While we only “heard” about two major defaults (or coming close to, Greek and Portugal) but there are several countries coming very close to default. From my little following of the news Ireland, Spain and probably Italy were also close to default or getting there fast. I didn’t realize what “debt ceiling” meant for US, it probably was sweat wraps around otherwise default. So US could be close to default in 1st week of August. I see people making huge bets last few days (Jun 24+) setting bulls on fire in US stock markets.
What do you guys think of possibilities if US defaults? I think it won’t default and they will be able to raise the debt ceiling but what if they don’t? Financial doomsday?
PS: Is there a “list” that I can see which countries are close to default?
Re: Countries on verge of default or close encounters
The pundits are now more concerned about Europe. The usual suspects - Greece, Portugal, Ireland, Spain, Italy (not sure in which order). Investors in the US have been advised to stay away from multinationals that get > 25% of revenues from Europe.
If you believe the Europe concerns are overblown, a contrarian play (buying Europe after a drop due to debtdefault fear/hype or buying US multinationals with exposure to Europe after their stock has been beaten up) could be rewarding.
Re: Countries on verge of default or close encounters
The pundits are now more concerned about Europe. The usual suspects - Greece, Portugal, Ireland, Spain, Italy (not sure in which order). Investors in the US have been advised to stay away from multinationals that get > 25% of revenues from Europe.
If you believe the Europe concerns are overblown, a contrarian play (buying Europe after a drop due to debtdefault fear/hype or buying US multinationals with exposure to Europe after their stock has been beaten up) could be rewarding.
I wish I had that extra cash to play with but I am not going anywhere close to stocks investments for now. Though investors are eyeing only Europe's debt issues probably thinking US will not default and the ceiling will be raised, but what IF the ceiling is not raised in due time, the results could be devastating for global financial markets and ripple effects would be all over the place.
Re: Countries on verge of default or close encounters
I wish I had that extra cash to play with but I am not going anywhere close to stocks investments for now. Though investors are eyeing only Europe's debt issues probably thinking US will not default and the ceiling will be raised, but what IF the ceiling is not raised in due time, the results could be devastating for global financial markets and ripple effects would be all over the place.
Sure. One should not speculate. But one should stick to a long term strategy - if that is dollar cost averaging, one should not abandon it, especially during times of distress - because that is when opportunities are maximum.
If the US debt ceiling is not raised, the stock market would probably come down a lot. After it comes down, ther could be opportunity.
Too often, people abandon the market at just the wrong time - example March 09. And get in at wrong time when things look rosy - example Oct 07.
Re: Countries on verge of default or close encounters
Just onne point - above is just personal opinion - not a recommendation for anyone to buy or sell. In this case, you get what you pay for!
In that spirit, yesterday's Wall Street Journal had an article on Europe. Pointed out how the Euro actually has held up well against US dollar. And how the exchanges have also held up well (of Germany, UK, France etc). And SmartMoney had a line that stated P/E in Europe has not been cheaper in last 20 years.
Anyway, right now too much risk. However, if the European stock market crashse, then after the crash, there will be less risk. Ditto US. If US market takes a nosedive due to debt default hype, then opportunity.
Re: Countries on verge of default or close encounters
Sure. One should not speculate. But one should stick to a long term strategy - if that is dollar cost averaging, one should not abandon it, especially during times of distress - because that is when opportunities are maximum.
If the US debt ceiling is not raised, the stock market would probably come down a lot. After it comes down, ther could be opportunity.
Too often, people abandon the market at just the wrong time - example March 09. And get in at wrong time when things look rosy - example Oct 07.
Agreed!
Re: Countries on verge of default or close encounters
In July 18th week of Barron's there was an excellent article on Europe. One rating agency, which apparently was ahead of the game callingoutproblems with CIT, Lehman, Countrywide at the right time, is now stating how bad it is in Europe. Their work is paid for by custormers (who buy their research). As opposed to Fitch S&P etc who get paid by European countries to rate their debt (just as these agencies get paid by US companies to rate theri debt). No winder S&P et al is always late when it comes to downgrading. Apparently, Fitch recently downgraded Portugal debt by 4 notches, while the agency in this article downgraded Portugal to this level several months ago.
For Greece, Portugal Ireland the debt/GDP ration is > 100%. Also annual tax revenues are only 20% of debt outstanding. Lots of leading banks are on the hook. Just as an example, Llloyds I think has > 50 billion exposure, and it does not have capital to cover writedowns. It could end up with negative equity even with 20% writedown of money it has lent to these countries. There could be ripple effect on US - since Federal Reserve has some agreement to transfer money short term to European Central Banks.
Based on this, I would run as far as I can from Greece bonds. Also stay away from European banks,
I should not have wrtten so flippantly earlier about buying Europe. I dont knoe enough about how bad the deal is there. Suffice to say the banks over there probably have lots of trouble ahead.
Re: Countries on verge of default or close encounters
^ The numbers in above post are just from memory - point was not to write down exact numbers - but just paint the picture.
Imagine you owe someone 100 billion dollars, and your take home pay is only 20 billion dollars, plus you lost another 10 billion dollars this year (and possibly will lose another 10 billion dollar next year).
Re: Countries on verge of default or close encounters
^ thanks for the info, can you find out what rating agency that is? I don't like much of Moody's, Fitch and S&P, most of their ratings seem to be AFTER effects when people somehow already know/have-feeling of.
Re: Countries on verge of default or close encounters
^ thanks for the info, can you find out what rating agency that is? I don't like much of Moody's, Fitch and S&P, most of their ratings seem to be AFTER effects when people somehow already know/have-feeling of.
Captain - the rating agency - Philly based Egan-Jones Ratings. July 18th issue of Barrons - interview by Jack Willoughby.
It is a SEC-regulated ratings agency. Customers pay for research and rating. "In contrast, Moodys S&P and Fitch are paid by issuers of securities they are rating". That is why the latter suck big time - as you say downgrade after the fact. They have conflict of interest. Difficult to criticize the hand that feeds you.
Thought I will give some real numbers for Greece:
Debt:330 billion Euros
debt/gdp 153%
Interest cost 50b (is this annual interest payment or total - not stated)
Tax revenue 48 billion - only ~ 15% of (debt + interest cost)
Govt deficit annualized $16B
One example for Lloyds
Exposure to these countries Greece et al) 32B euros
expected write downs 22 billion
equity/assets assuming above write down - -1.85%
I assume last line means it will have negative equity.
Let me know if you need more info. Sorry for earlier flippant opinion.
Re: Countries on verge of default or close encounters
^ You are welcome!
By the way, Sean Egan, the President and Co-founder was interviewed.
One needs to double check if this ratings firm indeed does have a good record or not. Just one article in Barron's may not be enough - need to verify from alternate source.
Re: Countries on verge of default or close encounters
^ yes - it is like stock analyst who downgrade a stock after a bad earnings announcement and after the stock price has fallen like a rock. Too late to help anyone (unless one is contrarian and picks one's spots for value)
Re: Countries on verge of default or close encounters
The debt ceiling tamasha may have provided an opportunity - bought stock index funds using some cash that had been set aside hoping for volatility on the down side. For a value investor, an up market is depressing. S&P 500 was down 19 pts (~ 1.55%) - transferred pre-determined amount basedon the pct drop. But got whipsawed since market came roaring back and ended up 7 pts (0.55%).
But over the week, putting little amt at a time hopefully will ay off in the long run. Above is an example not of speculation, but of taking advantage of downside volatlity to pick up (hopefully) cheap shares. Time will tell.
Again, this is not a recommendation for people to go and buy (or sell) now. Just wanted to follow up on my earlier posts where I had indicated following thisi strategy of picking up shares after they drop due to debt related or other macro issues.
