- Gyros (Greece) and Mofongo (Puerto Rico). Though decades in the making, these two longstanding risks dominate the near-term outlook. Greece captures most of the broad market's attention but Puerto Rico will be important to U.S. retail investors. For each there are similarities and differences but on the similarities they finally appear willing to confront the long-standing debt sustainability issues with the possibility of default.
- The Five Stages of Greece. We have repeatedly used this theme to describe the events in Greece over the past several years. Drawn from the Kubler-Ross model of the emotional response to catastrophic loss, the five stages are not experienced in order but rather one moves back and forth through denial, anger, bargaining and depression before finally arriving at acceptance. The most recent negotiations between Greece and its creditors saw again the attempt at moving back into denial as Greece sought the previously rejected approach of relying on tax increases to plug its deficits, while its creditors held to their demands to cut spending. Having been misled by their government that they could both renegotiate the bailout and stay in the monetary union, the Greek people will vote on July 5th in what might become a new independence day for Greece (at least from the currency) should they vote ‘no.’
- "The debt is not payable." Puerto Rico's governor, Alejandro Garcia Padilla, made this—for some startling but for us long overdue—admission in a televised broadcast June 29th. That exits the "denial" phase for Puerto Rico as "Puerto Rico does not today have the capacity to continue paying under the actual terms." Though bond prices plummeted back in 2013, the scope of debt restructuring suggested across the more-than-$70 billion debt outstanding represents a significant event for investor exposure and its potential to set precedents.