May 17, 2012 – Spotlight on the Wrong Headline

This article was prepared solely by Larry Short who is a registered representative of HollisWealth®, a division of Industrial Alliance Securities Inc. (iA Securities), a member of the Canadian Investor Protection Fund (CIPF) and the Investment Industry Regulatory Organization of Canada (IIROC).The views and opinions, including any recommendations, expressed in this article are those of Larry Short alone and not those of HollisWealth®

On December 29, 1972 Eastern Airlines Flight 401, an L-1011 airliner carrying 163 passengers and 13 crew, crashed into the Florida everglades killing 101 people.  The flight 401 story is quite a dramatic one and, I am by no means diminishing it but the primary cause of the crash of a perfectly good airliner and the death of 101 people was that the crew became distracted  trying to replace a small light bulb on the dashboard. All of the cabin crew had their head down working on the short term problem.

I am wondering if the same type of distraction might be taking place in investor’s accounts. In my book I talk about how one has to view stock markets movements as a series of crisis interrupted by occasional periods of calm. The key to investing successfully, and I caution you this is very hard to do, is to invest during the crises and look to sell off when it is “safe to go back in.” This is more difficult than it sounds and requires that you have some comfort in the nature of the crisis. The current one – a potential Greek bankruptcy – may be getting more attention than it deserves.

Quite frankly, I find it hard to believe that 11 million Greeks could have such an incredible effect on the other 7 billion people in the world. That 11 million represents 0.16% of the population of the earth but somehow that small percentage has caused trillions of investment dollars to come out of stock markets.

The latest turn in this crisis was that investors were surprised with the result of the recent Greek election.


Do investors somehow think that the citizens of a nation that has a history of not paying taxes would accept 22% unemployment and drastic government cutbacks and not vote against the existing austerity government? Why is this a surprise?

More importantly, why is there such a spotlight on the issue?

While the Greek story was dominating the headlines, news came out of China that their central bank had cut bank reserve requirements. This was certainly not front page news but it should have been. See, cutting bank reserve requirements is one of the best stimulants to getting an economy to grow again. It is actually more stimulating than cutting interest rates and once a central bank starts to cut reserve requirements it tends to continue until the economy has started to grow again.

With China, we are talking about the second largest economy in the world with 1.3 billion people. And speaking of interest rates, India and Brazil have also recently cut theirs.

Maybe it is time to look out a bit beyond the recent headlines and check the status of your investments.