Protect your ass(ets)
Much attention has been given this week to the impact on the euro of a downgrading of several EMU members long-term currency sovereign credit ratings. To add to the negativity – and being negative is in vogue – Ireland was reported to be about to go cap in hand to the IMF for a bail out, giving credence to a recent joke: Q: What’s the difference between Ireland and Iceland? A: One letter and six-months.
In such trying times, investors are wondering how best to protect their assets. One of my Euromoney colleagues wrote a good piece in this month’s magazine about the folly of using credit default swaps to hedge G10 sovereign debt. “Let’s face it, if the UK defaults there won’t be banking system left to make a claim,” he argues. This looks like risk management taken to a ludicrous extreme.
Elsewhere, as I have written, quite a few Retail Johnnies are piling into physical gold, which I just don’t get. After all, if Armageddon does materialise I can’t see anyone accepting a metal trinket for food or fuel. No, the best way to protect your assets will be with a shotgun.