GREECE DEFAULT
The financial world is holding its breath waiting for some kind of Greek bond swap deal. The negotiations seem to go on forever.
And what is the point anyhow? It seems like we are trying to avoid an actual default which is considered “messy” by having a sort of soft-landing “orderly” default where investors “voluntarily” swap their bonds for new longer term bonds at some 50 cents on the dollar. It sure looks, walks and quakes like a default but they would try to dress it up as a voluntary thing. Apparently the idea is to avoid the triggering of credit default swaps (insurance against deault) since triggering those would have nasty ripple affects.
This seems to be madness for a number of reasons. 1. Greece is going to have some trouble borrowing in future either way. 2. If Greece obtains this voluntary 50% reduction in its debt it then gets bail out money that it presumably has to repay. 3. The European Union is requiring austerity measures that will shrivel Greek’s economy 4. The Greek people are mad as hell and not willing to take this. 5. It’s exceedingly unlikely that the actual owners of these bonds will voluntarily take the 50 cents at the end of the day. The bond holders are apparently represented by a finance industry group which I strongly suspect has no power to bind the actual bond holders. 6. The actual bond holders are corporate entities and pension funds that probably face fiduciary barriers from negotiating a voluntary hit like this outside of an actual bankruptcy process. 7. Hilariously enough event eh European Central Bank which has bought up a huge amount of the debt is not willing to take this voluntary reduction.
So, what should Greece do?
Here is my (possibly mis-informed) prescription:
Greece should immediately default on all bonds except those held by its own citizens and corporations. (If not an immediate default then consider something like a forced swap for perpetual bonds (at perhaps dollar for dollar or 50 cents on the dollar or whatever) and paying say 3% and redeemable by Greece at any time).
Basically Greece simply can’t afford to pay these bonds when due and so they gotta do something. Just like a peron sometimes has no choice but to go bankrupt.
These (like I guess all or nearly all sovereign bonds) were non-recourse bonds anyhow, too bad people did not read the fine print.
Then simply borrow new money by offering bonds backed by assets and future taxes. Investors world wide will lend to them when backed by assets and enforceable by some kind of world court or United Nations or something.
Sell bonds to its own citizens also backed by assets.
Paint the rest of the world as the villains and encourage Greeks to invest in Greek bonds.
Greece default is thought to harm Euro banks. So what?, the EU can bail those out. Some Greek bond holders will like this plan as credit default swaps will pay off. Too bad for the banks that issued that insurance. Anyhow EU can bail out the banks.
Take some austerity measures like pay cuts to government workers and later retirement ages but try to avoid killing the economy. Sell off assets as needed.
Do this very soon and stop all this nonsense about a voluntary default that is not called a default.
Other News:
It ended up being a “mixed” day in the markets.
I would not mind trimming some of my positions, but for the most part I feel like I would want to hold out for higher prices. And if we instead get a meaningful decline in any of the stocks I own (say 10% or more) I may just add to positions instead. (You know, buy low, sell high).
I almost wish Boston Pizza ($15.64 had not risen so soon after I bought it which was on December 28 at $14.00.
I like to think I would have bought more in January had it stayed at $14. I bought it for the dividend. It may still be a good pick but I always have a hard time buying more shares at a higher price since that seems like an admission that I should have bought more. This is basically an illogical thought pattern, but it is an emotional pattern that is a reality I have to deal with. I’ll try to update the report on this one shortly because after I update a report, that seems to act as a re-set switch in my brain and then I am often more prepared to pay the higher price if a fresh analysis indicates it is still a good buy.
Another point to consider is that just because a stock is expected to by a good buy does not automatically mean you should buy it. Perhaps you are already over-exposed to that stock. More importantly it almost certain that out there somewhere is a BETTER buy, so it can make sense to sit on cash and wait for a better opportunity. (Just as girl does not have to grab the first acceptable guy that comes along, she may want to wait and look for a better choice, and waiting is especially wise when applied to life-mates since it tends to be a one-time decision – If you think the cost to trade stocks is at all high — especially including capital gains tax, try trading in your spouse – not something I ever want to experience nor would I recommend you try it.)