Irreverent Economics

Now the powers that be finally got Greece bailed out, leaving them with only 145-150% debt to GDP. Leaving aside the whether they should have done so, it could hardly have been done in a worse way.

An intervention like that needs to be swift and decisive. This minimizes the cost, maximizes the private support and signals the competence of the authorities.

no wonder the Euro seems a little under the weather lately.

The book This Time Is Different has large selection of interesting numbers. Table 6.6 ought my eye, which shows how much time countries have been in default or restructuring since 1800.

From that we learn that the unconditional expectation for Greece is restructuring, as it has spent 51% of its time in that situation. For Portugal it 11%, Spain 24% and Italy 3%.

Other tables in the book show that defaults are highly correlated events. So are the markets overreacting as the politicians would have it, or it it just a return to normality.

Its not often that I wished my opportunity set for investing was larger that is its, but now its different.

Where does a regular investor get to punt on sovereign debt? I am now thinking the PIGS. It will be pretty hard to avoid restructuring for the worst of those, and I would gladly buy CDSs on Greece, if possible. In the longer run, Portugal and then Italy are following. Italy in 5-10 years, Portugal sooner.

I am optimistic on Ireland, even is everybody I talk to is not.  But why follow the herd when its wrong?

Then what about Spain? is has a chance to get its house in order, but I somehow think it will not. Their government  reminds me of the hapless Roadrunner. But its worse. Now the head of Barca wants to lead the Catalans to independence. OK, leaving aside the separatist tendency of Spain. But by a footballer?

I think Spanish politics, always of the ostrich type, has an internal logic that will conform its PIGS status.

Where can I sell Spanish debt short?