Greek Tragedy
Research for Online Investors

by John Dalt

2/16/10

The Greek budget/credit problems have been averted for now.  European Union leaders pledged to help Greece “if needed to safeguard the financial stability of the Euro as a whole.”  There were no specifics on what form assistance would take to remedy the Greek Tragedy.

It was widely reported last week that Germany would buy some of Greece bonds, or guarantee some new issues.  The spread between German bunds and Greek bonds narrowed in the credit markets signaling a belief by the market that Greece’s problems would become Germany’s problems.  Germany seemed to shy away from that plan over the weekend as first quarter growth was stagnant, and the public expressed concern about taking on Greece's debt.

EU finance ministers have given Greece until March 16th to cut their deficit to less than 9% from the current 12.7% of GDP.  They can do this by increasing exports or cutting government spending.  A combination of the two will surely be used, but cutting government expenditures is the shortest route to fiscal health.  Finance ministers expect Greece to ready spending cuts and increase some taxes within the next month.

Greece announced they actually ran a budget surplus in January, due to a one-time tax on large corporations.  Greek labor unions have called strikes over government wage freezes.  The government is promising to reform pensions and benefits.

The New York Times has the story, “European Union Sets Deadline for Greece to Make Cuts.”  Yields on 10-year Greek bonds have moved higher, closing at 6.34%  Portuguese bonds, the next country to face financial scrutiny, yield 4.44%

News came out over the weekend that Greece used financial instruments from American Investment banks to hide the size of their debt for the last 10 years.  European finance ministers demanded that Greece come clean on the complex financial deals.

The market has discounted the Greek problem on Tuesday, but it feels like a bicyclist on a narrow road, peddling as fast as he can, looking over his shoulder to see if a delivery truck is about to run him down.  Technically, last week was the first week to record a gain since the middle of January, and traders wonder if the market could be ready to rally.  We shall see…

Precious metals, crude oil, and interest rates all look higher and the dollar is weaker against the rebounding euro.

To the Mailbag: I can't help thinking that APWR is a real deal now. Oh, I did buy XOM at 68. But most of what I buy goes down!---Long-Term subscriber D.E

John’s Reply:  Welcome to the club!  We are down for the year, but less than half of the drawdown of the S&P.  Hold on, we are coming back.  XOM is a great buy at today's prices.

“Look at market fluctuations as your friend rather than your enemy; profit from folly rather than participate in it.”----Warren Buffett

For more Warren Buffett quotes, here is our list under Investor Resources.

The information presented in this newsletter is based on generally available news releases, corporate filings, current events, interviews and the editor’s opinions.  It may contain errors and you should not make investment decisions based solely on what you believe you have read here.  Do your own research, it is your money.  If you lose it, it is your responsibility, not ours or your grandmothers!  The editor may or may not have a position in any securities discussed.  The editor may have held a position in a security earlier, or in the future.

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