The Greek economy appears to be very much the welfare state to me. I don’t see innovation and exports coming out of Greece, but I see a lot of public union strikes over their insistence that excessive pay, pensions and subsidies continue as if they live in a complete vacuum.
Since Europeans have lost their appetite for funding Greece’s debt, the next stop is Us investors. While Greece may want to blame Easter (yeah right!) on the tepid interest in their debt, the reality is investors are saying “not so fast”. According to the Financial Times, Greece is looking to sell 5-10 Billion Dollars in bonds to US investors to roll over its debt to existing creditors. The 10-yr benchmark yield stands at 6.5%.
HairDressing is Hazardous Work? Full Pension at 50?
Seriously, on the same day the US is learning of a mine explosion in west Virginia that killed 25 workers, hairdressers in Greece are considered to be employed in a hazardous industry that requires early retirement (NYTimes) and they enjoy a full pension at age 50.
Verbatim:
“The law… also covers radio and television presenters, who are thought to be at risk from the bacteria on their microphones, and musicians playing wind instruments, who must contend with gastric reflux as they puff and blow.”
While there’s a large contingent of Americans that would gladly “puff and blow” just for a paycheck, let alone a guaranteed full pension at 50, this is the world Greeks live in. It’s absurd and I want no part of supporting this lunacy. At its most basic level though, even at yields of 6.5%, I’m just not attracted to Greece as an investment. I can easily buy a high yield ETF or US corporate bonds from blue chip names which would bring both a better credit rating and diversification to my existing portfolio. And while many US municipalities are in trouble, I even view muni bond ETFs as a safer alternative – and they’re tax free to boot!
It is a free market after all, and given the right yield, there will eventually be adequate demand to roll over this debt, but I wouldn’t touch Greek debt even at double this yield. The situation simply seems untenable to me and eventually investors will balk at the modest austerity measures proposed.
What About You?
Would you Invest in Greece?
At What Yield?
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As insane as this is, I’m sure other European countries are probably not far behind in terms of their debt ratios; many of them subscribe to the same policies of endless pension obligations & job-killing restrictions on businesses.
Even in the U.S., we’re not immune from it. While we still have (or at least claim to have) a pro-business outlook, clearly the amount of debt that we’re piling on year to year is unsustainable without suffering severe inflation down the road. States & cities around the country are already feeling the pinch and are having to cut back out of necessity.
Maybe it’s crazy to say but I don’t think there’s any country in the world I’d feel particularly safe holding bonds in.
I could go either way, either let it die a horrible death with their dumb government policies or pay me 15%+ return. 6.5%? I wouldn’t touch it with a 10′ pole Much less riskier investments at that ROR.
Either way, Greece will default, it’s just a matter of when.
Investor Junkie Reply:
April 7th, 2010 at 9:20 am
@Investor Junkie,
Let me add I won’t invest in our (USA) 10 year right now unless it’s in the 6% range.
The returns would need to be at least double 6.5%…so, no, we’re not interested.
The Greeks will wake up eventually just like we will wake up eventually. The current deficits are not sustainable. Like you, I would not want to buy a US bond or a Greek bond, even if it yields twice as much as Germany’s does right now. Greek bonds at 25% would not even make sense, because in the case of such high yields we would know that a default is only a matter of minutes. I would only buy TIPS these days.
The hairdresser, musician & TV anchor examples do sound excessive. But the NYT article says that just 14% of Greek’s have the early retirement pension deals so its not anywhere near the majority. And thats not nearly enough to cause all of Greece’s debt problems, just “contribute” to them. Lets not paint all of Greece with such a broad brush. Theres plenty of people in the USA with sweet pension deals too.
You’re being to hard on Greece… even though they are in heavy, the country won’t default on its loans. A few days earlier, Greek investors bought 3 times as much bonds as needed (based on government projections) to allow solvency for at least 6- 12 more months. Also, the EU has a lot riding on Greece- it knows this can set off a domino effect to Italy, Portugal, and Ireland.
I would never invest in greece. I don’t see what they could do for me and I only invest in things I believe will get better. I don’t think Greece will get better, I just think they will just come along with the rest of us slowly.
Never underestimate the power of a high interest rate. People were buying GM bonds just before the bankruptcy.
The hairdresser, musician & TV anchor examples do sound excessive. But the NYT article says that just 14% of Greek’s have the early retirement pension deals so its not anywhere near the majority. And thats not nearly enough to cause all of Greece’s debt problems, just “contribute” to them. Lets not paint all of Greece with such a broad brush. Theres plenty of people in the USA with sweet pension deals too.
+1
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