Sunday, April 19, 2015 12:36am
North Adams, MA now: 48 °   
Send news, tips, press releases and questions to info@iBerkshires.com
The Berkshires online guide to events, news and Berkshire County community information.
SIGN IN | REGISTER NOW   

Home About Archives RSS Feed
@theMarket: Greece — How To Default Without Defaulting
By: Bill Schmick On: 12:47PM / Saturday June 18, 2011
Important
0
Interesting
0
Funny
0
Awesome
0
Infuriating
0
Ridiculous
0

The European Community's solution to the Greek debt crisis has been an exercise in kicking the can down the road for well over two years. Unfortunately, this Greek Tragedy is now taking on the dimensions of a three-ring circus and taking the world's financial markets along with it.

This week, the volatility in the stock markets was reminiscent of the bad old days of 2008-2009. The on-again, off-again status of Greece's promised next installment of last year's bailout package was the chief cause of concern. The money was promised to Greece, if it cut the country's deficit of $40 billion. So far that hasn't happened. The Greek population has taken to the streets once again to prevent the passage of this new austerity package while Greek's ruling party is disintegrating.

In the meantime, Germany, the money man of Europe, has been insisting that the European private sector banks with large outstanding loans to Greece also become a party to any additional bailouts of the country. Germany's Angela Merkel had been insisting that 1) European financial institutions agree to give Greece an extra seven years to repay its bonds or 2) agree to a "Vienna-style" solution of swapping their existing Greek bonds for lower interest-bearing bonds.

The problem with scheme No. 1 is that the moment the private banks are forced to take a loss on their Greek debt holdings, global credit agencies would deem Greece in default. That would set off a number of sirens simultaneously in several markets. Countries with similar problems would see their bonds plummet.

The credit default swap market (CDS) would also be shaken. The CDS is where banks go to buy insurance against default by governments or corporate entities. I would guess, for example, that it costs $2 million or more every year just to insure these banks against a Greek default. But the European Central Bank is determined that any Greek debt restructuring should not trigger such a "credit event" that would enable buyers of CDS to be compensated from swap insurance sellers.

That leaves option No. 2, a Vienna-style scheme that would involve convincing banks to voluntarily accept new Greek bonds for old bonds at much lower rates of interest. That way the banks (and their shareholders) take the hit to their balance sheets and the insurance they hold would be of no value (because they would agree to take the hit "voluntarily"). I say good luck to that plan.

Investors would be smart enough to see right through that farce. They would dump their remaining European bank shares, any debt they might hold in countries such as Spain, Portugal, Ireland, etc., and would call into question the CDS insurance market overall. If governments can engineer defaults without calling them defaults, then what good is the disaster insurance that banks pay millions for each year?

Fortunately, we only have to wait until Monday for the outcome of this latest chapter in the ongoing saga of European debt restructuring. Euro zone finance ministers are meeting in Luxembourg on Sunday and will hopefully agree on some formula or compromise with Greece. Remember too that this is only an installment not a solution. It will only push the specter of default out until September. Then we get to kick the can down the road for another three months.

I am convinced that the International Monetary Fund and the European community's response to the debt crisis of the PIGS nations won't work. Something radical such as a debt-for-equity swap, combined with a debt forgiveness plan, a la Latin America in the Eighties, will be the ultimate solution to this crisis. On Friday, Deutsche Bank CEO Josef Ackermann agreed with me. He said that simply forcing Greece to impose austerity and reduce its budget deficit won't solve the crisis; it will only force the economy to contract further. He called for the creation of a European-style Marshall Plan, referring to the massive U.S. inspired "soft" loan plan to rebuild post-World War II Germany.

As for our markets, I maintain we are close to a bottom. Whether the S&P 500 Index bottoms at 1,275, 1,250, or worst case, 1,225, investors should be looking at equities. However, this time around I don't think commodities will lead the market. Instead, I would be looking at large-cap dividend stocks, the health care and some consumer staples as possible focus areas.

Bill Schmick is an independent investor with Berkshire Money Management. (See "About" for more information.) None of the information presented in any of these articles is intended to be and should not be construed as an endorsement of BMM or a solicitation to become a client of BMM. The reader should not assume that any strategies, or specific investments discussed are employed, bought, sold or held by BMM. Direct your inquiries to Bill at (toll free) or e-mail him at wschmick@fairpoint.net. Visit www.afewdollarsmore.com for more of Bill's insights.



0 Comments
Tags: Greece, PIGS, bailout, Europe      
News Headlines
North Adams Little Leaguers to Appear on NESN Broadcast
State Secretary Ash Preps Berkshire Leaders For Baker's Economic Plans
Clark Art Unveils Super Bowl Prize
BFAIR Speaker Example in Overcoming Challenges
Business, Education, Political Officials Eye Growth Of Innovation Economy
Cultural Pittsfield This Week: April 17-23
Pittsfield Food For Fines Program Ends April 18
Casting, Opening Dates Set for Shakespeare & Company’s 38th Season
Pittsfield Woman Tapped as New Executive Director at Snow Farm
Downing Named One of the 'Good Guys' by Massachusetts Women's Political Caucus

Bill Schmick is registered as an investment advisor representative and portfolio manager with Berkshire Money Management (BMM), managing over $200 million for investors in the Berkshires. Bill’s forecasts and opinions are purely his own and do not necessarily represent the views of BMM. None of his commentary is or should be considered investment advice. Anyone seeking individualized investment advice should contact a qualified investment adviser. None of the information presented in this article is intended to be and should not be construed as an endorsement of BMM or a solicitation to become a client of BMM. The reader should not assume that any strategies, or specific investments discussed are employed, bought, sold or held by BMM. Direct your inquiries to Bill at 1-888-232-6072 (toll free) or email him at Bill@afewdollarsmore.com Visit www.afewdollarsmore.com for more of Bill’s insights.

 

 

 



Categories:
@theMarket (166)
Independent Investor (222)
Archives:
April 2015 (3)
April 2014 (2)
March 2015 (6)
February 2015 (7)
January 2015 (9)
December 2014 (7)
November 2014 (4)
October 2014 (9)
September 2014 (5)
August 2014 (7)
July 2014 (2)
June 2014 (6)
May 2014 (9)
Tags:
Congress Energy Selloff Debt Japan Debt Ceiling Retirement Deficit Jobs Economy Banks Federal Reserve Commodities Bailout Recession Currency Fed Stocks Oil Election Markets Taxes Interest Rates Pullback Crisis Fiscal Cliff Rally Metals Europe Stimulus Stock Market Greece Euro Housing Europe
Popular Entries:
The Independent Investor: Don't Fight the Fed
The Independent Investor: Understanding the Foreclosure Scandal
@theMarket: QE II Supports the Markets
The Independent Investor: Does Cash Mean Currencies?
@theMarket: Markets Are Going Higher
The Independent Investor: General Motors — Back to the Future
The Independent Investor: Will the Municipal Bond Massacre Continue?
@theMarket: Economy Sputters, Stocks Stutter
The Independent Investor: How Will Wall Street II Play on Main Street?
The Independent Investor: Why Are Interest Rates Rising?
Recent Entries:
@theMarket: Earnings on Deck
@theMarket: Will the Second Quarter Be Like the First?
The Independent Investor: How to Teach Your Kid to Become the Next Warren Buffet
@theMarket: The Fed Does It Again
The Independent Investor: Financial Challenges Facing Single Parents
@theMarket: Pay Attention to Diverging Markets
The Independent Investor: Kids & Money
@theMarket: Home on the Range
The Independent Investor: Rise of the Smoothie
@The Market: Full Steam Ahead


View All
STEM, Industry Forum
U.S. Rep. Richard Neal and the Berkshire Chamber of...
BFAIR Annual Meeting 2015
BFAIR holds its annual breakfast meeting at the Williams...
3rd Thursday Events 2015
Director of Cultural Development Jen Glockner and Mayor...
Berkshire Chamber Nite @...
The Berkshire Chamber of Commerce held a networking event...
Tennis: MM Girls @ PHS
Monument Mountain girls tennis team won 5-0 over Pittsfield...
Tennis: MM Boys @ PHS
Monument Mountain boys tennis team won 4-1 over Pittsfield...
IS183 Versace Tchotchke Gala
IS183 Art School of the Berkshires' annual over-the-top...
Tennis: MG @ Lenox
Cami Sachetti and Emily Czelusnick battled to a 7-5, 6-4...
St. Joseph High School Play
Students at St. Joseph High School are putting their own...
Wahconah Spring Musical '9 to...
Wahconah Regional High School students rehearse for the...
Pittsfield Eggstravaganza...
Youngsters scrambled for treats on Sunday morning at...
Girls Lacrosse: PHS vs MG
Spring has slightly sprung in Williamstown as the Mount...
Schantz Exhibit at Berkshire...
Attendees mingle at a reception Thursday for the opening of...
Freeman Center Sex Assault...
The Elizabeth Freeman Center held a rally to raise...
Tyer Announces for Mayor
Linda Tyer, Pittsfield city clerk, announced her candidacy...
Pittsfield Vietnam Memorial
A memorial service was held in Park Square for those killed...
STEM, Industry Forum
U.S. Rep. Richard Neal and the Berkshire Chamber of...
BFAIR Annual Meeting 2015
BFAIR holds its annual breakfast meeting at the Williams...
3rd Thursday Events 2015
Director of Cultural Development Jen Glockner and Mayor...
Berkshire Chamber Nite @...
The Berkshire Chamber of Commerce held a networking event...
Tennis: MM Girls @ PHS
Monument Mountain girls tennis team won 5-0 over Pittsfield...
| Home | A & E | Business | Community News | Dining | Real Estate | Schools | Sports & Outdoors | Berkshires Weather | Weddings
Advertise | Recommend This Page | Help Contact Us | Privacy Policy| User Agreement
iBerkshires.com is owned and operated by: Boxcar Media 102 Main Street, North Adams, MA 01247 -- T. 413-663-3384 F.413-664-4251
© 2000 Boxcar Media LLC - All rights reserved