When Greece defaults should we buy on the bullets? And if so, what?

Acromion

When war breaks out, the stock markets crash and the old adage is to "buy on the bullets".

There's no current prospect of war in Europe, thank God, but the imminent prospect is of Greek default which the commentariat seem to agree is inevitable.

Presumably such a default - whatever form it might take - would cause temporary market chaos, but then what? Will equities breathe a sigh of relief and surge? Or should we be transferring more of our wealth into gold right now?

There must be some sort of precedent on this from the Argentinian default to guide us. Anyone know what it is?

atush

Just have a google and a read of what happened when Argentina had a currency devaluation when they came out of being pegged to the USD. Pretty devastating.

lewistye

I think you'll find the market has already priced in a default by Greece so I wouldn't expect any catastrophic market moves when (not if) it happens.

Source: Greek 5yr CDS = 60% upfront
Greek govt bonds 2yr yield > 50% :eek:

atush

But you aren't taking into acct what would happen elsewhere- esp if people panic (and you know what markets are like- panic city). Such as banks who hold their debt who could fail to increased pressure on Italy and Spain. Italy was just downgraded today.

If Italy went down, we WOULD have problems.

zildjian

Nicholas Taleb who predicted this crisis was going to happen a while ago before it happened, said on the BBC he thinks this is only the start of the crisis.

I'm becoming more inclined to beleive it.

Ark_Welder

Debt contagion affected Far Eastern economies in the 1990s. South America experience problems in the 1980s. Japan had its own banking crises in the 1990s, into 2000s. Now these regions are seen as havens and/or growth areas.

Whether or not it spreads in Europe will depend upon how long Greece is given support: this ought to be long enough for banks to build up capital in readiness, and long enough for Greece to be able to pay its day-to-day expenditure out of revenues. But the 'how' and the 'when' are the main current unknowns. As lewistye says, markets tend to price in what is known or expected, hence the low price of Greek sovereign bonds. It is the unknown and unexpected happenings that tend to cause large and rapid movements - both up and down.

As an aside, which particular Argentinian debt crisis is being referred to? The one that it suffered more-or-less alone in 2001, or the Latin American crisis of the early 1980s? Or, perhaps, the Panic of 1890? Involving a bank by the name of Barings...

sheslookinhot

lewistye wrote: »

I think you'll find the market has already priced in a default by Greece so I wouldn't expect any catastrophic market moves when (not if) it happens.

Source: Greek 5yr CDS = 60% upfront
Greek govt bonds 2yr yield > 50% :eek:

I am not so sure, most of the turbulance in recent markets is linked to Greece in some way, even todays falls.

I can see a drop of over 500 points if Greece defaults.

6022tivo

sheslookinhot wrote: »

I am not so sure, most of the turbulance in recent markets is linked to Greece in some way, even todays falls.

I can see a drop of over 500 points if Greece defaults.

Only 500?? You will be lucky...

Ark_Welder

Rather than repeat it, I'll just provide a link:

http://forums.moneysavingexpert.com/showpost.php?p=47075267&postcount=34

sabretoothtigger

the market has already priced in a default by Greece

Greece isnt the important bit. Its a statement of how other countries will progress so it would not be over with them. All governments need to run a zero deficit asap and when that happens the situation will be at the beginning of ending any grander problems

If looking for an event I dont think you will find it. More likely a whole series then a roar of bad debts, etc declining to a dull crackle as the embers take time to simmer out. Much like now you still hear court cases on Lehmans, there was one this month.
For the rest of the decade and beyond I think there will be a theme and influence.

China has leased a port from Greece, so there are deals to be done that will give value. There are situations that will improve, declining western currency will not make everyone poorer, it will make some richer Im fairly sure. Its not as if the west represent the brains of the world and the east and those without debts will now have nothing to do now

pqrdef

The other issue is Credit Crunch 2. The efforts to strengthen the banks have been too little, too late. No banks have sold bonds since June, they're reduced to relying on short-term wholesale funds, and these are drying up. Central banks will be stepping in as lenders of last resort - in fact we don't know how much this may have already happened.