Default Contagion Possible in Europe

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Friday seen one of the worst moments of the 2008 financial crisis played out, part of the European Union defaulted on their debt and with the help of the ECB, World Bank and IMF strong armed bond holders in to accepting massive write offs.

European officials insist that Greece is a one-time deal, not meant to set a precedent for other nations. But it is easy to see that minority parties in debt-burdened European nations could find a demand for relief an attractive platform. Imposing a "tax" on bondholders rather asking citizens to pay higher taxes while public services are cut might prove popular with voters.

Demands for debt relief could take many forms. Greece has been able to encourage bond holders to participate in the debt swap by enacting laws that incorporated "collective action clauses" into the 86% of bonds governed by Greek law. These clauses allow super-majorities of bond holders to force hold-outs to participate in swaps. Other countries in the euro zone could replicate this strategy.

Given the nature of the default, and the discount many other European bonds are trading at it is time review your portfolio and cut any exposue to companies at risk due to their Euro Debt holdings.

While the World celebrated the deal for now, the reality in Greece is that the overall jobless rate rose to 21 percent from 20.9 percent in November, twice the euro zone rate.

The average unemployment rate for 2011 jumped to 17.3 percent from 12.5 percent in the previous year, according to the figures, which are not adjusted for seasonal factors.

Youth were particularly hit. For the first time on record, more people between 15-24 years were without a job than with one. Unemployment in that age group rose to 51.1 percent, twice as high as three years ago.

Budget cuts imposed by the European Union and the International Monetary Fund as a condition for saving the debt-laden country from a chaotic default have caused a wave of corporate closures and bankruptcies.

Greece's economy is estimated to have shrunk by a about a fifth since 2008, when it plunged into its deepest and longest post-war recession. About 600,000 jobs, more than one in ten, have been destroyed in the process.

How the Euro Crisis Looks Now

Greece currently the focus of the eurodebt crisis now in its third year, looks to have managed to close on an exchange to effectively default on their national debt and reduce the 206 billion euros of privately held Greek debt by 53.5 percent.

While markets are celebrating the default the real question is, who will be next?

Italy, Spain, Portugal are all marginal economies that will contract under the new austerity sweeping Europe, and may look upon the default in Greece as an easy option to resolve their own sovereign debt issues.

ECB forecasts showed the economy could shrink by 0.5 percent this year and at best grow by a meager 0.3 percent, a slight downgrade of its previous estimate.

"Available survey indicators confirm signs of a stabilization in the euro area economy. However, the economic outlook is still subject to downside risks," ECB president Mario Draghi said after the central bank left interest rates at 1 percent.

Greece's largest banks, most of the country's pension funds and more than 30 European banks and insurers including BNP Paribas (BNP) SA and Commerzbank AG ( CBK ), agreed to the offer.

While Greece would prefer a voluntary deal, the government has said it will use so-called collective action clauses to force holders of Greek-law bonds into the swap if the private sector involvement fell short and it got approval from investors to change the bonds' terms. The Greek government had said it wanted participation above 90 percent and was seeking a minimum level of 75 percent.

This type of action supported by the ECB, World Bank and IMF clearly values Europe's sovereign debt at cents on the dollar and institutions holding or invested in that debt should be writting down the valuations.

How Global Debt Looks Now

This list of countries by estimated future gross government debt based on data released in September 2011 by the International Monetary Fund is the stark reality of the value of physical money and cash assets. The figures are in percentage of national GDP.

Cash is no longer king and the value of most currencies is being eroded which means everyone must rethink their investment strategy and adjust their portfolio holdings.

While many think that if they live in the USA and earn in USD nothing will change, I can assure you that those days are over, growing world wide demand for food, energy, goods and services has an impact at all retail outlets in the USA.

Every investor, institutional or individual must now balance their portfolio based on currency exposure.

The IMF's John Lipsky has warned that "the average public debt ratio of advanced countries will exceed 100 percent of their GDP for the first time since the war" by the end of this year, and that this debt is unsustainable, risking a new fiscal crisis for some.

The massive sovereign debt problems of the US and Eurozone also clearly run the risk of sharply increasing future inflation as their currency wars export inflationary pressure around the world.

This will result in real investment losses in long-term fixed interest bonds (as well as in cash), since debt that cannot be repaid from taxes will need to be printed by means of ever larger rounds of quantitative easing (money printing) measures.

All this simply implies an accelerating erosion of the value and purchasing power of money.

Investors can protect themselves from rising inflationary risks by investing in or gaining exposure to real scarcity, traditional safe haven assets like gold, as well as other commodities, I would include things like agricultural land and soft commodities as well.

Gross government debt in percent of GDP
Country 2011 2012 2013 2014 2015 2016
"" Japan 233.100 238.441 242.927 245.854 249.916 253.388
"" Greece 165.559 189.149 187.944 178.530 165.057 162.839
"" Saint Kitts and Nevis 148.917 143.663 138.453 134.267 130.062 126.560
"" Jamaica 143.308 138.000 129.818 118.740 97.298 90.155
"" Eritrea 134.417 127.619 125.063 121.276 124.636 124.599
"" Lebanon 126.361 125.010 124.166 124.768 126.352 128.167
"" Italy 121.065 121.385 120.105 118.403 116.319 114.089
"" Barbados 116.904 115.605 114.556 113.004 110.297 107.546
"" Ireland 109.273 115.433 118.303 117.662 116.132 114.305
"" Portugal 106.030 111.793 114.928 114.599 112.540 110.493
"" Grenada 101.920 104.312 105.436 106.202 102.342 98.693
"" Iceland 101.196 96.772 95.034 91.721 88.209 82.549
"" United States 100.046 105.031 108.930 111.363 113.195 115.394
"" Belgium 94.561 94.276 93.922 93.633 93.240 92.955
"" Singapore 93.470 90.062 87.799 85.286 83.133 81.704
"" Cote d'Ivoire 93.346 54.833 52.374 50.138 48.592 47.496
"" France 86.811 89.371 90.706 90.750 89.681 87.683
"" Guinea 85.475 82.195 85.251 90.527 64.529 52.145
"" Canada 84.117 84.163 82.287 79.694 76.444 72.952
"" Germany 82.643 81.896 80.957 79.058 77.123 75.036
"" Sao Tome and Principe 82.358 84.114 83.869 82.586 62.743 59.180
"" European Union 82.316 83.682 83.744 82.778 81.221 79.525
"" Bhutan 81.253 95.326 103.544 107.407 110.672 107.367
"" United Kingdom 80.762 84.766 85.948 85.101 83.060 80.386
"" Belize 79.340 77.694 76.645 75.801 75.057 74.590
"" Seychelles 78.790 73.396 66.872 59.802 54.880 49.338
"" Sudan 78.220 87.285 90.478 92.476 95.174 94.826
"" Nicaragua 77.415 76.037 73.874 71.975 70.062 68.129
"" Egypt 76.239 76.644 75.541 71.637 67.455 62.986
"" Hungary 76.124 75.527 75.647 74.415 73.116 71.539
"" Cape Verde 73.948 78.322 80.170 77.535 73.717 71.659
"" Zimbabwe 72.755 73.029 72.125 72.845 73.160 61.436
"" Austria 72.331 73.875 74.135 73.792 73.350 72.904
"" Israel 71.146 68.912 66.848 64.357 61.960 59.687
"" Saint Lucia 71.084 77.827 83.221 86.581 87.100 87.838
"" Saint Vincent and the Grenadines 69.484 71.232 72.174 70.748 67.855 64.998
"" Antigua and Barbuda 68.629 66.578 63.902 58.537 54.804 49.357
"" Jordan 68.479 67.781 66.877 66.280 64.373 63.632
"" Spain 67.423 70.151 72.805 74.866 76.130 77.416
"" Malta 66.264 66.073 65.891 64.755 63.653 62.771
"" Netherlands 65.521 66.516 66.908 66.732 65.842 64.391
"" Brazil 64.981 63.999 62.524 60.899 58.974 57.218
"" Cyprus 63.960 66.416 67.832 67.933 67.961 68.044
"" Maldives 62.884 70.541 75.626 81.592 86.797 91.990
"" India 62.432 61.988 60.935 60.514 60.134 59.702
"" Mauritania 61.964 64.151 65.416 68.245 65.410 62.836
"" Sierra Leone 61.118 33.178 33.112 34.854 35.633 34.811
"" Guyana 60.433 59.287 59.717 60.269 59.631 58.827
"" Albania 59.363 59.242 59.558 60.579 62.014 63.627
Ga "" The Gambia 57.664 56.926 54.182 51.076 48.064 45.149
"" Pakistan 57.645 57.279 56.499 55.094 52.836 51.142
"" Lao People's Democratic Republic 57.355 54.017 52.163 50.767 49.371 47.967
"" Fiji 56.801 56.889 56.463 56.057 56.166 56.215
"" Poland 55.952 56.369 56.460 56.241 55.561 54.688
"" Norway 55.420 55.420 55.420 55.420 55.420 55.420
"" Kyrgyzstan 55.202 54.615 56.832 56.408 56.407 54.523
"" Kenya 55.176 53.420 51.976 51.612 51.146 50.122
"" Malaysia 55.120 55.923 56.554 56.961 57.226 57.360
"" Dominica 54.889 54.804 54.114 53.444 52.863 52.447
"" Morocco 54.152 55.477 56.048 55.787 54.939 53.452
"" Djibouti 53.679 53.627 52.819 51.845 50.974 50.240
"" Switzerland 52.435 51.188 49.989 49.067 47.722 46.414
"" Mauritius 51.889 53.090 51.639 50.377 48.902 47.137
"" Vietnam 50.338 48.146 47.241 46.360 45.371 44.249
"" Finland 50.224 50.311 50.952 51.609 52.025 52.321
"" Trinidad and Tobago 49.966 50.954 51.478 52.892 54.892 57.421
"" El Salvador 49.907 49.310 48.699 47.510 46.398 45.344
"" Uruguay 49.344 46.877 45.282 43.620 41.492 40.142
"" Burundi 49.000 44.156 39.774 36.298 33.507 31.976
Baha "" The Bahamas 48.614 49.931 51.775 53.379 54.812 55.897
"" Croatia 47.532 50.048 51.932 53.404 54.487 55.117
"" Comoros 47.101 42.940 39.195 35.283 31.539 28.299
"" Democratic Republic of Congo 46.586 50.482 44.285 43.875 36.288 35.966
"" Belarus 46.298 45.593 50.313 52.285 57.095 55.857
"" Myanmar 45.165 47.703 49.097 50.242 46.459 47.102
"" Guinea-Bissau 45.077 43.505 41.403 38.481 36.247 34.159
"" Tanzania 45.008 48.885 50.289 50.258 49.845 48.915
"" Slovak Republic 44.941 46.938 47.112 46.869 46.110 45.387
"" Philippines 44.430 43.595 42.158 40.875 39.671 38.517
"" Denmark 44.327 45.829 47.004 48.087 48.813 49.185
"" Serbia 44.073 44.503 43.102 40.791 38.181 35.620
"" Venezuela 43.900 50.800 54.801 58.501 62.401 66.401
"" Slovenia 43.638 47.160 49.216 50.798 52.117 53.497
"" Argentina 43.346 41.469 40.380 39.493 38.022 37.313
"" Montenegro 43.073 42.203 41.094 39.931 38.562 37.708
"" Thailand 42.970 43.452 44.463 45.275 46.180 47.093
"" Mexico 42.897 43.637 43.518 43.430 43.269 43.182
"" Yemen 42.861 44.435 46.917 48.343 49.628 49.840
"" Lithuania 42.824 44.626 45.859 46.360 46.477 46.374
"" Iraq 42.332 42.785 31.754 24.485 24.163 19.532
"" Tunisia 41.719 48.047 48.536 47.646 45.501 42.979
"" Armenia 41.475 41.390 39.285 37.418 37.025 36.510
"" Czech Republic 41.127 43.248 44.563 45.680 46.666 47.628
"" Malawi 40.477 43.832 44.011 41.447 40.455 39.560
"" Turkey 40.340 38.085 36.324 35.139 34.186 33.246
"" Senegal 40.036 41.503 42.533 43.238 43.466 44.023
"" Bosnia and Herzegovina 39.594 38.370 35.725 32.342 29.777 27.903
"" Latvia 39.566 40.529 43.436 46.570 41.973 39.643
"" Ethiopia 39.442 34.071 33.329 32.485 31.461 30.091
"" Ukraine 39.342 39.387 38.999 39.253 38.418 35.143
"" Mozambique 39.030 42.719 46.318 49.643 52.095 52.520
"" Taiwan 38.455 37.887 35.454 33.077 30.842 28.714
"" Lesotho 38.235 41.867 41.237 42.713 42.864 42.328
"" Ghana 38.130 37.466 37.575 36.715 36.506 37.231
"" Tajikistan 36.995 38.630 39.939 40.095 39.729 38.207
"" Central African Republic 36.959 32.779 28.398 24.857 21.300 18.214
"" Georgia 36.783 38.022 38.177 36.498 35.506 34.473
"" Madagascar 36.393 35.973 36.216 36.539 37.178 37.514
"" Panama 36.152 34.773 33.431 31.217 28.916 26.592
"" South Africa 36.065 37.598 38.657 38.760 37.820 35.521
"" Sweden 36.033 32.586 29.158 25.731 22.436 19.251
"" Colombia 35.918 34.686 33.654 32.840 32.053 31.192
"" New Zealand 35.313 34.572 34.108 33.294 31.103 29.748
"" Romania 34.358 34.419 34.033 33.599 32.805 31.673
"" Bahrain 34.153 39.096 43.746 50.310 58.535 67.161
"" Nepal 33.922 33.468 32.930 32.457 32.191 32.216
"" Hong Kong 33.812 32.085 29.161 28.604 28.104 27.548
"" Costa Rica 32.650 33.331 33.997 34.965 35.948 37.027
"" Bolivia 32.366 31.420 30.617 29.849 26.680 24.421
"" Korea 32.020 30.001 27.960 25.954 23.976 22.166
"" Benin 30.832 30.528 30.111 28.989 27.973 26.691
"" Mali 30.025 27.176 24.525 24.999 25.668 26.386
"" Angola 29.909 24.715 19.887 16.323 13.735 12.241
"" Chad 29.787 29.699 27.827 26.001 24.701 24.856
"" Cambodia 29.195 28.756 27.627 27.089 26.099 25.036
"" Burkina Faso 29.147 29.871 30.507 30.999 31.494 32.127
"" Dominican Republic 28.462 26.655 24.876 23.016 21.222 19.722
"" Qatar 27.859 27.703 27.397 27.376 27.241 27.096
"" Togo 27.616 27.255 27.874 27.914 26.461 27.186
"" Honduras 27.561 27.795 27.918 28.128 28.441 28.915
"" Syria 27.529 27.902 27.671 27.367 27.098 26.901
"" China 26.881 22.198 18.447 15.476 12.996 10.932
Mac "" Republic of Macedonia 26.298 28.187 27.423 27.256 26.931 26.401
"" Namibia 25.486 29.010 34.676 38.533 41.530 44.450
"" Indonesia 25.244 23.972 22.685 21.382 20.181 18.968
"" Zambia 25.124 28.688 29.821 29.885 29.099 28.404
"" Swaziland 25.109 28.990 30.927 31.882 32.741 33.168
"" Rwanda 24.427 26.083 24.401 22.129 19.703 18.341
"" Guatemala 24.220 25.047 25.669 26.078 26.532 27.021
"" Moldova 23.569 21.650 20.688 20.252 19.050 17.558
"" Solomon Islands 23.128 20.646 18.722 16.893 15.147 13.601
"" Uganda 23.044 25.291 29.452 31.903 31.632 31.082
"" Australia 22.816 23.823 22.964 21.602 20.024 18.164
"" Congo 22.049 22.192 20.558 19.352 18.113 18.173
"" Gabon 21.786 20.110 19.491 19.142 18.605 18.003
"" Peru 21.518 19.191 16.363 13.441 10.787 8.136
"" Ecuador 20.868 20.818 20.916 21.988 23.463 25.106
"" Turkmenistan 20.540 26.829 27.479 24.727 16.971 10.877
"" Suriname 20.042 18.551 18.560 17.129 15.547 13.772
"" Luxembourg 19.656 21.506 23.758 25.798 28.166 30.656
"" United Arab Emirates 18.498 18.108 18.117 18.426 18.633 19.163
"" Bulgaria 17.775 20.464 20.724 20.352 20.501 19.343
"" Niger 17.690 17.821 18.923 19.778 20.721 21.550
"" Nigeria 15.715 16.311 17.072 15.701 15.042 13.410
"" Botswana 15.680 14.080 12.505 10.888 9.425 8.117
"" Cameroon 14.547 14.682 14.973 14.988 14.993 15.489
"" Liberia 13.279 14.520 16.814 20.550 22.413 25.258
"" Kazakhstan 12.901 12.996 13.839 14.184 14.378 14.062
"" Paraguay 12.751 11.221 10.743 10.348 9.772 9.242
"" Haiti 12.603 18.969 24.188 29.404 34.240 39.825
"" Uzbekistan 12.583 14.006 15.516 17.050 18.650 20.209
"" Russia 11.681 12.089 12.643 14.517 16.800 19.480
"" Azerbaijan 10.676 9.971 9.980 10.310 11.492 12.959
"" Algeria 10.655 10.709 10.682 10.683 10.568 10.370
"" Chile 10.490 10.616 10.625 10.690 10.704 10.928
"" Iran 9.229 8.021 7.128 6.386 5.760 5.192
"" Equatorial Guinea 8.520 10.554 8.984 7.109 4.739 2.496



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Commodities

Referenced Stocks: CBK

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