2024年3月29日星期五
 
專家論市
Martin Hennecke
Martin Hennecke
Chief economist at The Henley Group mwh@thehenleygroup.com.hk
"In my previous two articles, I warned of an implosion of Greece, possibly soon, followed by a domino-style sovereign debt collapse of the remainder of Europe."

What to do with HK dollars amid Greek tragedy
12/04/2010


In my previous two articles, I warned of an implosion of Greece, possibly soon, followed by a domino-style sovereign debt collapse of the remainder of Europe.

I have suggested investors shift euro/euro bond positions into gold. By now, the rationale for this recommendation should be apparent.

The yield on 10-year Greek sovereign bonds has risen to over 7 percent, higher than before the supposed "rescue package'' announced by the leaders of the supposedly stronger European states. (These nations actually all need bailouts themselves.)

Moreover, the Greek population has started to move money out of Greek banks and into offshore accounts. They no longer trust the country's financial system.

According to the Greek central bank, its nationals have withdrawn 8 billion euros (HK$83 billion) from the country's banks during January and February.

This is exacerbating the problem since Greek banks have until now been the largest buyers of Greek sovereign debt. Now, instead of buying more Greek debt !V that is lending money to the government !V these banks have just requested further funds from the government to address their own liquidity crunch.

So with Greece going deeper into crisis and no solution in sight, the euro has suffered.

Investors are starting to realize that a default by Greece may be imminent, followed very possibly by other European states such as Ireland, Portugal, Spain and Italy So the rise of the US dollar and other currencies against the euro is getting a lot of attention.

But what we should focus on is that gold in euro terms has hit fresh all-time highs.

Since the United States and Britain face fundamentally the same problems as the Eurozone, neither the greenback nor the British pound is going to be a sustainable alternative to the euro.

Former Federal Reserve chairman Alan Greenspan has called the rising yields on US treasuries a "canary in the mine'' and warned about the massive unprecedented amount of debt in the United States.

Closer to home, the yuan and Asian currencies along with the Australian and Canadian dollars are likely to be relatively safer long term currency investment options.

However, we must note that even these currencies too will still most likely be subject to much higher inflation and a substantial loss of purchasing power going forward.

The is because we now are at a turning point of the inflation and interest rate cycle on a global level.

If Western currencies were to inflate substantially, the Eastern currencies may not lose much purchasing power. But they are likely to inflate considerably, resulting therefore in a loss of purchasing power.

This is because no country likes its currency to appreciate too rapidly against others, particularly not against currencies of their major export markets.

The dollar, pound and the euro block still represents a fair chunk of the world market for now.

For these reasons, particularly given the recent strength in the greenback (and thereby the Hong Kong dollar), it now appears to be an opportune time for debt-free investors holding large US dollar or Hong Kong cash positions to accumulate precious metals and invest in long-term agricultural commodity futures.

This will protect one's wealth against the emergence of inflation and risk of currency/bond investment purchasing power losses amid an escalation of the sovereign debt crisis in the Western world.
 


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