Finding opportunities amongst the Greek debt noise
July 23, 2011 Leave a comment
I have found that watching debt markets can help you assess opportunities & risks in equities.
For example, let’s look at the yield of Greek debt.
Forget the 14& yield on the 10 yr debt, Greek 2yr debt is yielding 25%.
Irish and Portuguese 2 year debt is 13%.
Spanish and Italian 2 yr debt is barely giving investors 4%, which incidentally are the debt markets to watch.
25% is a big difference between 13% – it easily tells you Greece is not in the clear even though there is a proposed 2nd EU rescue package. In fact, if govn’t debt is yielding 25% – it should default. The wording in the recent ‘draft proposal’ can be paraphrased as a “technical debt”.
Europe’s back-stop will remain in place as long as it can, but I can’t (at this stage, whilst still analysing the particulars) easily accept the EU “put” in the same manner as the “Bernanke put” that started a rally in U.S. equity markets in August 2010.
If the “EU put” is so steadfast, then “back-up the truck” and buy the heck out of Greek debt? Geez – 25% return in 2 years…
Keep in mind that the Euro Zone still has 17 member states with 17 different national governments. This is the simple reason why they’ll have a tougher task than the United States legislators in coming to conclusions.
Equity opportunities may be found in companies that suffer from broader EU “down-drafts” but reside and are domiciled outside the Euro Zone in countries such as Switzerland, Denmark, England, Norway and Sweden.
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