by John Dizard
Financial Times
April 17, 2011
For the past couple of years I’ve been warning would-be vultures about the risks of taking short positions in troubled euro-area sovereign debt. The profits that were to be had from the strategy would not, I thought, offset the risk of regulatory revenge.
The situation has changed. Now cold-hearted speculators, whether the reviled Anglo-Saxon variety or from any other ethnic group, should move in on Greece. Not as short sellers, though, but as buyers of sold-off medium-term Greek government bonds. Don’t use credit default swaps as a trading vehicle; the only reliable profits from those will be harvested by dealers taking out their customary spreads.
This doesn’t require anyone to believe that a consensus has formed within Greece on necessary structural reforms. It hasn’t. We also don’t need to count on votes for further support programmes at euro-area summits. The point of what’s coming next is to put off any more such meetings.
No, an optimistic view on Greek government bonds can be based not on any strength of character on the part of officialdom, but on weakness and indecision. Recent history has shown those are qualities that can be depended upon to provide reliable signals for sovereign debt investing.
We should take entirely seriously the assertions by officials that there will be no default on euro-area sovereign debt, at least before 2013. Since the same officials get to define the meaning of the word “default”, these are trustworthy statements.
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