After Fitch Ratings downgraded Spain on Oct. 7, Standard & Poor’s cut Spain’s credit rating to AA- last week, for the third time in three years. It appears more and more certain to me that Greece Default is inevitable.
Although global stock markets have largely rallied last week and even Euro has rebounded sharply. The massive downgrades of sovereign debts and banks were fast and furious.
Even though I am never a fan of credit rating agencies, the agencies seem to have learned the lessons since Lehman’s collapse. The joke of rating a bank AAA just before it went under must not be repeated.
Since September, the market has priced in 90% probability on default of Greece’s debt. If you notice, the markets have recently stopped arguing whether Greece will default, but what will happen after the default.
There are many evidences which I won’t discuss in details here. But in my opinion, whatever the policymakers are doing are not to save Greece, but buying time to prepare the impact to the affected banks and the rest of the countries. After all, Greece has a long history of defaulting its sovereign debt.
However, as the same article pointed out: “while previous defaults were dislocating to the market, the global financial system did not suffer any long term damage because of these events.”
Investors must note what is important is never whether Greece will default at all, but rather how do you handle that. Do you have a plan for that?
I was recommended by a friend to read “The Big Short: Inside the Doomsday Machine” by Michael Lewis. When 2008 sub-prime crisis happened, there were a group of people had plans for that.
Now the million dollar question is: Who have made money in this crisis?
Hold on Tight!