French Banks Scramble to Prevent Another Global Collapse
The threat of a Greek default has become so real that French banks, which constitute some of the top Greek debt holders, have intensified their efforts to ease the country's floundering finances.
French lenders, along with their government, have suggested a debt rollover program, the first private-sector proposal to help save Greece.
The proposal suggests reinvesting 50% of maturing Greek debt into 30-year Greek government bonds between now and 2014. The new securities would pay a coupon close to current loans' interest rates, and offer a bonus for additional Greek gross domestic product (GDP) growth.
Another 20% of maturing Greek debt would be put into AAA-rated securities, like French Treasury bonds, as a "guarantee fund" for repayment on the 30-year debt holdings. This would take some of the Greek debt holdings off of banks' balance sheets.
French President Nicolas Sarkozy introduced the plan at a Paris news conference yesterday (Monday), saying French banks and insurance companies were committed to making it a reality.
The plan is a stark illustration of how dire the situation has become.
It's well understood that the European Union could be debilitated by a Greek default, but the United States has just as much at stake.
"The largely untold 'rest of the story' is this: If the European banking sector implodes, the U.S. financial system could take an unqualified beating," said Money Morning Contributing Editor Shah Gilani. "Big U.S. banks have been lending generously to banks across Europe. Close to 29% of their lending books during the past two years have gone to their heavyweight European counterparts. While they have pulled back considerably as a result of recent turmoil, U.S. banks are widely believed to have $41 billion of direct exposure to Greece."
The New Global Gambling Hotspot That's Set to Overtake Las Vegas
First it was Macau that leapfrogged Las Vegas as the No. 1 global gambling destination in 2006.
Now another Asian powerhouse is set to push Sin City down to third on the list of global gambling hotspots.
We're talking about Singapore – the Southeast Asian city-state that has a red-hot economy and a new reputation as a tourist mecca.
Singapore, with just two casinos, is set to pass Las Vegas as the world's No. 2 gambling hub, according to Frank Fahrenkopf, president of the American Gaming Association.
"Now more than a year old, the two integrated resorts in Singapore have exceeded all expectations and turned the nation into Asia's second global gaming superpower," Fahrenkopf told the AFP on the sidelines of a recent gaming conference in Macau. "The country's gaming market will likely overtake Las Vegas as the world's second-largest gaming center as early as this year."
Singapore's Resorts World Sentosa and Marina Bay Sands casinos will rake in $6.4 billion of combined revenue this year, Fahrenkopf predicted. That would be a sizeable increase over 2010's $5.1 billion take.
Las Vegas brought in $5.8 billion last year, after stumbling in the wake of the financial crisis and housing collapse. A report citing research by the Royal Bank of Scotland Group PLC (NYSE ADR: RBS) indicated that Las Vegas would earn $6.2 billion this year, according to Agence France-Presse.
Investing in the Middle East: The Best Plays to Make
Periodic eruptions of violence and instability make investing in the Middle East fairly tricky. But that doesn't mean you ought to avoid the region entirely.
Indeed, investing in the Middle East can be extremely profitable, as the region currently is one of the world's bright spots for economic growth.
The International Monetary Fund's (IMF) said in its World Economic Outlook that the region's economy would expand by 5.1% clip in 2011. That's well above the 1.5% pace projected for Europe and Japan and the 2.3% rate forecast for the United States.
And contrary to the perception of many Westerners, that growth projection isn't based primarily on the price outlook for oil, which has trended higher for most of the past year. Rather, it's keyed to everything from construction and new-business development to banking, tourism and even Internet gaming.
So let's take an in-depth look at each sector, as well as some specific companies to invest in.
U.S. Automakers Throttle Past Japan Quake Supply Chain Woes, While Others Stall
While Japan's March 11 earthquake did not damage the global supply chain as badly as initially feared, the world's automakers – particularly those based in Japan – have faced a tougher road to recovery.
Thanks to a smaller reliance on Japanese parts and a quick response to the crisis, U.S. automakers have weathered the disruption to their supply chains well, with minimal impact on production.
The Japanese automakers, however, with their strong reliance on the just-in-time inventory system and preference for single-source suppliers, have struggled to get back on their feet and stand to lose market share, at least in the short term.
"In the race to provide better quality at lower prices, manufacturers picked very narrow, optimized supply chains," said Willy C. Shih, Professor of Management Practice in the Technology and Operations Management unit at Harvard Business School. "They put all of their eggs with one supplier that had the best product at the lowest price."
A Greek Default is Bad – But a Greek Bailout Much Worse
Many investors continue to favor a Greek bailout to prevent the Eurozone's first sovereign default – but they are rooting for the wrong solution.
Greece has requested another loan from its European neighbors to cover next year's $43 billion (30 billion euros) shortfall as yields on 10-year Greek bonds have climbed over 16%.
The second Greek bailout would come about a year after the European Union (EU) and International Monetary Fund (IMF) loaned the struggling country $158 billion (110 billion euros) to meet soaring financial obligations. Greece took the money on the terms that it would implement austerity measures and cut its massive budget deficit, but the country failed to meet the agreed-upon targets.
EU and IMF officials have been reviewing Greece's cost-cutting actions to determine if the country – now with about $430 billion (299 billion euros) in debt – deserves another huge loan. EU leaders have also considered asking investors to reinvest in new Greek debt when existing bonds mature, buying time to stabilize Greece's sinking economy.
Why a Greek Default Could be Worse Than the Lehman Collapse
The 2008 collapse of Lehman Bros Holdings Inc. (PINK: LEHMQ) ignited a financial meltdown that resulted in widespread bank failures and caused the Dow Jones Industrial Average to lose 18% of its value in just one week.
Yet a Greek default – which (even with a bailout) becomes increasingly likely with each passing day – would actually be much, much worse in many respects.
Sure, it's possible that European Union (EU) taxpayers will soon be dragooned into yet another rescue plan. But that would only delay the inevitable – a catastrophic collapse that will drudge up feelings of panic we haven't witnessed since the global financial crisis hit its apex nearly three years ago.
Dodgy Debt and a Dozing Economy
Greece's debt, at about $430 billion, is less than that of Lehman Brothers, which owed around $600 billion at the time of its bankruptcy. But Greece's finances are much less sound.
Whereas Lehman Brothers participated in the 2003-07 financial bubble with considerable enthusiasm, accumulating vast amounts of the dodgy subprime mortgage paper whose value collapsed in the 2007-08 downturn, Greece's misdeeds date back much further – to its 1981 entry into the EU.
As the poorest member of that group, Greece became eligible for a vast array of inventive subsidies, primarily related to agriculture. However, the frauds the country perpetrated to justify even larger subsidies were even more inventive. And this allowed Greece to bring its living standards close to the EU average, while still being subsidized as if it was a genuinely poor country.
Indeed, Greece produced nothing close to the level of economic output that would be needed to justify its spending and the lifestyle of its people.
The problem for Greece is thus stark: Its people need to suffer a decline in living standards of about 30% to 40%, so that the country's output is sufficient to repay its debts.
How to Turn a Tidal Wave of Profit From the Global Shipping Industry
The shipping industry plays an indispensable role in connecting consumers with their most cherished goods. But many investors unfamiliar with its inner-workings underestimate its potential as a massive profit generator.
Meanwhile, investors who are aware of its importance, and can track the volatile ups and downs of the companies that provide shipping services, frequently score big gains from its oft-repeating profit opportunities.
To get a quick idea of the enormity of worldwide shipping activity, you need only look at the U.S. trade numbers.
European Banks Wait in Fear Over Consequences of Unresolved Greek Debt Crisis
Fresh signs of a possible default in Greece have revived a contentious debate between politicians and major banks in the European Union over what to do about the Greek debt crisis.
Yesterday (Wednesday) Greek Prime Minister George Papandreou had no success convincing opposition party leaders to support new austerity measures needed to comply with bailout terms set by the International Monetary Fund (IMF) and other European Union countries.
Without those measures, Greece will not receive the bailout money it needs to avert default. Default would destroy the country's credit for a decade, maybe longer.
Don't Fret Over Europe's Debt Crisis – Oil Prices Will Bounce Back
The volatility in the oil market has notched up this week, courtesy of another bout with debt jitters in Europe. Oil and gasoline futures are moving down – and most of the energy sector along with them.
In a situation like the current European debt mess – where maximum uncertainty is channeled into a very focused concern – oil futures will generally overcompensate, exaggerating the downside.
Of course, that is of little consolation to the traders who in the past few days have seen about $3.00 cut from the near-month futures (July).
The Japanese Economy: How Its Post-Earthquake Weakness and Scuffles With China Contribute to a Global-Market Reversal
In our ongoing search for possible "inflection-point" catalysts – financial stimulants that could help turn global markets upside down – the Japanese economy has to be a prime candidate.
In the last part of the 1980s, Japan was the world power – so much so that investors on the U.S. trading floors of New York each day watched the Tokyo markets with a mixture of awe and fear. An oft-cited investing aphorism of the day explained this very clearly by holding that "when Tokyo sneezes, Wall Street catches a cold."
Not long after, the Japanese miracle ended, the stock-and-real-estate markets crashed, and that Asian country fell into a funk known as the "Lost Decade" – a misnomer, since the economic malaise that's lasted virtually ever since is actually more than 20 years long.