Sunday, June 20, 2010

NOT SO PRETTY PIGS

On June 14th Moody's downgraded Greece's government bond ratings by four notches to Ba1 from A3. We expect to see more downgrades of PIGS countries in the not so distant future. Greece is junk

The PIGS countries got used to low borrowing costs. They splurged the cheap money on housing in excess of their needs and welfare without backing it with hard work. Unfortunately, there cannot be any quick fix solution to the issue. Bailouts, write offs and interest rate hikes will all have side effects of their own. The problem is structural. Hence, we expect the problem to linger on a bit.

German and French banks hold 61% of the “PIGS” countries’ debts (Spain, Ireland, Portugal and Greece). So, It’s the German and French banks who mainly stand at risk.

And, of course, Hungary has now moved from low-risk to higher-risk within a category that was already seen as above-average-risk by most institutional investors. Italy is said soon to be joining the PIGS to give us PIIGS.

IMO: Just as well Turkey is not likely to join the EU at the moment or we would certainly soon have PIGSHIT .

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