Crisis Farm From Over...?

Finally when the whole world, especially the great MEDIA is rejoicing over the fact that the worst is far away now and we are climbing a new ladder of growth, a new sovereign debt crisis is looming in Europe.

The chances of sovereign default of two of the prominent EU countries is increasing. Portugal and Greece have not grabbed much of the attention, probably because the MEDIA does not want to spoil the great recovery party. However, the probability of their governments not being able to pay of their debt has increase many folds and these is clearly reflected from the way their Credit Default Swaps (CDS) are behaving.

CDS on Portugal rose over the 200 level for the first time and the swaps on five-year Portugal debt rose 4.29 basis points to 200.51, and those for Greece rose 7.64 points to 405.05. This rise in CDS clearly highlights the fact that the things are not as good, as being proposed.

Thee, big problem with this continuing further is that:

• Firstly, this will put a downward pressure on the EURO which has already weakened below the crucial level of 1.4 and any further weakening will cause a sell of in commodities and other asset because of an unwinding of the dollar carry trade positions

• Most important implication could be a change in the sentiments, if a Dubai default can cause shimmers, the news of default of two EU countries can certainly cause earthquake.

Thus, I would advise one to remain cautious or the best is to invest in SIP and avoid investment on a lump sum basis on these dips.

Happy Investing.