With the recent global economic crisis punishing nearly every economy around the world, some nations are faring better than others. Greece is one of the countries that is not holding up so well. Greece saw its 2009 budget deficit jump to 12.7% of GDP, significantly higher than the 3% ceiling imposed by the European Union. Additionally, continuous budget deficits over an extended period of time has burdened Greece with so much debt that investors are sceptical of Greece’s ability to service its debt, thus questioning its credit worthiness. Greece is in the thick of a true financial disaster.

Many investors in the United States are wondering how the problems in Greece can have such a large impact on U.S. markets. That impact has been felt over the past few days with the stock market indices feeling pressure from the problems in Greece. The impact was then felt today on the stock market with the major indices jumping up over 1% when reports surfaced of possible help for Greece from the European Union and Germany. But the true story is much bigger than Greece alone.

Jean-Claude Trichet

The fear among finance ministers and economists is that the problems in Greece are spreading to other EU countries. Jean-Claude Trichet, head of the European Central Bank, is fully aware of the threat posed by Greece to other EU member nations.

Two other EU countries, Spain and Portugal, are also under significant pressure and are also running high budget deficits. Because of this fear of a domino effect, Mr. Trichet has been working with Germany to take the lead in providing loan guarantees and putting together an aid package for Greece.

Some economists here in the U.S. believe that the problem is even more severe than most believe, and think that the International Monetary Fund should step in and provide loans to help stabalize the situation in Greece. Ultimately, the fear in the global market over instability in Greece and other EU member nations is impacting stock prices in the U.S.

The tax exempt or tax-free bond market saw reasonable results in 2009, particularly in the second half of the year. However, when compared to the returns many investors were getting in the stock market during 2009, the results in the tax exempt bond sector aren’t overly impressive. But it is important to keep in mind the differences in investment objectives of owning tax exempt bonds as opposed to stocks or other securities. Unlike owning stocks, bonds are usually held as a fixed income producing asset.

A tax exempt bond is a bond generally issued by a State or municipal government, and the interest earned from holding these bonds is not subject to Federal, and in many cases, State and local income taxes. And due to this special tax treatment for these bonds, many investors will actually realize greater returns with tax exempt bonds than other bonds or securities when their marginal tax rate is figured into their return on investment. Additionally, tax exempt bonds are generally a much safer and secure investment than taxable bonds or stocks.

It is interesting to note that most tax exempt bond funds outperformed treasuries during 2009, which is not the normal historical trend. So if you think that tax exempt bonds might be a good in your portfolio, you may be wondering what the future holds for the tax exempt bond market.

“We believe that technical factors will remain supportive for the municipal market going forward,” said Steven Permut, leader of the municipal bond team at American Century Investments. “The more taxable municipal bonds issued under the Build America Bond program—a federal government program intended to help lower municipal borrowing costs—the lower the supply of tax-free municipal bonds. In addition, we think demand for municipal bonds is likely to remain strong given that the Federal Reserve continues to hold short-term interest rates at record lows and municipal yields are attractive relative to those on Treasuries.”

However, Permut’s outlook comes with a caveat: “Economic fundamentals remain fairly weak, and we think tax-based bonds and those issued by local governments are likely to face challenges.”

As any good investor should always do, study the holdings of each tax exempt bond fund you are researching. Review the performance of the investment team, and compare how they have managed their fund in relation to the Lipper group and GO Index.

After a roller coaster day of trading, the Dow Jones Industrial Average managed to claw back above 10,000 at the end of trading on Friday. At one point during the day, the DJIA fell below 9,900. Investors appear worried about the strength of the economic recovery as well as debt trouble in Europe. The rebound that occurred late in day was most likely a result of bargain hunting by investors who were looking for good buys in sectors that have been under pressure over the past few days.

The Dow was up 10.05 points for the day closing at 10,012.23 – an increase of .1 percent. However, the Dow Jones Industrial Average was down nearly .5 percent for the week and with 4 straight weekly declines is down about 6 percent from its high this year. The NASDAQ finished up 15.69 to close at 2,141.12, an increase of about .75 percent. The S&P 500 also sported a gain for the day moving up 3.08 to close at 1,066.19.

Early in the morning, investors were anxious for the latest reading on jobs and unemployment. The government report showed a loss of 20,000 jobs, but also showed a drop in the unemployment rate to 9.7 percent. The drop in the unemployment rate could be attributed to an increase in discouraged job seekers who have given up looking for work. The employment report was not in line with economists expectations, who were expecting an increase of roughly 5,000 jobs along with an increase in the unemployment rate to 10.1 percent.

Investors are uncertain which direction the market will move in the coming weeks. Fear among investors, as measured by the CBOE volatility index or VIX, spiked today to 29 but eventually retreated and settled around 26. Many investors are expecting a roller coaster ride in the stock market over the coming weeks and are looking to earnings reports, retail sales and weekly jobless claims, as well as the consumer sentiment reading late next week.

Investment glossary terms beginning with numbers:

1031 Exchange – Under Section 1031 of the U.S. Internal Revenue Code, the exchange of certain like-kind properties may allow for deferred recognition of capital gains or losses that are realized at the time of the exchange or sale. The deferral of gain recognition results in a deferral of any capital gains taxes that would otherwise be due. To qualify for a 1031 exchange, the properties exchanged must be held for investment or for productive use in a business or trade. Real property, whether improved or unimproved, generally qualifies under section 1031, whereas stocks and bonds are expressly excluded.

Investment glossary terms beginning with the letter A:

Adjustable Rate Mortgage (ARM)- A mortgage that typically has a short-term fixed interest rate for a specified period of time, after which the interest rate changes to bring the rate the mortgage holder pays in line with market rates. The interest rate is generally based on the prime rate, Treasury bill rate or LIBOR. ARMs typically have a “ceiling” on the interest rate to protect the mortgage holder. Additionally, due to the interest rate risk to the mortgage holder, ARMs generally start with lower initial interest rates than fixed rate mortgages.

Investment glossary terms beginning with the letter B:

Big Uglies – Old industrial companies in gritty industries such as mining, steel and oil. These stocks provide solid long term earnings, growth and dividends and are  sought by value investors who want bargain priced stocks with a low P/E ratio.

Investment glossary terms beginning with the letter C:

Cash Dividend – A dividend declared and paid by a company in the form of cash. Cash dividends generally are sent by check or are directly deposited into your investment account with your stock broker.

Investment glossary terms beginning with the letter D:

Daily High – The highest price that a security, commodity or index reaches during any given day.

Daily Low – The lowest price that a security, commodity or index reaches during any given day.

Investment glossary terms beginning the letter E:

EAFE Index – A market-value weighted stock market index created by Morgan Stanley to track the markets in Europe, Australasia and the Far East. The EAFE Index is designed to give a measure of overseas stock markets.

Investment glossary terms beginning with the letter F:

Factoring – A financial service provided by a financier, or factor, where a business sells its accounts receivable at a discount in exchange for immediate payment. The factor collects his fee upon collecting from the debtor. Factoring transactions are entered into under either a recourse or non-recourse arrangement. Factoring with recourse leaves the credit and collection risk with the business selling the receivable, whereas factoring without recourse transfers the credit and collection risk entirely to the factor. Factoring is used by businesses as a tool to speed up cash flow to help reduce the need for debt or equity financing.

Fair Market Value – An agreeable open-market price paid by a willing but not desperate buyer to an interested but not desperate seller, assuming there is sufficient time for an agreement to be reached.