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.
|“Central planning geniuses seem to be flummoxed.”|
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.
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 Markets website.
Remember all that happy talk about an Iranian nuclear deal, and how it was going to lead to untold millions of barrels of Iranian oil hitting the market? Well, Western and Iranian negotiators are now admitting they’ll miss the June 30 deadline for a compact. Both sides are wrangling over sanctions, monitoring, and other issues.
A Taliban attacker rammed into a NATO convoy in Kabul, killing one and injuring 22. Meanwhile, officials in Tunisia said they had started arresting accomplices of the 24-year-old attacker who gunned down 38 people at a beach resort in that country.
Towers Watson (TW) and Willis Group (WSH) agreed to an $18 billion tie up. The deal will unite Towers Watson’s business and health care consulting unit with Willis’ insurance brokerage and risk management operations.
New Jersey Governor Chris Christie threw his hat into the presidential election ring today, bringing to 14 the number of candidates vying for the Republican nomination. Of course, his chances look pretty slim given dissatisfaction with his performance in New Jersey.
What do you think of the Iranian negotiations – should we just give up at this stage? How about the upcoming elections … who is your favorite among the Republican candidate field? Any other stories that have your blood boiling? Hit up the website and share your thoughts.
Until next time,