Did I see a headline correctly today that Greece needs ~$160Bn?? The population of the country is like 11MM which works out to $14,000 per capita.
Sweep the Leg Wrote: ------------------------------------------------------- > That’s a completely legitimate reason, but that’s > not selling on fundamentals. In fact, it’s a > horrible policy. PMs are forced to sell debt at > the worst possible time. I never said it was selling on fundamentals. I was actually giving a possible reason that supports your theory for the market’s “over-reaction.” I’m not arguing with you, I’m supporting your theory. I do, however, disagree with your assertion that it’s a horrible policy. Some clients may not have the risk tolerance to be invested in securities with a higher risk profile. Not all investors are created equal. Perhaps the implementation is flawed (should we be relying on rating agencies to determine acceptable risk), but restricting securities to an acceptable level of risk to be held in a particular fund isn’t a horrible policy. That being said… I think it’s common knowledge that the rating agencies haven’t exactly perfect the art of risk management/measurement (nor has anyone else to be fair). Although, the rating agencies downgrading Greece’s rating (ie they perceived an increase in it’s level of risk) doesn’t seem completely unreasonable. > Ratings are borderline meaningless anyway. For > example, a BB municipal bond is 100 times less > likely to default than a AA corporate bond. > Sovereign debt isn’t nearly as misleading, but > still tricky. Over a 10 year period ending 2007 > about 1/3 of corporate bonds rated as junk > defaulted compared to about 1/5 of sovereign junk > bonds. And, off all sovereign debt that defaulted > the recovery rates were still about 30 cents on > the dollar. > > > All I’m saying is, if you feel like taking a bit > of a gamble, then Greek bonds aren’t as bad of a > bet as they may seem. The downside isn’t as bad > as many people think, and the upside is huge (for > bonds anyway). Distressed debt is the only fun > part of fixed income. The key word here is “gamble.” If your trying to insinuate that risk has factored into the price enough to justify a holding for an investor who has a large appetite for risk, then you might be able to convince me. But I’d need more evidence than what you’ve provided here. I think it was bchadwick who brought up a good argument about the potential impact and possible means for this to spread throughout the EU. I’m not sure if that’s a risk you’re taking into account.
I wasn’t arguing with you either. That was exactly what I was pointing out. I’m not saying institutional investors should hold on to junk in high quality portfolios. I do believe PMs should be allowed timeto decide when to sell newly downgraded debt. Give them 90 days (or whatever). Knee jerk reactions rarely work out well. But they do provide opportunities for individual investors. As for my gamble, what does systemic European (or even global) risk have to do with it? If anything that that only bolsters my point that other governments won’t let Greece fail. bchadwick was pointing out how this could be contagious. In this scenario, I don’t really care about the other countries. This is purely a bottom up gamble on Greek debt. If they fail and cause pain throughout the EU then I’ve already lost money. No, that’s not a risk I need to take into account. And, before we get too serious, this is all just hypothetical anyway. And even for me, if I did pull the trigger on it, it would just be for the 5-10% of my purely speculative play. It’s no different than when I did actually by YRCW recently. Downside is they go out of business and I lose my 60 cents a share. But the upside is gigantic. Same thing with Greece.
14:56 *MOODY’S SAYS MULTI-NOTCH DOWNGRADE ON GREECE LIKELY 14:56 *GREECE SOVEREIGN BOND RTG STILL MAY BE CUT BY MOODY’S 14:55 + *DJ Moody’s Reiterates Stance On Greece Amid Turmoil; Maintains Piling on