European Debt and Pepper – Spring 2012

Hello from Sycamore,

European Debt and Pepper

Have you decided whether the whopping Greek debt problem will topple the Euro zone?

There are major players, including Germany, who are optimistic a deal can be brokered, but there are many countries and cultures involved and it could be a serious problem. Streaming video of Athens in flames makes it easy to imagine a worst-case scenario where the individual European economies fall like dominos – leading to a decline of markets and economies worldwide.

Faced with uncertainty we tend to fill in the blanks; to some extent, it’s how we are hardwired. But this instinct (a.k.a. emotion) doesn’t always work to our financial advantage. Here’s why. The news media – which must be fed daily – seems to have discovered that good stories have an element of uncertainty. Experts can debate the facts for the next couple of weeks. Earthquakes or economies, it’s all the same. So…when Europe coughs, our markets sneeze. The pundits trumpet “this could be the big one” and Wall Street makes the expected knee-jerk reaction. The market stalls under the weight of conflicting headlines. After time to reflect, investors refocus on fundamentals like corporate profitability and the markets return to more normal valuations. This pattern of stall and surge can drive us all nuts and – after 2008 and 2009 – it’s a short drive!

We believe that it’s sometimes helpful to boil situations like these down to their basics. If you are a market timer (the new term for this is “Tactical Reallocation”) the ripples caused by situations like Europe are important. If you’re an investor, it may be less so. Consider the case of McCormick & Co., the spice company. McCormick is, we believe, a well-run mid-size company located here in the U.S. Many of our clients own McCormick. If you’ve made a trip to the grocery you’ve likely seen their display and possibly picked up some of their products. When Europe coughs, McCormick can decline. Should we sell? For that answer, I think it’s helpful to reframe the question. Let’s ask ourselves instead, “If Greece defaults on their debt… will I stop buying pepper?”

As always, please feel free to contact us with any questions or thoughts.

Thanks for your business and trust,

Sycamore Financial Group


Past performance does not assure future results. Investors cannot invest directly in the stock market indexes such as the S&P 500. Invest return and principal value of an investment will fluctuate. Investor value, when sold, may be worth more or less than their original cost. The material in this presentation is for illustrative purposes and does not reflect any particular investment.