The thing is that this trader isn't saying anything that people don't already know. Milton Friedman predicted this when the Euro was first created, that it would last only until its first currency crisis.
Greece is in really, really bad shape. The normal way a country gets out of this problem is by devaluing its currency, and enacting fiscal policy measures. Look at Iceland for a recent example, and the Asian currency crisis back in 97-98.
However, Greece is stuck. It can't devalue its currency, because they are part of the Euro. The only way to get this to work is by getting the other European nations to pay for Greece through Eurobonds, but NO ONE WANTS TO. In fact, if a politician did so, they would get voted out. So there is no political will to pay for Greece, which means that Europe is in between a rock and a hard place.
They can do handwaving, etc, but it seems really likely that this European debt crisis will bring down Spain (20% unemployment, 40% youth unemployment and a housing bubble burst), Portugal, and worst case Italy. It's confidence contagion and it will continue to spiral out of control until they eject Greece out of the EU.
So now, we know that Europe is screwed. Will their plan to give 50% haircuts work? Or will everyone leave Europe entirely? This is the question, and I frankly doubt it, just like the trader said. YOU CAN'T SOLVE A DEBT CRISIS BY ISSUING MORE DEBT!!!
Once Greek bond holders get 50% haircuts, what about Ireland and Portugal? Will there be mass selling of those sovereign bonds? It will be a big domino effect, and the outcome is completely unpredictable at this point, but the one predictable thing is that the politicians will likely screw it up, because they lack political courage.
So the advice the trader gives is essentially right. Stay in safe havens for now, if you have money you can't afford to lose. I would stay in short-term US Treasuries so that you don't need to worry about interest rate issues. Don't try to catch bottoms unless you're playing with money you can afford to lose. Right now, the choppiness in the markets are unparalleled, so unless you really know what you're doing, safe havens are the best.
T-Bills are the safest, as they are used to run the US Govt's day-to-day operations. If the US govt ever defaults, T-Bills will be the last type of bonds it defaults on, after the longer-term stuff.
Greece is in really, really bad shape. The normal way a country gets out of this problem is by devaluing its currency, and enacting fiscal policy measures. Look at Iceland for a recent example, and the Asian currency crisis back in 97-98.
However, Greece is stuck. It can't devalue its currency, because they are part of the Euro. The only way to get this to work is by getting the other European nations to pay for Greece through Eurobonds, but NO ONE WANTS TO. In fact, if a politician did so, they would get voted out. So there is no political will to pay for Greece, which means that Europe is in between a rock and a hard place.
They can do handwaving, etc, but it seems really likely that this European debt crisis will bring down Spain (20% unemployment, 40% youth unemployment and a housing bubble burst), Portugal, and worst case Italy. It's confidence contagion and it will continue to spiral out of control until they eject Greece out of the EU.
So now, we know that Europe is screwed. Will their plan to give 50% haircuts work? Or will everyone leave Europe entirely? This is the question, and I frankly doubt it, just like the trader said. YOU CAN'T SOLVE A DEBT CRISIS BY ISSUING MORE DEBT!!!
Once Greek bond holders get 50% haircuts, what about Ireland and Portugal? Will there be mass selling of those sovereign bonds? It will be a big domino effect, and the outcome is completely unpredictable at this point, but the one predictable thing is that the politicians will likely screw it up, because they lack political courage.
So the advice the trader gives is essentially right. Stay in safe havens for now, if you have money you can't afford to lose. I would stay in short-term US Treasuries so that you don't need to worry about interest rate issues. Don't try to catch bottoms unless you're playing with money you can afford to lose. Right now, the choppiness in the markets are unparalleled, so unless you really know what you're doing, safe havens are the best.