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Beware swine poo and hogwash

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by Peter Switzer

For the first time since 6 March last year, long-term investors need to be wary of the hogwash that is coming out linked to the debt of the naughty little PIGS of Europe. PIGS stands for the debt-ridden countries of Portugal, Italy, Greece and Spain. And the latest contributor to put his snout in the commentary trough is the editor of the Gloom, Boom & Doom Report, Dr. Marc Faber.

Wrong call

If you love big calls (and this guy has got a few right, though he never reminds us of his wrong ones) try this WRONG one: “The governments of every developed economy will eventually default on their sovereign debts, including the US, the UK and Western Europe.”

This is the tripe he served up on CNBC this morning, clearly in an effort to grab a headline. This is such a pathetic call he needs to be pilloried publicly for such a dumb alarmist call.

For starters, I will bet him $200,000 that Australia will not default on its sovereign debt. I reckon there are some developed countries that could be exposed if there was a new credit crunch and interest rates spiked but have a look at the chart below and see how well positioned we are compared to other countries.

Unhelpful speculation

He went further to explain himself.

"In the developed world we have huge debt to GDP, in terms of government debt to GDP and unfunded liabilities that will come due," Faber speculated. "These unfunded liabilities are so huge that eventually these governments will all have to print money before they default."

This was not helpful speculation with bailout talks still going on to fix the Greece debt problem, which in hard cold cash terms it needs to find 53 billion euros to keep the wolves from the door.

Stocks and precious metals to rise?

One good thing Faber predicted was that, even though we are in a correction phase he thought stocks could rise along with precious metals.

This is another plus for the Aussie economy and our government’s debt!

The people I like to survey say a rescue of some kind is going to happen but the details have to be thrashed out.

EU has to help Greece

The smartest thing I have read, once again, came from the CNBC website.

"The short-run concern is the Greek situation might create distress that could affect financial markets of the whole area," says Domenico Lombardi, a G7 expert at the Brookings Institution. "In the long run, there's this broader concern that letting Greece fail could jeopardise the whole idea of an ever-closer union."

Greece and the other PIGS are a part of the EU and just like the US Government would help California if it was close to default, so to the EU has to help Greece. The EU with one currency is like one country and if this debt predicament is not handled well it could jeopardise the whole EU concept.

Sure this is a drama but I am sure the four little pigs will eventually wee, wee, wee all the way home to the EU. If not, the EU will end up in a very bad case of swine poo!

For advice you can trust, contact Switzer Financial Services.

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Published on: Thursday, February 11, 2010