By: Allan Schieman

Monday, September 12, 2011

It’s starting to look more and more like Greece will default on its debt. A sovereign default like this one would likely throw the financial markets into turmoil and erase trillions of dollars of wealth worldwide. If you haven’t already taken measures to defend your wealth, the time has come to do so.

You might remember that Greece needed a bailout several months ago. The bailout package it received from other European nations included a series of payments made to Greece over time.  To get the bailout payments, Greece must meet certain requirements including reducing government spending and increasing taxes – neither of which have been popular with the Greek people. As a result, Greece hasn’t kept its end of the bargain and has failed to implement all of its agreed upon austerity measures.

Greece has a big chunk of debt coming due soon and is relying on the cash from the next bailout payment to pay back those lenders. The question now is whether they’ll get the next bailout payment or whether Europe will finally cut Greece loose and let them sink … something Germany is now threatening to do. The German government has started coming up with a plan to shore up their own banks in the event Greece defaults.

All of this has caused the European bank credit risk to surge to an all-time high last week.

- according to the Markit iTraxx Financial Index of credit-default swaps on 25 banks and insurers.

Without the payment, Greece will surely default. If this happens, look out! Things will get ugly in a hurry. The fear is that a Greek default will cause more weakness in the global financial system and a renewed round of fear about another global meltdown.

Banks in Europe and in the U.S. have begun sounding the alarm bells that the risks to the system are extremely high. Many banks are looking for additional cash to help them weather the coming storm. The $5 billion that Bank of America just got from Warren Buffett is just one example.

The yield of 2 year Greek bonds is over 100%. Anyone looking for a high yield on their investments might consider this until they realize that they’ll likely never see their money again.

The latest developments in Europe should act as your wake up call to build a wall around your wealth soon.

How can you prepare your portfolio from the risks in Europe?

There are some simple yet prudent steps to take to defend your wealth from what’s happening in Europe. Here’s what you should do:

• examine your portfolio and sell any European stocks or mutual funds
• sell all European bonds you own and mutual funds that hold European bonds
• get out of the Euro
• sell any North American bank stocks you own that have significant exposure to European debt
• raise the level of cash in your investment portfolio to at least 20%
• add gold (or silver) to your investment portfolios

Hopefully, Greece won’t default on the latest round of debt re-payments. And hopefully, the financial system dodges another bullet …. but I’m betting otherwise.