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  1. Wealth
December 10, 2009

WSJ: Place your bets against the PIIGS nations

By Spear's

The sudden spotlight on troubled government borrowers is presenting a long-awaited payday for investors who placed early bets against countries now under pressure.

The sudden spotlight on troubled government borrowers is presenting a long-awaited payday for investors who placed early bets against countries now under pressure.

Investors including Balestra Capital Ltd., Hayman Capital Partners LP, North Asset Management LLP and Pivot Capital Management Ltd. have been anticipating such flare-ups for at a year or longer, betting that some countries would emerge from the financial crisis in much worse shape than others.

Those bearish positions had led to a difficult 2009, as investor confidence picked up and rivals gained by buying risky investments. Kyle Bass’s $650 million Hayman Capital suffered losses this year, for example, while James Melcher’s Balestra Capital is up about 5% in 2009, according to investors, less than the 20% or so gain of the average hedge fund.

But a chorus of warnings this week about the hazards of government borrowing from Dubai to Greece and the U.K. has rattled markets around the globe—and some of those early bets are starting to pay off. On Wednesday, Standard & Poor’s Ratings Services changed its outlook on Spain’s credit rating to negative, a sign that a downgrade could lie ahead. A day earlier, Fitch Ratings cut Greece’s credit rating to the lowest in the 16-member euro zone. On Monday, S&P cut Portugal’s outlook to negative.

To read the full story, visit wsj.com

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