Saturday, March 23, 2013

Cyprus Banking Crisis: Why we should care more

The country of south Cyprus is the next nation in line to request an economic bailout. The country's banks have gone bankrupt and the EU has given it until Monday, March 25th to raise its own funds. Uncertainty has once again hit the global community, only this time not many Americans are following along.

At least that's what a new Gallup survey shows. Only 33 percent of Americans are interested in Cyprus's banking fiasco. Ten percent appear to be following the news intently, while 21 percent are watching it as an afterthought. Disturbing results, considering the lingering effect of the 2008 financial crisis. Disclosure: I fall within the latter category.

At that time, mortgages were bundled up as investments called derivatives and marketed worldwide. Once it was determined these investments were worthless, it caused an alarming cascading effect across borders and oceans. The global market system collapsed and many economies fumbled and tumbled.

We saw something similar happen this past year, when nations such as Portugal and Ireland asked for bailouts. Many economies were still in the red, perhaps at their lowest levels in decades, so the fall wasn't as devastating as the 2008 crisis. But growth stalled as analysts and investors held their breaths for the final outcomes. We survived, but the news still affected many economic indicators.

As the derivatives mess showed, many investors overlook what impact global economic activity has on their portfolios. Many of the world's economies are interconnected, and what affects one area of the globe will surely affect the opposite end. We need to keep that in mind when making investment decisions.

The good news is that those experts stalking the Cyprus banking crisis believe the lack of interest will potentially benefit market performance. Since many investors are not tuning in, it will control the level of fear that usually results in hasty stock movement decisions. This means that you won't have so many rushing to sell their stocks at the slightest downturn and Wall Street will continue chugging along. For now, that is.

No comments:

Post a Comment