Are Greece and Italy really safe havens? - The Best from Greece

Working in financial markets is currently like living in a hall of mirrors. Things which logic suggests should fall, rise. Things which ought to loom large appear small. It is hard not to wonder if things that presently seem overwhelming will not in due course be seen as mere way-stations.

The Greek public debt is not small – at around $520bn, it is about four times the size Argentina’s was when it defaulted in 2002. But it is not so large it could not be paid off outright with the personal fortunes of a couple of dozen Silicon Valley entrepreneurs.

Culling the bank accounts of the most successful among us may not be the best way to pay the debts of the most profligate, but it puts the scale of the issue into perspective.

The public debt of the US, by contrast, stands at around $9.5trn. That of Japan is $11.9trn. US gross public debt is currently equal to an entire year of its gross domestic product. Japan would need to devote just short of two and a half years of its entire economic output to pay off its government debt.

The list could go on: Italy, France, the UK. Far from stabilising its debts, never mind reducing them, the US is adding to its burden at a rate of $1.5trn a year – about $400m a day. The Japanese are frugal in comparison, adding only around $165m a day.

In the UK, having listened to David Cameron’s stirring speech about paying our debts and ‘putting up some fight’, we can relax with the thought we are adding to our public debt by as little as $60m a day – a mere $2.5m an hour.

I rather hope these numbers speak for themselves. I am not advocating investors shrug Greece off, still less Italy. I am really trying to achieve nothing more than to point up the extraordinary situation of investors seeking safety by rushing into burning houses – that is to say, seeking a ‘safe haven’ in the debt of the most indebted entities in the history of human economics.

I am not superior to it; I have been doing it myself as occasion requires. But it is not the end of the matter (my compliance officer requires me to add in here the phrase ‘in my view’).

Stewart Cowley is manager of the Old Mutual Global Strategic Bond fund

Read more: http://www.investmentweek.co.uk/investment-week/analysis/2117153/greece-italy-safe-havens#ixzz1b1g6BRtG
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