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Nine Reasons Why Greece, PIIGS Approaching Irreversible Slide to Default

  
Analysis, Economy, Education
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  • Like other emerging market nations, it has entered a vicious cycle in which market skepticism creates higher borrowing costs and actually pushes the country closer to the abyss, its demise becoming a self fulfilling prophecy. Once that momentum begins, it is very hard to stop the decline in confidence.
  • Fitch downgrade means no more room to fall before junk bond status: Fitch’s downgrade of 2 notches from BBB+ to BBB- means the next level down is junk bond status, leaving Greece with no collateral to use for borrowing from the ECB. This after the ECB yielded and agreed to accept the BBB+ rating after 2010.
  • Yield on Greek debt is now above many countries with lower, junk-rated bonds: What does that tell you about where Greece’s ratings, and thus yields, are going?
  • A quickening death spiral has started.
  • Extreme austerity measures cut GDP and tax receipts, spur capital flight from banks.
  • EU’s March 25th rescue accord failed, eroding EU credibility: The EU needed a big, timely, decisive rescue package with an announcement shock effect similar to Washington’s guarantee of the too big to fail banks back in September of 2008. It needed to show that no matter what, the EU would not let Greece default, even if it meant effective EU stewardship and economic occupation, and Greece had to agree to it. Instead, neither Greece nor its rescuers have approached the issue with this level of life-or-death seriousness. Both sides have chosen to bicker, bargain, and attempt to hold out for better deals in a deadly game of chicken. The result, the EU’s credibility is damaged, and the EU was the last hope for the markets, as Greece has long ago lost credibility.
  • Greece selling short term bills into a steeply inverted Greek yield curve: The Greek Yield Curve is inverted from 3 months to 5 years. Yet Greece will attempt to sell 26 week and 52 week paper, after having failed to sell long term bonds. Looks like the rates will be too high once again, even if there is demand.
  • Greece needs to find €10 bln by May. The EU and/or IMF will probably give them that one way or another. However this is just delaying the inevitable. Greece needs another estimated €30 bln to make it through the year.

  • EU failure on Greece endangering other PIIGS block members. Spain alone needs to sell €30 bln of bonds in July. It is in better shape than Greece. However, as noted in Contagion Spreads: PIIGS Credit Default Spreads Rising On Greece Default Fears, Spain and its fellow PIIGS colleagues are watching in horror as their own borrowing costs are rising to new highs on fear generated by Greece’s woes. Should Spain need help, there will be little or no cash left in the EU accord. Markets know this, which in turn sparks more fear and higher rates, pushing Spain and the others closer to the edge themselves. Note that Spain and Italy have debt loads many times larger than Greece’s, and that fact alone may doom them unless the EU can inspire confidence and get borrowing rates down.

    • About the author: Cliff Wachtel


    How full is your cup?

      
      Education
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    I stumbled across an interesting article recently, about ‘Market Timing’.  We can all relate to spending hours on trying to pick the trough or top of a market cycle, or congratulate ourselves on getting in at the bottom and riding a sp to its peak.

    This article goes on to explain that Market Timing is perhaps not that important, it all comes down to the individual’s mind-set around wealth. 

    “You have probably seen this phenomenon: there are successful investors that can make money regardless of the market conditions. They make good money during good times, and they make even better money during bad times.

    To these successful investors, there is one thing that is constant: they make money regardless of changes in the market. Market Timing seems to have very little effect on them.

    You have probably also seen the opposite phenomenon: there are investors that would lose money even when the market was doing great. These investors lose money during good times, and lose even more money during bad times.

    To these unsuccessful investors, there is one thing that is constant: they lose money regardless of changes in the market. Market Timing also seems to have very little effect on them. “

    Hmm, now there’s something to think about.  Imagine having the good fortune to enter the market at ANY time and still make money. 

    The author goes on to get you to think of money as water and it seems that some people have a fixed sized cup to hold money – whenever they get near the cups maximum threshold one of life’s challenges comes along to ensure their cup never overflows.

    So what we NEED to do, is to consciously make an effort to increase the size of our cup (the invisible mental capacity for wealth), and then we won’t really need to worry about Market Timing at all!

    Sounds like a plan to me – I’ll order a beer stein.

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