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The Greeks are spooking us again

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by Peter Switzer

I have been talking about it and it’s been long overdue but it has started today with a substantial sell-off hitting Wall Street following overseas concerns. The first issue is fear that global growth will be slower than expected and again the Yanks think it’s time to start worrying about, wait for it, Greece!

The concern about a slower-than-expected growth rate for the world comes out of China’s admission of a 7.5 per cent economic expansion target. This has worried US investors. By the way, China in 2011 was tipped to be responsible for something like 0.81 per cent of a global growth rate of around 4.4 per cent while the USA was only expected to contribute 0.74 per cent. India was only good for 0.18 per cent and Japan 0.14 per cent. So you can see the importance of China.

However, China does have a habit of under-promising and over-delivering, so I’m not too stressed out about this reason for Wall Street selling-off.

On Greece, I have been talking about the Thursday meeting on the bailout deal that will hopefully sign off the ‘haircut’ that bondholders will take and hopefully this will put to bed fears about a contagion-like problem for banks exposed to credit default swaps linked to Greek bonds.

While Greek officials are confident that the bond swap deal that goes with this bailout will happen, European shares investors on the Continent didn’t show as much confidence.

At this stage some big-name banks have said they will play ball with the swap, which effectively insures those who courageously punt on the Greeks paying back their debts.

If Greece defaults this week, it will pump up fears that other countries such as Portugal, Italy, Spain and Ireland might do the same.

By the way, the Iran drama isn’t helping investor confidence and so there are plenty of reasons, on top of the big run-up in stocks since October, to explain why we have seen a big loss on the New York Stock Exchange overnight.

The Dow finished down 203.66 points, or 1.57 per cent, to 12,759.15.

Meanwhile, the S&P 500 slumped 20.97 points, or 1.54 per cent, to 1343.36.

These are testing times but if Greece doesn’t default and the Yanks get a good jobs number on Friday, those who worried and sold today will be happier and buying next week. However, if we get a double whammy on the negative side, then stocks will slide.

Important information:This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice.

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Published on: Wednesday, March 07, 2012

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