy in 2013.
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