Greek Debt Crisis: 7 More Lean Years

“Capital is going on strike,” The Richebacher Society’sRob Parenteau warned us late last week when he swung by our Baltimore offices for a quick interview and update on the crisis. Rob was early…and right on the money with his analysis of the event.

Soon Greek citizens will see their taxes at record highs and public pensions and benefits cut to the bare minimum. One analysis this morning projects the deal will put Greece in recession until 2017.

“This is going to be the biggest story in financial markets this year,” Mr. Parenteau continues. “When the Greek government cuts expenditures and raises taxes, it will suck cash flow out of the private sector. Houses and firms will not have as much cash flow. That means the existing debt load to the private sector will be harder to service. So we’re not going to see just public debt distress — which investors understand now — but private debt distress as well. Some of these countries, like Spain, have very highly leveraged private sectors — even more leveraged than their governments.

“What this means is that banks that have exposures in terms of private loans to households and in the eurozone periphery are going to find their loan losses going up. And then investors are going to start asking questions about their capital adequacy. And then, how can they raise capital in such an environment?

“I think many of the eurozone banks could be wonderful shorts.”

Rob mentions two banks by name in the interview we posted on Friday, along with some other on-target commentary and actionable advice. It’s free to watch, right here. You’ll also receive an invitation to become a member of The Richebächer Society, which seeks to educate individual investors on the proper course of action through this era of massive debt meltdowns.

Addison Wiggin
for The Daily Reckoning