Friday, December 25, 2009

Flight 2010 - US to Dubai via Greece

The stock markets across the world seem to be celebrating 2009 in style. However, the surprise one in that pack is ATHENS SE GENERAL INDEX (Greece), up 28% for the year, outperforming most other markets during the year.

Greece had borrowed 60 billion Euros in 2009 to make up for its fiscal deficit. They recently announced their intention to borrow another 54 billion Euros next year. Greek bonds have been downgraded multiple times this year by rating agencies, and the country is sure to be EUs most indebted nation with debt levels expected to exceed 120 percent of GDP next year (and 135% for 2011). The socialist government headed by Prime minister George Papandreou is also facing the looming threat of social unrest, as well as industrial strike. Apparently, Niarchos is dead and so is Onassis.

What does the first and second para above indicate? It cannot be a case of "irrational exuberance," because there's precious little to be exuberant about.

The theme for 2009 was simple. Borrow, let a few things fall, cover up your mistakes, give discounts to new car purchases, announce a few austerity measure, reduce interest rates, let the financial markets rejoice, and claim that economies are back on track. Is it really that simple?

Countries like Spain (real estate again) and UK could also come under the hammer in 2010. Will next year go down in history as the year of sovereign default, one in which governments refused to pay up their dues?

Is the recession really over? Or was it just a trailer-a sneak preview-of something far more ominous that is lying in wait? If it happens, who will be the villain? Interest rates? May be yes. But a lot of people have a faint feeling that the dragon could be the ONE.

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