In which financial instruments would you invest in to benefit from a Greek default?
I am starting to list the types of positions I would take if this unlikely event would occur. So far I found a list of short-turbo certificates offered by ABN-AMRO. Do you guys have any suggestions? I’m not a big commodities fan right now. I cant directly short equities due to stupid regulations in my country... bunch of idiots.
Not so new “news”:
Greece is now rated the shi*** ** country in the world… ehhh I mean the less credit worthy country in the world with a nice CCC.
S&P definition of triple C: “Issues rated ‘CCC’ have currently identifiable vulnerability to default, and are dependent upon favorable business, financial, and economic conditions to meet timely interest and principal repayments. Adverse business, financial, or economic developments would render repayment capacity unlikely.”
Today’s news:
- After 7 hours of talks this Sunday in Luxemburg, the Euro-group decided to delay the decision of giving out another 12Bn euros to Greece. I guess that means they could not get to agree.
- Today, the talks continue in order to get something rolling. Thursday there will be an EU summit in Brussels, where the possible extra loan package will be decided to be given or not.
We all know how politicians take ages to make decisions since these actions have to be agreed with a majority and there is a lot at stake (hint: Will I be re-elected for the next term). Markets can act faster than politicians, for example, the greek-german debt spread could increase even further, hence making the Greek debt repayment task even harder.
So, what would you do in terms of investment decisions?
To all the people believing that a Greek default cannot happened: let’s not forget the “lost decade” in South America during the 80’s and Russia in 1998… these things DO happen.
Was gonna post something about this last night but I really didn't expect them to finish that quick. I mean shit man they didn't even try.
Short EURUSD EURCHF was good for around 90 pips but I was surprised that they lost steam in the later hours. Should be interesting when US trading opens.
Can you short indices?
EDIT: It's fallen way more than that now lol
Exactly, they didn't really try ! I can feel the tension already --> http://www.euronews.net/2011/06/20/no-bailout-money-without-cuts-eu-tel…
I think its now up to Greece to sell assets... or default. I can already see PE firms and the Chinese rubbing their hands.
My broker offers me a simple 2x leveraged ETF that shorts the CAC40 so far, but that's on a web-based platform.
I am currently opening a more "active" trading account platform that allows me to trade CFD's, commodities and FX. I will be able to short 3500 CFD's, 15 of which are indices.
Are you positioning yourself only to short the euro so far ?
Thought this was going to be about an event with a lot of bitches...disappointed
ahahahaha +1 for you
Is what I was expecting as well...
Maybe it's because I just finished reading When Genius Failed, but this kind of widening spread between different kinds of debt was how the firm eventually needed bailout. The fund was betting on "Snap Trades" that said bond prices eventually had to converge, but here the spreads between Greek and German debt just keep on widening.
So in the short-term theoretically you would short the Greeks and go long on the Germans.
The problem is that if Greece defaults, all major banks will suffer huge losses. Which could in turn could lead to a collapse in the stock-markets.
That's exactly what I am betting on, european banks have huge exposures to greek debt and other PIIGS. This would most likely recreate a "lehman moment", as it was well explained in one of eddy's bonus banana's links this week.
Greece has 340Bn euros of debt. If it manages to raise 50Bn by selling assets it still has 290 billion euros of debt, standing at 91.2% of 2010 GDP's. That's still a shitload considering their economy is mainly based on tourism and that their economy is highly likely to shrink this year due to all the cuts and the high unemployment rate. Greece being kicked out of the EU would technically be a default since their debt would be converted into a useless currency.
I think ousting this member out of the club would make sense politically but it would create a financial mess. Such an action would show that Europe is not a club with benefits only and that there are certain rules to follow.
I guess we all have to wait until thursday to see if they came up with some decision... In the mean time the markets are still reacting violently to the dept problem.
Correct. If the Drachma returns, they'll never be able to pay back their debt. (not that they are able to with the euro).
I personally don't think Greece will default (Germany et al. have every impetus to keep them from failing). However a couple of months ago I considered the alternative; here's something I've previously posted on TMF:
Many sovereigns have defaulted in the last 50 years or so and almost all of them followed the same path. It takes a while but the market eventually deigns it safe to start lending them money again, and those original bond holders end up with what were really equity sweeteners (zero-coupon future dated PIK, etc).
Worst case Greece gets ejected from Eurozone and reverts to the Drachma, promising to repay 40% of the principal on Euro Backed bonds in Drachma -10 yrs from its maturity date. The trader will take the deal, dump the Drachma bond, and be thankful they're out. The value investor will buy the Drachma bond at 30-50% off its intrinsic value and buy a greek villa at 20-40% off the market value - financed with the Drachma denominated mortgage equal to the FV of the drachma bond.
You get your villa today and an interest only 'rent' cost for 10 years (that is getting cheaper each month on account of the drachma devaluing). At the end of year 10 you pay off the morgage with the proceeeds from your drachma bond.
Guess today is when we get an indication of whether greece will default. Could be a couple of hours from a mini crash
If there's a credit event, the people in real trouble will be the US banks. The CDS they've been selling to European banks won't be worth the premiums.
The problem with the current ECB strategy is that by avoiding a credit event and pulling some sort of "voluntary restructuring," they're voiding the protection European banks have been buying and only delaying the inevitable, that is a major haircut to bondholders. Instead of forking over so much cash to Greece just so they can be in a worse spot 4 years from now when debt reaches 150% of GDP, politicians should force a restructuring and haircut on bondholders akin to what happened under the Brady plan. Banks have had plenty of time to get ready for this and that's the only way Greece can be expected to grow out of this mess.
I don't think an "extreme tail event" will be coming out of Greece this Summer. Investors are simply too concerned with macro factors right now and the PIIGS debacle has been in the public spotlight for a long time. A more likely source of a "Lehman moment" would be a technical default because of the debt ceiling debate here in the US. Bonds don't seem to be pricing that in right now and liquidity will probably dry up as banks shy away from Treasuries as the deadline closes in. If a serious plan for our debt emerges during such a crisis, yields would probably end up plummeting but not without some absurd intervening volatility.
Yep, I agree. Bur not necessarily that the US banks will be in trouble. The French, and Swiss banks have loads invested in Greece. The US banks will have trouble when the stocks of the french banks fall.
The moment Greece defaults, and the US cant raise their debt ceiling, stocks will only go one way, down.
I think Greece has to default and banks should incur the losses now instead of the ECB etc. pumping money into Greece for years (and not getting anything back for it).
Ing is selling its investment management branch to UBS to prepare for IPOs of several other branches.
http://www.smh.com.au/business/ing-sells-australian-investment-unit-to-…
Guardian had posted a detailed list of banks that hold Greek debt.The thing is that no European bank (or perhaps one German) has large exposure relative to their size. i.e. BNP Paribas has 5 bln,but has huge capitalization.All foreign banks have aroung 40 bln...On the contrary Greek banks have around 50 or even more.And when National Bank of Greece (the biggest bank in the country) has 9bln capital and 20 bln greek bonds,with a 45% haircut it just goes bankrupt.And thats why a haircut or default will be bad for the Greeks (including me :) ).The problem will spread internaly.. I cannot propose very specific instruments to invest in,but rather point out some areas of interest:
EASTERN EUROPE:Greek banks are the biggest lenders in easter europe (Ukraine,Bulgaria,Romania etc).If Greece defaults,they should default to.This will cause great trouble to the financial systems of these countries.You can short eastern european stocks and bonds,and buy CDS.I'm not sure what will happen to their banks.They may face trouble,or they may take advantage of the whole situation and buy their competitors (greek banks) cheaply. CAUTION-I believe a possible solution would be to leave greece to default,and then recapitalize its banks (it will cost far less than all these loans to the country).If this happens,the above strategy is useless.
PI(G)S:If Greece defaults soon,it will certainly bring tubrulence to these countries.Not sure about their stocks,but definetely you can short bonds-buy CDS.For now default is not an option,but if these happens,investors will understand that default will automatically become and option for PIGS too.This is the best way to take advantage of a Greek defualt.The longer it takes Greece to declare bankraptcy,the smoother the effect will be.Spain,Portugal and especially Ireland have taken serious measures which will start bearing fruit.In a couple of years (when all instalments of the first loan to Greece will have been paid),these countries (and again especially Ireland because it has a very dynamic economy) will be in a better fiscal position and able to repay their debts without help from the EU and the IMF.
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