PIGS: When to buy or sell their bonds?
Summary
All of us have been following the fiscal shenanigans of Portugal, Italy, Greece and Spain, in short: the PIGS. As Obama said during the election campaign: even if you put lipstick on a pig, it's still a pig. We examine this proposition and tell you whether to buy or sell bonds issued by the PIGS.
Topics Covered
- Why this is relevant to your portfolio
- How to make money off this idea
Background
1. Why this is relevant to your portfolio
Last week witnessed a roller-coaster concerning their bond yields. On Thursday, Greek yields reached 7.25%; that represented a full percentage point yield increase in just two days, and put Greek yields on par with Hungary's. The yields of bonds issued by Portugal, Italy, Ireland and Spain also spiked; in their PIGS wake, the Euro tanked.
This news is portfolio-relevant because such bonds represent buying opportunities. My fundamental belief is that the members of the Euro may cuss and swear at what has been happening to the members fiscal PIG stys, but the fact of the matter is that these PIGS are too big to fail.
Just like with "Government Sachs", members of the Euro Club will stick together. After all, if they let one of their weaker PIG links down, this would set a precedent to let other PIGS links down. The bottom line is that the PIGS will be reprimanded - and rescued.
As for the Euro, it does not represent a buying opportunity yet. The reason is that the Euro's demise, in my mind, has more to do with rising stock market volatility than it does purely with the PIG sty of fiscal turpitude. And we have suggested for some time that the dollar will keep strengthening, the more that the market tanks and thus volatility picks up, i.e. the more that carry trades are unwound.
2. How to Make Money Off This Idea
- Always consult your financial advisor first.
- Buy Greek bonds probably around July.
- Where policy on Greece goes by this July, that regarding her other friends in the PIGS sty will follow...
