Tags: packer | Credit | Crunch | Europe

It’s Credit Crunch Time for Europe

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Tuesday, 13 Sep 2011 08:17 AM Current | Bio | Archive

Beware Greeks bearing bonds. That’s been the easiest financial prediction to make over the past two years. Too bad European bankers somehow didn’t get the message.

They must have forgotten lending 101: Always make sure that a borrower can either repay, or has sufficient assets to seize. The Greek government has neither. Decades of corruption have allowed the Greeks to have their cake and eat it too.

Don’t like taxes? Find ways to avoid them. Rather than pay a tax on swimming pools, for example, Greeks bought camouflage so that satellites wouldn’t show them when tax officials finally bothered to check.

The fact that tax officials are too lazy to go out and visually inspect a property is rather telling.

Greece fudged the numbers so it could join the EU in the first place. There’s one word for that action: Fraud. This severe misrepresentation alone should give the rest of Europe the chance to simply kick Greece out of the EU, declare its debts invalid, and end the emerging European credit crunch in its tracks.

Of course, Greece isn’t alone, although it’s possibly the worst. Spain, Portugal and Ireland in particular have also misrepresented their financial condition. And after two rounds of a Greek-centric crisis, it’s too late to simply walk away.

What kind of signal does this government behavior send to individuals? Again, it’s most apparent in Greece, where a small bribe in the right place can earn a substantial return in terms of taxes avoided.

Alas, Europe is the poster child for moral hazard. Why take a risk and become an entrepreneur when you can simply be a hairdresser in Greece and qualify for early retirement at full pay?

It’s been only a few months since Greece agreed to measures to avoid a default. Now it’s looking default straight in the face. Greek debt is so close to worthless that one-year bonds now yield 111 percent (and some are calculating a 100 percent chance of default).

Prepare for a credit crunch in Europe.

Investors must stay away from European banks and the euro. Switzerland threw centuries of independence away last week by pegging their currency to the euro. So stay away from the Swiss franc as well.

Across the Atlantic, American banks have their own problems, mostly tied to our anemic housing market. Bank of America, which has the largest (known) exposure to European debts, has already seen its shares fall by more than 50 percent since the start of the year.

However, interbank lending could freeze up globally if Europe falters sufficiently. So, don’t heavily invest too much in bank stocks: Patient investors could get better prices.

Gold and silver remain bastions of safety for your capital. Quality dividend-paying stocks with a strong brand should also perform well. In this category, consider companies like Intel (INTC), Coca-Cola (KO), and McDonald’s (MCD).

These assets aren’t immune to market gyrations. But they won’t fail if credit markets temporarily freeze up.

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AndrewPacker
Beware Greeks bearing bonds. That s been the easiest financial prediction to make over the past two years. Too bad European bankers somehow didn t get the message. They must have forgotten lending 101: Always make sure that a borrower can either repay, or has sufficient...
packer,Credit,Crunch,Europe
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2011-17-13
Tuesday, 13 Sep 2011 08:17 AM
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