How The Recent Credit Crisis in Europe Will Impact My Investments?

The recent turmoils that are going on almost everywhere around the world, is causing investors to be concerned about their investments. The oil leak in the Gulf of Mexico, the credit crisis in Greece, and other sporadic news - negative news - are causing havoc in the financial markets despite the robust and stellar earnings reports from corporations.

However, these events give investors a good time to catch their breath and reflect on their portfolios. It is not a secret that the market is overextended and overbought, and it had been on a steroids-driven rally for 13 months (thanks to government overspending and numerous bailouts). It is time for a market correction that could provide a hair cut of about 10% of the Dow, and the market is simply taking the recent events as a trigger for such correction.

For the long term investor, these corrections are part of life. You need to look at it as an opportunity to build a stronger portfolio. My strategy is to hold my investments (as long as the fundamentals are still sound), and wait patiently for the 10% correction to occur. This puts the Dow at the 10K level, and then I start shopping for good, dividend paying, or growth-poised stocks.

In the meantime, I will be observing the following implications from the current trumoils to identify where the new money should go once the correction has taken place:

- The credit crisis in Europe, which hit Greece, and could eventually hit Spain, Portugal, and Italy, will lead to a slow growth in the economies of the entire Euro zone. Based on that, I may avoid companies with large Euro zone exposure, or on the other hand, look for value play in the Euro zone once the visibility is clearer in that part of the world.

- The Euro depreciation against US dollar, will eventually hurt the bottomline for those global companies reporting revenue in US dollar with large European exposure. Again, this will only make me more comfortable in lowering the exposure to the Euro zone during 2010 and into 2011.

- China is showing signs of a slower than usual recovery (based on data coming out from China). This could sign that the global recovery will be slower than wished for, and the sluggish recovery will spread beyond Europe.

My take on this is to simply avoid getting into the following:

- Commodities, since this will underperform in a world with slow recovery

- Global exposure, especially to the Euro zone

and try to get into the following:

- North American equities with growth prospect based largely on North American economic performance, like housing, builders, retailers, and other large dividend paying stocks.