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FIRST ACCESS to Nadeem Walayat’s Analysis and Trend Forecasts

The Greek Debt Crisis Investor Opportunity That's Being Missed

Interest-Rates / Eurozone Debt Crisis Jun 23, 2015 - 11:46 AM GMT

By: ...

Interest-Rates

MoneyMorning.com Peter Krauth writes: As Greece approaches its next payment deadline, the rhetoric and the stakes are boiling over.

The IMF recently quit negotiations in Brussels, saying it had reached a stalemate.

Then Greek Prime Minister Tsipras said the IMF had "criminal responsibility" for his country's debt crisis.


With a looming deadline, now Russia has stepped to the fore, with overtures of financial aid.

It might be too late – but with a Grexit appearing closer than ever, the markets remain calm.

Here's why, and how to profit.

This Major Player Will Impact the Crisis

Greece's next loan installment is a €1.5 billion payment due to the IMF by the end of this month. By most accounts, the country can't make that payment without its next bailout tranche.

According to the IMF's Lagarde, Greece faces default if it doesn't meet its June 30 payment. Yet Greek negotiators are playing a game of chicken, unwilling to accede to further austerity measures in exchange for more help. Meanwhile, Greek banks are nearing failure, with billions of euros fleeing every week.

The Greek Parliament even declared its country's bailout debt "illegal, illegitimate and odious." Despite all this, European stocks indices have held up, and the euro has gained 8% versus the U.S. dollar since mid-March.

Now, Russia is back in the picture.

In February we discussed Moscow's "friendly" disposition towards Greece and its new Syriza administration.

But the relationship is complex, and historical ties between the nations run deep. Most recently, Russia has become reliant on Greece for its strategic natural gas pipeline that will cut through Turkey, then into Greece, to eventually deliver into Europe. It's a multi-billion euro deal that has Greece salivating.

On June 19, Tsipras called Russia one of Greece's most important partners while speaking at the St. Petersburg International Economic Forum, where a deal was signed to extend the pipeline into Greece.

And yet EU foreign ministers, including Greece's, have just voted to extend sanctions against Russia.

Why wouldn't Greece oppose? Doesn't it need Russian bailout help?

Perhaps Russia needs Greece more than the reverse, because supplying gas into Europe is not just lucrative, but a very long-term deal. Consider also the timing.

Greece is almost certainly playing its cards very closely, remaining loyal to Brussels in exchange for some debt relief, or other significant concessions. That could mean the best of both worlds: Russian money flowing in and European debt discounts.

On Monday, Germany's DAX and France's CAC40 indices were up 3.85%, while the Athens Stock Exchange General Index surged 9%, as news broke that new proposals from Greece might lead to an agreement. Odds of yet another eleventh-hour deal have climbed dramatically.

Some 80% of Greeks prefer remaining in the Eurozone and are willing to cave to a raw deal even as Syriza reneges on "inviolable" campaign promises.

Pretty much everyone agrees that should Greece leave, it will be messy. Meanwhile, other PIIGS nation members (which include – in addition to Greece – Portugal, Italy, Ireland, and Spain) might look favorably on the eventual outcome if Greece were to go it alone and land on its feet. That kind of threat to the union's integrity and viability is a thought Germany likely isn't entertaining.

I'm Bullish and Here's Why

My view is that the odds are rather good Greece isn't going anywhere. Improving consumer confidence and market strength in Europe seem to back that view.

The backdrop of the ECB's mega-QE program will continue to support high-quality corporate debt. That's why I recommended the SPDR Barclays International Corporate Bond ETF (NYSE: IBND) back in March.

This ETF's holdings consist of 52% corporate finance, 40% corporate industrial, and 8% utilities. In terms of quality, 27% of bonds are rated Baa, 53% are rated A, 19% are rated Aa, and 1% is Aaa. Eighty-three percent of these bonds mature anywhere from one through 10 years, with an average maturity of 5.65 years.

Geographically, 76% of its holdings are European, 22% are American, and 2% includes issues from Japan, Hong Kong, Mexico, India, and Israel.

The rationale of looking to high-quality corporate bonds whose issuers should do well regardless of Europe's direction seems to be bearing fruit. Consider, too, that when I recommended IBND, major European multinationals like Royal Dutch Shell Plc. (NYSE ADR: RDS.A), Nestle SA (VTX: NESN), Novartis AG (NYSE ADR: NVS), and Sanofi SA (NYSE ADR: SNY) had recently seen their borrowing costs head into negative territory.

Since then, IBND has gained nearly 2% while providing an annual yield of 1.57% – not gangbusters, but that's not the goal. Remember, these are higher-quality corporates, with over 60% rated A or better.

I think as the Grexit can once again gets kicked down the road, the euro, and Europe's stocks and bonds, will continue to gain favor.

My advice stands. Look for IBND to work its way back up to its previous high of $38.05 in the process – still a 19% gain from here. And continue to use two stops: a hard stop at $30.34 (its recent closing low) and a 7% trailing stop, which makes sense due to IBND's lack of volatility.

Greece's and other PIIGS countries' longer-term futures may one day be outside of the current union, but that's likely to be a considerable way off.

In the meantime, Greece is going nowhere. And that spells opportunity.

Source :http://moneymorning.com/2015/06/23/the-greek-opportunity-thats-being-missed/

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