Taking delight in this turbulent summer

Genevieve Signoret

Letter from the President

What a week! I hope you found this briefer on Greece and this second one useful in interpreting the news flow.

We were taken by surprise last Friday when, after trading hours (at 7:00 P.M. Mexico City time), Greece announced that it would hold a referendum on the accord just reached. Then Greece’s creditors promptly took it off the table. Although safe assets and the U.S. dollar soared and risk assets dropped early in the week, by Thursday afternoon they’d begun converging toward week-ago closing prices.

Monday morning, with any extra cash we had in client accounts, we bought extra long-term U.S. Treasury bonds but of course did not get the best of prices for these. Nor did we exit at their peaks. Nonetheless, when on Thursday we began a partial closing out of those positions we were able to take some profits. And we still have the portfolios nicely reinforced as we move into Referendum Weekend.

We expect Greeks to vote “Yes” and talks to continue after Sunday 5 July but can’t be sure of this, or know how markets would react either way. Forced to guess, we’d say a “Yes” vote would spark euphoria.

Of course, meanwhile, the day approaches when the Fed will start to raise interest rates. On trend, anticipation is putting downward pressure on long-term Treasury bond prices. For this reason, we expect that, after each spike propelled by fear over Greece or China (or what-have-you), the subsequent market sigh of relief will send these bonds diving back down quickly. In other words, volatility in Treasuries will be unusually high all summer.

But remember, volatility can be a friend. Those among our clients who save systematically are taking delight in this turbulent summer, as we seize on the turbulence to invest their incoming capital at wonderful entry prices.

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