The New Vigilantes (Part 2)

So what are the Credit Cops telling us?

First, most countries are perfectly safe. It costs .15% to insure Norwegian debt for five years—the most creditworthy country on the planet. They have annual oil revenue equal to about 20% of their economy. By comparison, the US costs .40%, Switzerland .50%, England .80%, Spain 1%, and Greece 3%. The real global basket cases are Venezuela and Argentina, at 10%

Second, Greece has issues, but they’re related to funding, not solvency. It costs more to insure short-term Greek debt than long-term debt. That’s unusual. It means that investors are concerned that Greece may have trouble in the next six months, but if they clear those hurdles, their debt is no riskier than, say, Egypt.

Finally, there’s no comparable situation here. The most exposed sovereign issuer here is the State of California, with its yawning $20 billion budget gap and default swaps at 2.8%. But the State has a massive, diversified economy to draw upon, and a history of muddling through. It’s highly unlikely that they will default on their general obligations.

The world has gone through a difficult time. But it’s good to know that the Credit Cops are on the beat. They can tell us a lot, if we listen.

Douglas R. Tengdin, CFA
Chief Investment Officer
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By | 2014-09-05T17:57:21+00:00 March 3rd, 2010|Global Market Update|0 Comments

About the Author:

Mr. Tengdin is the Chief Investment Officer at Charter Trust Company and author of “The Global Market Update”. The audio version of each post can be heard on radio stations throughout New England every weekday. Mr. Tengdin graduated from Dartmouth College, Magna Cum Laude. He received his Master of Arts from Trinity Divinity School, Magna Cum Laude and received his Chartered Financial Analyst (CFA) designation in 1992. Mr. Tengdin has been managing investment portfolios for over 30 years, working for Bank of Boston, State Street Global Advisors, Citibank – Tunisia, and Banknorth Group. Throughout his career, Mr. Tengdin has emphasized helping clients manage their financial risks in difficult environments where they can profit from investing in diverse assets in diverse settings. –
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