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What Happens In Greece Won't Stay In Greece

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With the market continuing to roar, posting a nearly 80% gain over the past 13 months, a growing number of market pros are turning just about every negative into a positive. In particular, Wall Street's brigade of most happy fellas are saying the unemployment and housing woes and the inability to get bank loans, given some patience, are on their way, to becoming yesterday's news.

Yet another immediate worry, the sovereign debt crisis, particularly as it relates to Greece, is also seen going the way of the hula hoop. That's said to be a result of the $61 billion rescue package Greece got last week from the Eurozone countries, money, say the most happy fellas, that should calm market fears and enable Greece to refinance debt coming due on May 19 of $10 billion Euros (equivalent to $14 billion in U.S. currency). In brief, so goes the word, Greece is now over the hump.

Sounds good, but as the Trojans sadly discovered, beware of Greeks bearing gifts. Or in this case, don't get carried away with Greeks getting gifts because they may not be the panacea they're supposedly cracked up to be. In fact, more Greek tragedies could lie ahead.

That's basically what I'm told by Byran Rich, editor of the World Currency Alert, a newsletter out of Jupiter, Fla. "Greece is not out of the woods by any means, " he says. Or put another way, there's a strong likelihood of more debt crises there.

Why so? Some key reasons, according to Rich:

--Greece is still running a massive budget deficit, 12.7% of GDP. (The rule of thumb for the 16 Eurozone nations is that deficit spending cannot exceed 3% of GDP). In fact, Greece's number here is the highest among the PIIGS countries (Portugal, Ireland, Italy, Greece and Spain).

--Greece's government debt, as a percentage of GDP, is 113%, the fourth highest among the
PIIGS. (The rule of thumb for the Eurozone countries is that this figure should not be above 60%).

If you look at these breaches, observes Rich, there is just no incentive for Greece to get its house in order.

Economically, Rich points out, Greece remains in bad shape. Even though it is running the largest deficit in the Eurozone, its economy last year contracted 2%. This year, it's expected to be down again on the order of 1.7%.

Meanwhile, the three major credit-rating agencies--Standard & Poor's, Moody's and Fitch--have all downgraded Greece's debt.

Noting there's a clause in the European Union treaty that prohibits a bailout of the weaker Eurozone countries, Rich argues there's a real risk if you allow Greece to continue to run amok in its spending, it will ultimately threaten the stronger Eurozone nations, such as Germany.

Further, after a lifeline has been provided to Greece, what, he asks, is to prevent other weak EU countries like Spain and Portugal from coming with their hat in hand and saying, where is my bailout?
Rich, in fact, looks for Portugal, Spain, Italy and Ireland all to be lining up for a safety net. "Once the can is open, the worms will come out," he says.

Why, you might wonder, should anyone give a hoot about what's happening in Greece? Because, as Rich explains it, it increases people's sensitivity to risk. And when that happens, he points out, stock and commodity markets move lower and the general market perception about the global economic recovery becomes threatened and questionable.

Pointing to the sovereign debt problem that kicked off last year in Dubai, Rich sees it spreading through Europe, with the U.K. a next logical candidate. Japan, as well, he says. Considering the catalysts for this crisis--burgeoning debt and deficits--the problem will eventually reach the U.S., he says.

What does it all mean to the average U.S. investor? That it's time to become a lot more defensive, he says. "We're in a spreading sovereign debt crisis, meaning," warns Rich, "a much more fragile global economy and a likely double-dip recession for the world. As such, he says, investors should be more concerned right now about preserving capital than finding returns on capital because "we're in a very risky environment.

His bottom line: What happens in Vegas stays in Vegas. But what happens in Greece, won't stay in Greece.

What do you think? E-mail me at Dandordan@aol.com