Friday, October 31, 2014 11:01am
North Adams, MA now: 39 °   
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
Pittsfield Debates Control Over School Department Budget
Lenox Calling Special Town Meeting
Community Bids Farewell to MCLA's Grant & Canavan
Adams COA Loads Up 'Buckets of Sand' for Local Senior Citizens
BRPC Concludes Train Station Study, Encourages Towns To Stay Involved
2014 Bazaars & Craft Fairs
Berkshire County Arc Launches 2014 Annual Campaign
North Adams Edward Jones Office Supports Toys for Tots Drive
Adams Selectmen Updated on Park Street, Town Projects
Visitors Bureau: Tourists Spent $161 Million In Lenox Last Year

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 (149)
Independent Investor (201)
Archives:
October 2014 (8)
October 2013 (1)
September 2014 (5)
August 2014 (7)
July 2014 (2)
June 2014 (6)
May 2014 (9)
April 2014 (8)
March 2014 (6)
February 2014 (6)
January 2014 (7)
December 2013 (8)
November 2013 (7)
Tags:
Retirement Europe Debt Ceiling Stocks Greece Commodities Crisis Bailout Markets Selloff Fiscal Cliff Energy Jobs Europe Stock Market Euro Congress Banks Debt Election Economy Recession Japan Currency Fed Pullback Stimulus Oil Deficit Federal Reserve Interest Rates Taxes Housing Rally Metals
Popular Entries:
The Independent Investor: Understanding the Foreclosure Scandal
The Independent Investor: Don't Fight the Fed
The Independent Investor: Does Cash Mean Currencies?
@theMarket: QE II Supports the Markets
@theMarket: Markets Are Going Higher
The Independent Investor: General Motors — Back to the Future
The Independent Investor: How Will Wall Street II Play on Main Street?
The Independent Investor: Will the Municipal Bond Massacre Continue?
@theMarket: Economy Sputters, Stocks Stutter
The Independent Investor: Why Are Interest Rates Rising?
Recent Entries:
@theMarket: All Clear
The Independent Investor: The Elephant in the Room
@theMarket: So far, So Good
The Independent Investor: OPEC's Oil Ploy
@theMarket: Are We There Yet?
The Independent Investor: Why Is This Recovery Different?
@theMarket: October Starts Off on High Note
The Independent Investor: Money & Divorce — What You Should Know
@theMarket: Wash, Rinse and Repeat
The Independent Investor: Is Wall Street Responsible for Climate Change?


View All
Grant & Canavan Farewell...
MCLA President Mary Grant and her husband, James Canavan,...
Girls Soccer: Franklin Tech...
McCann Tech girls celebrate 3-0 semi-finals win advance to...
Girls Soccer: Pittsfield vs...
The Pittsfield and Wahconah girls soccer teams on Tuesday...
Soccer: Putnam vs McCann Tech
The McCann Tech boys soccer team closed out the home...
Soccer: Hoosac Valley vs...
MCLA Boo Bash 2014
The annual MCLA Boo Bash hosted by Berkshire Towers...
Girls Soccer: Commerce vs...
McCann girls soccer team Senior Day game on Monday...
Adams Lions Club Halloween...
Children followed the Hoosac Valley Marching Band down Park...
Girls Soccer : Mount Greylock...
Flynn scored her second goal of the game to stop a Hoosac...
Football: Mount Greylock vs...
The undefeated Wahconah High School football team shutout...
Football: Lee vs Monument
Saturday afternoon football Lee wins over Monument Mountain...
The Massachusetts Junior...
The Massachusetts Junior Classics League held its fall...
Football: Hoosac Valley vs...
Hoosac Valley overpowers Drury 63-12, Saturday afternoon.
Pittsfield Halloween Parade...
Monsters and zombies, princesses and Jedi ushered in the...
Soccer: Wahconah vs Lenox
Collin Parrott scored three times on Tuesday to lead the...
Girls Soccer: Wahconah vs...
Rachel Donahue scored with four minutes left to give the...
Grant & Canavan Farewell...
MCLA President Mary Grant and her husband, James Canavan,...
Girls Soccer: Franklin Tech...
McCann Tech girls celebrate 3-0 semi-finals win advance to...
Girls Soccer: Pittsfield vs...
The Pittsfield and Wahconah girls soccer teams on Tuesday...
Soccer: Putnam vs McCann Tech
The McCann Tech boys soccer team closed out the home...
Soccer: Hoosac Valley vs...
| 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