Although one may think that they're not invested in the Greek crisis, many portfolios may hold equity positions and ETFs that could be effected by the European debt crisis. The European Union is the U.S.'s number one trading partner.
The risk of a Greek default could have lasting consequences here in the U.S. For starters, U.S. corporate manufacturers that provide export products to Europe will start feeling the pinch of reduced European consumer demand. A few of the companies widely held in portfolios such as Whirlpool (NYSE:WHR), Nike (NYSE:NKE) and Abercrombie & Fitch (NYSE:ANF) have already been reporting slower sales in the region. Reduction in exports could lead to less hiring and investing by many U.S. corporations. Portfolios could be holding U.S. bank positions, many of which may be heavily tied to the European economy, which could cause a slow down in loan financing and new business projects. In addition, central bankers are unleashing a flood of money. The U.S. Federal Reserve has pledged to keep rates low throughout 2014, which impacts retirees trying to get by on interest income from their savings. The ripple effect to investors from the Greek factor could be costly and come from many sources.
Greece has until March 20th to meet a 14.5 billion euro debt repayment. As an investor, how do you protect your equities from Greece exposure risk when it may not be clear which equity positions are being effected? One approach would be to protect the entire portfolio against abnormal risk or price weakness by placing a stop order per equity position. The goal would be to enter your stop prices below an expected trading range for each particular equity. If the stock or ETF falls in price and triggers the stop loss, we know that the stock is experiencing weakness but we often times don't know whether the equity is experiencing normal or abnormal risk. There are companies that help identify optimized stop loss prices for equities and ETFs by monitoring for risk conditions that are beyond normal conditions of the marketplace. Investors can be notified in real time by alerts when optimized price points are triggered.
With the recent agreement by the eurozone for the new €130 billion euro bailout package, is it time to relax about your investments yet? Whirlpool (ticker WHR) reported slower sales in the European region in recent earning reports. We placed the equity in an above normal risk condition in May 2011 while it was trading at $84.73. This equity position recently returned to a normal risk state on January 12th at a price of $51.68. WHR is currently trading at $70.90 as of the close of Feb. 23, 2012.
While the bailout may succeed, many factors remain that could derail a European recovery, including the Greek government's ability to abide by the austerity measures imposed by the agreement. If you choose to stay in the European market during the Greek recovery, it would be wise to protect any investments you make with a well thought out stop order.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.