I couldn’t help but wonder yesterday as the markets melted
down thanks to multiple debt crises if there are any governments out there NOT
going broke?
Greece is the biggest basket case, and it lived up to its
word today – skipping a 1.6 billion euro payment due the International Monetary
Fund (IMF). The country’s existing bailout program expires later today, and
there was some early chatter about a possible last-minute deal.
But nothing had been agreed to as of press time, largely
because European politicians are at wit’s end and Greek Prime Minister Alexis
Tsipras looks to have overplayed his hand.
Then there’s Puerto Rico, the U.S. commonwealth. The island
state itself and its government-backed utility, water and other corporations
are weighed down by a hefty $72 billion in debt. That is forcing Governor
Alejandro Garcia Padilla to go hat in hand to Washington for help.
Puerto Rico is facing a $72 billion in debt its government
says it can’t pay.
He wants the option of filing for Chapter 9 bankruptcy.
That’s something states can’t do legally, but that ultimately helped troubled
municipalities like Detroit get their finances in order by cramming down
obligations.
High-yield municipal bonds got crushed yesterday after
Padilla’s default warning. That, in turn, smashed shares of MBIA (MBIA) and
Assured Guaranty (AGO), two bond insurers with billions of dollars of insurance
exposure to Puerto Rican munis.
And how about China, the second-largest economy in the
world? The country’s benchmark stock markets collapsed by more than 20% in the
past few weeks (before surging overnight by the largest margin since early 2009
amid talk of government intervention). A real estate crunch and broader
economic slowdown there are raising concern about large-scale debt defaults by
cities and quasi-private corporations.
The New York Times headlined the problem “Loads of Debt: A
Global Ailment With Few Cures” in a story today. It notes that the world’s
central banks have printed up $10 trillion in aid for the global economy … but
that we’re still dealing with bouts of financial instability and weak growth.
Yet the central planning geniuses seem to be flummoxed. They
can’t figure out why “solving” a debt crisis by burying consumers,
corporations, and entire countries in even more debt isn’t working.
The only solution is widespread write-downs, cram-downs,
defaults, bankruptcies, and basically a process whereby we hit the financial
“reset” button. But politicians and their central banking buddies know that
would involve tons of economic pain. So they just keep trying to paper over the
problem … again and again.
My advice: Don’t own high-risk, long-term government debt.
Avoid countries mired in financial crisis. Stick with highly rated stocks in
select sectors wrapped up in their own bull markets. Also consider stocks that
offer generous yield cushions … or stocks that have already been beaten-down to
dirt-cheap levels. That gives them a valuation cushion their high-flying
counterparts simply don’t have.
It doesn’t mean you won’t take a few hits on days like
yesterday. But it does put you in the catbird seat for long-term investment
success!
So what’s your take? Why do so many countries look like
financial deadbeats these days? Who’s the next one to go over the financial
falls after Greece? What strategies are you implementing to protect your
hard-earned wealth in a world gone broke? Let me know over at the website.
Our Readers Speak
Greece, government debt, and the ongoing gigantic mess in
Europe were the biggest topics on your mind at the website in the past 24
hours.
Reader Sohail said that even at this late stage, some kind
of solution will likely be found: “I still think a last minute
kick-the-can-down-the-road deal will be done. The majority of the Greek
population is likely to want to remain in the euro. “In 1929 in the Great
Depression here in the United Kingdom, 75% of the working population remained
at work. For them, life was pretty good. Similarly for the Greek establishment,
life is relatively better than it would be outside the euro.”
Reader H.C.B. also said the markets seem to be signaling
optimism about a deal, despite yesterday’s stock market slump. His take: “It’s
not a long-term panic, as gold and silver markets barely moved. Fear of a
global contagion surely would have been reflected in the precious metals
markets.“Europe and the ECB will eventually have to release some more funds for
Greek banks to loosen things up a bit. In the meantime, hold on tight. It’s
going to be a volatile ride for a while.”
Reader Donald L. added that the current crises we’re facing
pale in comparison to those of a few years ago, saying: “The total potential
losses from Greece and Puerto Rico combined are a fraction of the losses
incurred in 2007-09 from just the investment banks in the U.S. “Will there be
pain? Yes. Will it slow economic growth throughout the West? Maybe by 1%,
temporarily. Like a virus, can it be contained and treated with strong
medicine? Of course. Will lessons be learned? Hell no!”
But Reader Billy took the opposite tack, pointing out that
Greece is just one among many countries facing the same underlying problem. His
view: “As many have stated over and over, the Greek debt crisis is not just
about Greece. This is about a Keynesian banking system that is out of control
and has printed trillions and trillions and trillions of dollars of fiat/based
paper currency worth less over time … and the associated creation of trillions
and trillions and trillions of dollars of debt, massive debt that simply cannot
be paid off.
“This debt could not be paid off even in the best of times.
Greece is simply the very tip of the current debt and leverage iceberg!”
Reader Rob picked up on that line of thinking, too, saying:
“Gotta love fiat money! If it wasn’t for our printing rights and the
Petrodollar purchases, we would be right next to a Greek asking what the heck
happened to our money too … We’re broke, so be very careful as to whom you may
be turning your nose up to. You may just be sitting next to a Greek one day
with your hands on your head trying to recover from a Federal Reserve one-two
punch to the face.” It is sad when you think about just how many governments
are up to their eyeballs in debt – and how so few seem equipped to cope with
it. As today’s column notes, Greece is far from alone … and that means it’s
only a matter of time before more and more countries face their own “Bloody Wednesday”
crises!
What else do you have to add to this discussion? I can’t
wait to hear. Let me know over at the Money and Marketswebsite. Until next time, Mike Larson
For more information and archived issues, visit www.moneyandmarkets.com.
Money and Markets is a free daily investment newsletter published by Weiss
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Market RoundupDow-23.16 to 17,619.51S&P-5.467to
2,063.11NASDAQ+28.40 to 4,986.8710-YR Yield+0.004 to 2.335%Gold-$7.50 to
$1,172.60Oil+$1.08 to $59.41
"Source: http://www.moneyandmarkets.com"
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