You must be wondering why am I mentioning about Alexander the Great in a finance blog. However, I believe that whatever is going on with Greece currently, the title of my blog is not inappropriate.
Since, Tuesday when the Sovereign rating of Greece was cut down to JUNK status, the whole world is wondering whether or not Greece will get any bailout or will default. The Greek bonds are currently yielding around 22% and this makes me happy, that India despite being an developing nation is yielding only around 8%. (Since all the text books are proved wrong which says that a developing country like India will always yield more than a developed economy).
The only possible thing that could save Greece from restructuring its debt (which is equivalent of a default) and bring some cheers to Alexander the Great is a bailout package. However, the biggest road block to this bailout package is the European super power Germany. The German public opinion is firmly set against dipping into the tax payers wallet to help the Greece. Thus the German Government is in a tight spot:
- On one hand it can agree to extend the aid to Greece and face a voters backlash and send its party to a crashing defeat in the regional elections in Germany on May 9th
- Or on the other just sit back and and let the Greeks default and trigger this credit problem into other larger debt burdened EU members.
- This would also lead to a problem for different private sector banks in EU area who currently holds Greek Bonds and this would lead to another crisis of its kind
However, if you believe conspiracy theory, what I see that the one of the key beneficiary of this whole Greece episode is Germany. What has this Greece problem done, is that it has substantially weakened the EURO and Germany whose major portion of GDP is export dependent is benefiting highly from this and in order to bring down the Chinese dominance the Germany is deliberately postponing the bailout, so that it can prosper in the export market.
Hence, I see no clear direction for markets at least before 19th when Greece has to either fund its debt obligations from the bailout money (if it gets) of default. I had highlighted the kind of possible threat EURO area is to the world markets over a year back, you can use the link to re confirm. So, I would again say that the things are not as good as it looks like. Nifty has a major resistance around 5330-50 and any new long trading positions should be taken only once this hurdle is crossed.
Till then keep doing SIP in the stocks I had already discussed in my earlier posts.
To read earlier post on the same subject, click here
Author name:Rahul Sonthalia, Research Head, Kredent