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Paul Gambles

Recognized as a regional financial expert, Paul is a regular speaker at industry events on market forecasting, financial planning, investing and legal issues for foreigners living or doing business in Asia.  Besides Paul’s blog, Paul previously distributed his ‘almost-daily’ email – “Daily Updates”, where he gave his views on timely issues affecting financial markets, macro economics, micro economics and everything in-between.

Born in South Yorkshire, England, Paul graduated from the University of Warwick with an Honours degree in English and European Studies.  He began his financial career in the early 1980s as a technical inspector at HMIT with Inland Revenue.  Following a successful career change to the Bank of Scotland in 1987, Paul moved to Bangkok in 1994 to help set-up an investment counseling practice, which today is known as MBMG International.

www.mbmg-international.com

  

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12 July 2010

James Sullivan of our affiliated portfolio managers Miton Optimal recently wrote about sovereign debt in light of a sovereign debt crisis- 

“The real fear of contagion is spreading, and would have spread further if not for the proposed 600bn Euro bailout. The issue we have is that the authorities keep moving goalposts, making markets hard to second guess at present. You wake up and discover a new bill has been passed, making yesterday’s strategy moribund in the short term.  It’s tough to manage money in such circumstances. But if we cast our eyes further down the track, we will have to face the issues that today we are running away from.

We have been buying 10yr UK debt on 4.25% GRY this year. It currently trades at 3.88%.  Some corporate debt is safer than sovereign debt.  It is today and always will be that some mega caps have better cash flow and dividend cover than many if not all states. You only have to look at how the CDS is pricing this stuff, it will tell you as much – the likes of AstraZeneca and Diageo is a safer debt than UK Plc. There are many uncertainties and political interference with sovereign debt, something which the corporate sector can avoid at present, assuming they’re not a mining company or a financial facing a publicly consensual windfall tax.

So to answer the question how safe is our sovereign debt (UK and US), then my answer is ‘safe’. This doesn’t mean we won’t witness volatility as sentiment drives the market this way and that, but ultimately will the UK default or – restructure’ their debt? No. Nor does it matter what Moody’s or the other agencies say.

The UK and US can of course control their currency and therefore inflation with greater ease than member states of the EU. This is key. The hung parliament in the UK doesn’t do much to help matters, but neither does it really make anything worse. It delays the inevitable austerity measures due. The public sector is in for a very hard time. Speaking to a number of Fund Managers over the recent weeks, they comment that many of their underlying companies are still talk about cutting costs, and not yet about growth and recruiting. The output gap and deflationary pressures persist.”


I think that’s a very good take for now –at this point faced with default or having to continue the QE policies, QE is currently the better choice for both the UK and the US – but this could change relatively quickly and this isn’t the case everywhere there could be some surprising de facto or  actual defaults – if you wanted a long shot , you could do worse then bet on France’s or Germany’s debt to ultimately fail.