Most Popular
1. It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- Gary_Tanashian
2.Stock Market Presidential Election Cycle Seasonal Trend Analysis - Nadeem_Walayat
3. Bitcoin S&P Pattern - Nadeem_Walayat
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
4.U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - Raymond_Matison
5. How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - Nadeem_Walayat
7.Bitcoin Gravy Train Trend Forecast 2024 - - Nadeem_Walayat
8.The Bond Trade and Interest Rates - Nadeem_Walayat
9.It’s Easy to Scream Stocks Bubble! - Stephen_McBride
10.Fed’s Next Intertest Rate Move might not align with popular consensus - Richard_Mills
Last 7 days
Stocks, Bitcoin and Crypto Markets Breaking Bad on Donald Trump Pump - 21st Nov 24
Gold Price To Re-Test $2,700 - 21st Nov 24
Stock Market Sentiment Speaks: This Is My Strong Warning To You - 21st Nov 24
Financial Crisis 2025 - This is Going to Shock People! - 21st Nov 24
Dubai Deluge - AI Tech Stocks Earnings Correction Opportunities - 18th Nov 24
Why President Trump Has NO Real Power - Deep State Military Industrial Complex - 8th Nov 24
Social Grant Increases and Serge Belamant Amid South Africa's New Political Landscape - 8th Nov 24
Is Forex Worth It? - 8th Nov 24
Nvidia Numero Uno in Count Down to President Donald Pump Election Victory - 5th Nov 24
Trump or Harris - Who Wins US Presidential Election 2024 Forecast Prediction - 5th Nov 24
Stock Market Brief in Count Down to US Election Result 2024 - 3rd Nov 24
Gold Stocks’ Winter Rally 2024 - 3rd Nov 24
Why Countdown to U.S. Recession is Underway - 3rd Nov 24
Stock Market Trend Forecast to Jan 2025 - 2nd Nov 24
President Donald PUMP Forecast to Win US Presidential Election 2024 - 1st Nov 24
At These Levels, Buying Silver Is Like Getting It At $5 In 2003 - 28th Oct 24
Nvidia Numero Uno Selling Shovels in the AI Gold Rush - 28th Oct 24
The Future of Online Casinos - 28th Oct 24
Panic in the Air As Stock Market Correction Delivers Deep Opps in AI Tech Stocks - 27th Oct 24
Stocks, Bitcoin, Crypto's Counting Down to President Donald Pump! - 27th Oct 24
UK Budget 2024 - What to do Before 30th Oct - Pensions and ISA's - 27th Oct 24
7 Days of Crypto Opportunities Starts NOW - 27th Oct 24
The Power Law in Venture Capital: How Visionary Investors Like Yuri Milner Have Shaped the Future - 27th Oct 24
This Points To Significantly Higher Silver Prices - 27th Oct 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

As Greek Debt Default Nears, Investors Need to Take Cover

Stock-Markets / Global Debt Crisis Sep 14, 2011 - 07:14 AM GMT

By: Money_Morning

Stock-Markets

Best Financial Markets Analysis ArticleDavid Zeiler writes: At this point a Greek debt default is virtually unavoidable, and it could happen in a matter of weeks.

The ensuing chain reaction will upend markets around the world and will almost surely lead to more defaults among the European Union's (EU) other debt-plagued nations, collectively known as the PIIGS (Portugal, Ireland, Italy, Greece and Spain).


The bond markets have already passed sentence, with the yield on two-year Greek bonds spiking to an astronomical 76% yesterday (Tuesday). Yields on 10-year Greek bonds rose to 24%.

By comparison, the 10-year bond yields of another PIIGS nation, Italy, rose to 5.74%. Meanwhile, bond yields for the EU's strongest economy, Germany, have dropped below 2%.

The credit default swap (CDS) markets, where investors can insure their bond purchases against default, agree with the bond markets' verdict. As of Monday it cost $5.8 million and $100,000 annually to insure $10 million worth of Greek debt for five years, which means the CDS market now considers default a 98% probability.

Most European stock markets have been hammered over the past several weeks, with some dropping as much as 25%.

"Default is inevitable," said Money Morning Global Investment Strategist Martin Hutchinson. "Greeks are paid about twice as much as they should be, and that gap can't be solved by austerity."

How Soon is Now
In recent weeks Germany has shown more reluctance to dig deeper into its own pockets to bail out Greece and the other PIIGS. At the same time, Greece has struggled to implement the austerity measures that are required if it is to continue receiving aid from the European Central Bank (ECB) and the International Monetary Fund (IMF).

Greece's budget deficit has increased 22% this year, while its economy is projected to shrink more than 5%.

Every new development appears to bring Greece closer to the brink of default - and some see that happening in the very near future.

"My guess is there will be a Greek debt default by the end of this fiscal quarter - yeah, that means very soon," said Money Morning Capital Waves Strategist Shah Gilani.

Gilani believes that Germany is about to stop sending money to the ECB to shore up Greece and its fellow PIIGS so it can start "recapitalizing its own banks to be ready to handle a Greek default and rolling contagion that may result."

People fear a Greek debt default because of the likely domino effect among the other PIIGS, Gilani added.

"The biggest problem I see is that the stability fund -- which is a lifeline to all the member countries in trouble -- is supported by all of them," Gilani said. "If anyone falls down, the others have to kick in more. Ask yourself, if you were about to default yourself and you see Greece default, are you going to stick around to pony up more money to help the next guy, or are you going to jump up and be the next guy?"

Worse than Lehman
Many analysts fear a Greek debt default will trigger a global banking crisis worse than that unleashed by the failure of Lehman Brothers in 2008.

Carl B. Weinberg, chief economist at High Frequency Economics, believes a Greek debt default would rapidly lead to the assumption that some or all of the other PIIGS also would default.

A 50% loss on the PIIGS nations' total debt of 3 trillion euros would dock the financial system by 1.5 trillion euros - less than half of Lehman's losses, the equivalent of 600 billion euros.

"This is a shock that easily spread around the world quickly, as did the hit from Lehman," Weinberg told CNBC.

Weinberg saw no way out of the coming disaster.

"The combination of Greek economic and fiscal mismanagement and German intransigence adds up to an intractable situation in euro land," Weinberg said. "The price will be a banking crisis of historic proportions, and a knock-on economic depression."

Prepare Your Portfolio
With the Greek debt default crisis nearly upon us, investors need to map out their strategy now.

According to Money Morning Chief Investment Strategist Keith Fitz-Gerald, investors should take the following steps to protect themselves:

•Sell weaker positions and transition that money into companies you really want to own -particularly if they are the "glocals" we talk about so frequently, and especially if they have high dividend yields.
•Begin tightening up your protective stops so that you can both capture gains and protect your capital as the market rolls over.
•Buy commodities including gold, silver, oil and pharmaceuticals.
•Invest in the specialized reverse exchange-traded funds (ETFs).
•And, most importantly, KEEP BUYING - but change up your tactics to include dollar cost averaging. There's no sense in making all-or-nothing decisions when that type of thinking doesn't fit market conditions.

"Remember, you miss 100% of the shots you don't take, so getting to the sidelines is not a profitable plan," Fitz-Gerald said. "Staying in the game always has been, and always will be, the way to profit."

Source :http://moneymorning.com/2011/09/14/as-greek-debt-default-nears-investors-need-to-take-cover/

Money Morning/The Money Map Report

©2011 Monument Street Publishing. All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Monument Street Publishing. 105 West Monument Street, Baltimore MD 21201, Email: customerservice@moneymorning.com

Disclaimer: Nothing published by Money Morning should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investent advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication, or 72 hours after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Money Morning should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.

Money Morning Archive

© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in