Is now the time for Greek debt

[s_wilwerding]

I was just thinking the other day - whenever you hear about people making gobs of money, it's always something that a lot of people saw coming - housing crash, pound decoupling from deutchmark, etc., and that if I would have just bet some money on what was looking like the inevitable thing, I would have made a chunk of money.

So, the question - is it the time to be buying Greek debt? If they get bailed out, it seems like you could make a whole lot of money when the interest rates for their debt go back to normal.

Thoughts?

[wdfifteen]

Seems like a total crap shoot to me. I'm not opposed to gambling and I've paid for a couple of visits to Vegas with blackjack and poker, but I'm not sure how to figure the odds on the Greek debt thing. You can be sure whoever you are handing your money too is planning to keep some of it somehow. It seems too much like playing poker with a dealer who looks at your cards before he decides to give them to you.

[Porsche-O-Phile]

Possibly. I've actually been thinking about this too - ditto watching the Euro and trying to figure when it might bottom out relative to the USD. Personally I think the ROR on Greek bonds aren't high enough, but I'm not a bond expert and haven't run any kinds of models or comparative analyses yet...

[Dottore]

You don't want to buy Greek debt.

Europe has much larger problems coming down the pike. If anything, the Greeks will default.

You might want to short the Euro.

My 2 cents.

[Drisump]

For what it's worth, I agree with Dottore. The problems with Greece are deep seated and likely to last many years, also IMHO, the continuation of the Euro is not assured. Indeed, I can't see how the Germans aren't looking at ALL options to extricate themselves from this morass. Good luck

[jyl]

My take -

The entire eurozone, including investors, commercial banks, the ECB, has a problem which is that a couple of their peripheral countries are effectively bankrupt (Greece, Ireland) with a couple others at risk (Spain, Portugal), the government debt from those countries is widely and foolishly held all through the EU, and monetary policy in the EU (interest rates, euro currency) is exactly the opposite of what those BK and at-risk countries need.

The EU is trying to concentrate all the pain of fixing that EU-wide problem down onto a handful of small populations. Which is - loose analogy - something like forcing a few US states to bear the pain of solving the budget problem for the entire USA.

I think that is not workable - people in Greece and Portugal will not bear that degree of pain in order to spare French and German banks, the ECB, some US banks, etc from recognizing investment losses. Those are democratic countries and the average Greek is no more willing to nail himself to the cross for the so-called greater good (of large foreign corporations and banks) than the average American would be.

At some point the local governments will fall and the new governments will decide that the consequences of default can't be worse than the consequences of strangling austerity for the next decade.

Keep in mind that Europe did far less during the financial crisis of 2008/2009 than the US did. In the US, we forced the banking sector to take huge writedowns, forced banks to replenish capital via TARP and asset sales and stock offerings, pretty much wiped out equity holders (ask whoever owned C from $550 to $10), forced the weakest banks to liquidate or sell themselves (Bear, Lehman, WaMu, Merrill, etc), and through all of this intense restructuring the US govt stopped a broad financial collapse by using the power of the US Treasury and Fed (negative real interest rates, multiple $ trillions in capital). So today the US banking system is relatively healthy (in terms of capital ratios and profitability) and the worst of the financial crisis is behind us, even though the recovery will still be a long one.

We could do this because the US has a strong central government, it acted decisively even if not 100% correctly, and the Treasury and Fed were working together. Europe has a weak central government, there are many obstacles to decisive action, the national govts don't necessarily work in lockstep with the central bank, and remember that the ECB and other aspects of the EU are really quite young and inexperienced, as far as central governments go.

By the way, China is facing a major debt crisis of its own - read up on Chinese local and national government debt - but they have a strong and decisive central government.