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Commentaries
 | Harry S. Dent, Jr., President of HS Dent, is the publisher of The HS Dent Forecast, a monthly investment newsletter. Since 1992 he has authored two consecutive best sellers “The Roaring 2000s” and “The Next Great Bubble Boom”. Today, he continues to educate audiences about the deep and extended downturn that will follow the peak of the baby boom’s long spending cycle. A Harvard MBA graduate, Fortune 100 consultant, new venture investor and noted speaker Mr. Dent offers a refreshingly understandable view of the future, suggesting practical applications at all levels. |
| Rodney Johnson: What's Better thatn 100% Yeild in 1 Year? 200%! But Can You Collect? |
| Written by Harry Dent |
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What's Better thatn 100% Yeild in 1 Year? 200%! But Can You Collect? - Rodney Johnson / HSDent Seemingly years ago, but it was really just last summer, the Greek 1-year bond hit a price of 50 cents on the dollar, representing a 100% yield to maturity on a sovereign bond. That sounded liked a no-lose situation. I wrote about this in our blog, and pointed out that it would be a great deal, but only if you were certain to collect. In the days that have passed since that time, private banks have agreed to a 50% haircut on Greek debt, making the half-off one year bonds much less attractive. But that’s OK, because now those same bonds are not trading at 50 cents on the dollar, but at 33 cents on the dollar, representing a 200% yield to maturity! This is great news, but only if you are sitting on the sideline with cash and want to take a chance on the Greek government making good on their debts. For those that took the bait at 50 cents, well, the markets have handed them a 34% loss in just a couple of months on a one year bond if they need to sell, and also limited their upside to just a return of their money at best (if the Greeks pay off at 50 cents on the dollar, which is questionable). Where do we go from here? It sure looks like lower. The credit markets are reacting not only to the announcements out of Europe, but also to the activities. The Greek economy is at a standstill. It is not contracting by 3%, or 5%, or even 10%, it is in free fall. Bills are not being paid, cars are not being sold, electricity is being cut, and tax receipts are in shambles. Having the Prime Minister resign doesn’t change this. Overall European growth is down, while EU unemployment is over 10%. German growth stalled and went negative last month. The problems in the euro zone are not resolved, in fact they haven’t even been addressed. All that has been done is a simple exercise in papering over some bad debts with taxpayer funds and a promise of more borrowed money. Without a solution, look for more pain, and more downside risk around the world. |
