Tags: Greek Debt No Place for Long-Term Investors

Greek Debt No Place for Long-Term Investors

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Tuesday, 22 Dec 2009 10:14 AM Current | Bio | Archive

We already knew that Greece’s public finances were in dire straits. Well, this morning, Moody's Investors Service finally cut the country's government bond ratings to A2 with a negative outlook, from A1.

Moody’s also said future ratings decisions will hinge on the government following through with deficit-reduction plans. Moody's added that it doesn't believe the Greek government's difficulties represent a vital test for the future of the euro zone.

Earlier this month, Standard Poor's and Fitch Ratings cut Greece's sovereign bond ratings. Fitch was the first agency to cut Greece's credit rating to triple-B-plus on Dec. 8. The S&P followed suit Dec. 16, also cutting Greece's credit rating to triple-B-plus from single-A-minus.

The 10-year yield on Greek government bond yield spread over bunds, German government bonds that act as the benchmark for the European government bond market, widened to 283 basis points from 278 basis points late yesterday as investors demanded higher premiums on Greek bonds.

Yes, Greek sovereign debt and its peers will remain a problem throughout 2010 and beyond. This is not the first time the Greece’s 10-year sovereign reaches these yields; in fact, the 10-year yield was even higher as late as in March while the German 10-year bund yield was actually lower in March.

So far, Greece has been struggling for years from one crisis to another and it doesn’t look like things are going to change for the better anytime soon. People who are interested in “trading” Greece’s sovereigns should be seriously risk-tolerant and very well informed. For Greece there is always one constant element, one that favors traders, and that is never to take public statements seriously.

Wild swings always give trading opportunities. On the contrary, long-term investors should not touch Greece’s sovereigns for some time to come.

Dubai World, which is restructuring $22 billion of debt and yesterday didn’t present a formal debt standstill proposal at a meeting with 90 bank creditors, said in an email that the city-state will cover the company's working capital expenses: "As long as a standstill is successfully implemented, Dubai World has assurances that the Government of Dubai, through the DFSF (Dubai Financial Support Fund), will provide financial support to cover working capital and interest expenses to ensure the continuity of key projects."

This morning, on the dollar and the euro, I’d like to say that notwithstanding that the uptrend in the dollar as well as the downtrend in the euro remain intact, wave analysis tells us that the potential for a countertrend move in both is “probable” once both the dollar and the euro have performed another “push” in their respective actual up and down directions.

In my opinion, these near-term swings are occurring within the context and are at the start of a major advance in the dollar that could bring the dollar index well above the march high of 89.62 and a retreat of the euro that could bring it down to around the $1.25 zone.

Of course, I could be wrong and nothing is written in stone.

On the stock markets, SPY, which mirrors the S&P 500, yesterday closed at 111.33, which was its highest closing level of the year. The SPY is hereby challenging resistance on the upside, which means that, for now at least, the bulls still have the definitive edge.

That said, I would like to advise prudence and consider the glass half-empty instead of half-full for the very simple reason that the short-term risk-reward ratio is not good for new long positions.

In fact, the current risk-reward ratio favors short positions. But, please take care; I would never consider a bearish position when both the short-term and medium-term trends are still up and, besides that, until yearend, seasonality remains a supporting factor for the market. Even though we now have justified and logical debates on stock valuations, the economy, and the need for a correction, for the time being there is, at least in my opinion, no debate on the current uptrend.

As I’ve said before, new highs occur during uptrends, not in downtrends. For now, the SPY support zone remains at around 107 to 108, which has held since mid-November. That support zone is what should keep our attention for the time being. A close below 107 would warrant a reassessment of the medium-term uptrend.

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We already knew that Greece s public finances were in dire straits. Well, this morning, Moody's Investors Service finally cut the country's government bond ratings to A2 with a negative outlook, from A1. Moody s also said future ratings decisions will hinge on the...
Greek Debt No Place for Long-Term Investors
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2009-14-22
Tuesday, 22 Dec 2009 10:14 AM
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