Toronto Escorts

To the slaughter

oil&gas

Well-known member
Apr 16, 2002
12,220
1,618
113
Ghawar
http://www.thestandard.com.hk/news_...2&sid=28177979&con_type=3&d_str=20100510&fc=1

Martin Hennecke

Monday, May 10, 2010

As regular readers will know, we have been warning since June 2008 of
the domino-style sovereign debt collapse across the euro zone that is
starting to unfold now, with Portugal, Ireland, Italy, Greece and Spain
(the PIIGS) being the first victims.

So as this crisis has now come into the open and grabbed everyone's
attention, most investors are unsure, confused and asking what does this
mean, what will happen next, what are the implications of this crisis,
how will it affect "the markets" and could this be a repeat of 2008,
or something else?

What is important to understand in this regard is that the 2008 financial
crisis was never resolved. The problems were merely transferred from
the balance sheets of insolvent Western banks to the balance sheets of
already-struggling Western governments.

Most importantly, it needs to be understood that most Western countries
- and not just the PIIGS - are in trouble and, in fact, were already
struggling with unsustainable debt and budget deficits even before the
2008 financial crisis.

Standard & Poor's projected back in March 2005 that even France, Germany,
Britain and the United States may all be facing junk status on their
sovereign debt and possible national bankruptcy in the future, starting
with the insolvency of France in 2023.

Note that this projection was made several years before the 2008 crisis
started, hence one should safely assume that a similar projection -
if made today - with staggeringly high bailout costs resulting from
the crisis, and sharply reduced tax revenues since then - would only be
worse, with the sovereign debt crunch likely to materialize even sooner
than suggested by Standard & Poor's.

It is most likely for this reason also that Bill Gross of Pimco,
the largest bond fund manager in the world, recently announced reduced
holdings of US and UK sovereign bonds, warning investors most explicitly
against investing in Great Britain "because British gilts [government
bonds] are resting on a bed of nitroglycerin."

This is similar to Alan Greenspan's comparison of the danger signals on
treasuries being akin to a "canary in the mine."

In 2008, investors panic-sold commodities and stocks - the perceived
high-risk asset classes - and sought shelter in the perceived safe haven
of Western sovereign bonds and cash.

In this second phase of the crisis however, which is centered around
public debt and sovereign bonds, we may actually witness the opposite
development, with panic-selling of Western sovereign bonds and currencies,
and investors seeking shelter in various commodities, starting with gold,
as well as other inflation-proof assets.

This may include stocks as well, because stocks often represent real
assets such as resources, factories, land etc.

Over the last few weeks we have already witnessed the start of a safety
flight into gold, with the metal posting new-all-time highs in euro,
swiss franc and sterling terms, as its price leapt on bad news such as
sovereign rating downgrades.

In the short term, we may still see a sell-off in the commodity and equity
markets, as well as a sell-off particularly in the local property market,
which is over-priced and over-leveraged.

This sell-off could materialize because of fear and uncertainty returning
to the marketplace, and this is the reason why we advise investors to
be positioned cautiously and to avoid any leverage and debt, including
mortgages.

But it needs to be recognized that the highest investment risk going
forward may very soon come from asset classes that were the safest
and best-performing in 2008, and that are still largely perceived as a
safe haven now, namely Western bonds/sovereign bonds, and also Western
currencies. If the sovereign bonds go into crisis, the only way for
the relevant countries to escape the debt-trap will be money-printing,
hence investors' trust in both sovereign bonds and currencies may be
lost at the same time.

Certainly, the breaking of the European no-bailout-clause by the euro zone
members, and the European Central Bank's continued easing of collateral
rules (it officially accepts "junk" as collateral now).

Since Greek bonds have got a junk rating and are still accepted, there
are indications that Europe as well as Britain and the United States are
going down exactly this route, willing to sacrifice currency stability
for the sake of postponing national bankruptcies.

For these reasons, anyone with a high allocation to the
euro/dollar/sterling bond/currency/equity markets is advised to sell
or at least reduce such holdings in favor of gold, silver, agricultural
commodities and Asian currencies/assets.

Martin Hennecke is an associate director at Tyche Group Limited
 

SkyRider

Banned
Mar 31, 2009
17,572
2
0
We will muddle through this too. The debt levels of western countries were much higher right after WW II and Japan, Germany and Russia were a mess and we got through that.
 
Toronto Escorts