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Will additional sovereign debt crises promote hedging with hard assets?

*The Wall Street Journal, by Geoffrey T. Smith, March 29, 2011

”Rating agency Standard & Poor’s on Tuesday delivered a damning verdict of the euro zone’s new plans for resolving sovereign debt crises, downgrading two of the euro zone’s most troubled member states.

Citing fears that the two may have to restructure their debt and force losses on bond holders after 2013, S&P pushed its rating of Greek sovereign debt down further into junk territory, cutting it by two notches to double-B-minus from double-B-plus.

It also cut Portugal’s senior debt rating by one notch to triple-B-minus from triple B.  It had only last week downgraded Portugal by two notches, and the country is now on the verge of losing its investment-grade status for the first time.  The outlook for both countries’ ratings remains negative, S&P said.

S&P said it is ‘highly likely’ that Greece will have to access official assistance after 2013, when the current European Financial Stabilization Facility is to be replaced permanently by the ‘European Stabilization Mechanism.’

The key difference between the two is that the ESM will foresee the likelihood of asking bondholders to accept losses before taxpayer-funded help is extended.  S&P noted that this structure is ‘detrimental’ to private creditors of both countries.

Greece has already accepted a three-year plan of emergency help from the EU and International Monetary Fund, while S&P expects Portugal to ask the EFSF and IMF for a similar package soon.”


*This information is solely a highlight of the opinion of a third-party publication and is incomplete.  Please subscribe to this publication for the full and timely opinion of the author and call a Monex Account Representative for any additional up-to-date information. This is not an offer to buy or sell precious metals. Investors should obtain advice based on their own individual circumstances and understand the risk before making any investment decision.

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