Market Overview

How to Profit from Greek Default Fears (FXE, NBG, DRR)

The likelihood that Greece will default on its debts increased yesterday after the Standard & Poor's rating agency gave Greece the lowest credit rating of any country that it covers in the world.

This immediately sent Greece's borrowing costs higher as 10-year Greek bonds with yields above 17% made it even more difficult for the troubled country to finance its expenses.

Although Greek and European officials have long said that a Greek default is not an option, the market increasingly believes otherwise.

For more than a year now, investors have listened to politicians from countries like Greece, Ireland and Portugal make claims that their countries' finances were in order and that they would not be seeking bailouts.

Soon after, each of these countries received huge bailouts from the European Union and the International Monetary Fund.

So investors can be forgiven if they're not ready to take the word of the same group of people who covered up Greece's shoddy finances for years only to turn around and ask the international community to finance the generous Greek welfare state.

Once the Greek people learned last year of the austerity measures that would be taken in order to receive a 110 billion euro bailout, they took the streets in violent protests that soon turned deadly.

A year later, the protests and general strikes returned, as many of the Greek people decided that they would rather not work at all than give up the generous conditions that they had grown accustomed to over time.

It's still not clear whether or not the latest austerity measures will even be approved by the Greek Parliament, as Greek politicians must choose between satisfying international lenders and their own citizens.

For obvious reasons, the idea of a default doesn't seem like such a bad idea to the protesters on the street who are being told that they will lose their jobs and many of their benefits in order to repay international lenders.

All this is taking place while finance chiefs from across the European Union are trying to come up with a plan that will keep Greece from defaulting on its debt.

However, these plans are being complicated by growing opposition from the citizens of countries like Germany who are growing weary of having to pay for the financial mess caused by politicians in other countries.

Although many believe that there is no way that the European Union will let one its member nations default, a growing number of people believe that it is just a matter of time before Greece defaults.

There are a number of options available to investors who see opportunity in the uncertainty that Greece and the European Union are currently facing.

Investors who believe that Greece will avoid a default may want to consider the CurrencyShares Euro Trust (NYSE: FXE) and the National Bank of Greece (NYSE: NBG) as investment options.

These two securities could see big gains if Greece is able to finally get its finances in order and avoids the default that many investors believe to be inevitable.

If Greece defaults on or restructures its debt, it may soon be followed by other countries like Ireland and Portugal. This could doom the euro as a currency.

Investors who think this scenario is likely may want to take a look at the Market Vectors Double Short Euro ETN (NYSE: DRR), which would stand to gain in the event of a Greek default or restructuring.

Posted-In: Long Ideas News Short Ideas Specialty ETFs Downgrades Financing Currency ETFs Politics Best of Benzinga

 

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