Expect The Unexpected! 

We expected a Greek solution, but not this one.

The Greek people may vote to stay in the Euro in their July 5 referendum, however it will not avoid default on June 30 (when a large payment to the IMF is due).

What happens now:

• Investors do not like uncertainty and the knee-jerk reaction to uncertainty (as the new Greek situation will create) will be to move away from riskier assets into safer assets (in market speak we call this a "flight to quality").
• Traders who try to profit from volatility will use this as an opportunity to engage and volatility will likely spike higher.
• High quality bonds will benefit, initially and perhaps for a time until the dust settles. Lower quality bonds will not.
• Cash is an asset and a very defensive one, so expect selling and re-positioning of over-priced assets (like equities) as investors move to the safety of cash for now. 
• Chinese equities were already on their way lower from their recent highs, this may continue (even though the central bank has just reduced borrowing costs).
• European equities will likely be sold and value investors will wait for buying opportunities.
• US equities will be sold as well, the S&P 500 should find support (initially) at its longer-term trend lines, an 8% correction would not be out of the range of possibility.
• Earnings season for Q2 is beginning and will be watching closely as investors try to determine where there is value (this may add to uncertainty because US equity values have been stretched of late).

Longer-Term

This should not have an enormous impact:

Central bankers will have contingencies in place to try and stave off any contagion for other parts of Europe and as we continue to discuss, central bankers do not like volatility because it creates uncertainty.

Does this impact the US Federal Reserves decision on interest rate increases?

Possibly, however it will remain to be seen what if any consequences develop and how the Fed will respond. Likely their approach will be cautious and dependent on further developments.

We have taken a cautious approach to investing for some time, based more on value than expected or unexpected geo-political and economic developments.

We have continued to have an over-weight in cash waiting for opportunities (better prices) to develop before committing capital for long-term investing (because we expect the unexpected).

That is our nature.

www.highrockcapital.ca