Wednesday, January 27, 2010

When PIGS try to fly

Jan. 27 (Bloomberg) -- Credit-default swaps on Greek sovereign debt surged to a record on concern the government won’t be able to plug the largest deficit in the European Union, a day after it priced 8 billion euros ($11 billion) of bonds.
Contracts on Greece soared 48 basis points to 373, according to CMA DataVision. Swaps on Spain rose 17 basis points to 127, Portugal climbed 18.5 to 149 and Italy was up 10 basis points at 114, CMA prices show.
The European Commission said today that Greece hasn’t done enough to rein in its deficit that reached 12.7 percent of gross domestic product in 2009. Greece denied a Financial Times report it’s wooing China to buy as much as 25 billion euros of bonds.

Comment: Will the PIGS (Portugal, Italy, Greece, Spain) bring down the euro? I do not think so. All of these four countries have many economic and intellectual resources readily available. All it takes is some political will and some outside pressure to bring around the turn-around. It is important, however, that neither the IMF will be needed nor that the European Central Bank will implant a bailout.

Backgrunder on the Greek tradition of corruption

Monday, January 25, 2010

Will China break the markets?

Gary Dorsch writes "... PBoC economists are worried that the consumer price deflation experienced through most of 2009, is quickly flipping to escalating inflation in 2010. If the PBoC doesn’t tighten its monetary policy, consumer price inflation could easily accelerate at a +6% clip in 2010. With food and energy accounting for half of China’s consumer price basket, soaring commodity prices are a ticking time bomb. Social unrest is the mainreason why the Chinese ruling authorities worry about inflation...."

Comment: The Chinese government, that is the Communist Party, is in a fix. It's legitimacy rests almost completely on the economic boom. As soon as the economic boom goes to bust, the Communist Party of China will go down the drain as well. Therefore, Chinese official will hang on to an unsustainable boom as long as they can. Till the crash will us part.

Greek bond sales stabilize euro zone

LONDON (MarketWatch) -- Strong demand for Greece's syndicated offering of five-year government bonds on Wednesday helped calm credit markets Monday, easing worries for now about the ability of Athens to fund its budget deficit.
Investors put in orders for about 25 billion euros worth of bonds, far exceeding Greece's planned issue of 3 billion to 5 billion euros, according to Dow Jones Newswires. In the end, Greek authorities opted to issue 8 billion euros worth of five-year debt at a yield of 6.2%.

Monday, January 18, 2010

Welcome back to the third world

Jan. 18 (Bloomberg) -- Iceland’s credit risk may rise “considerably” as the island faces the threat of a shelved emergency bailout and a government collapse, Standard & Poor’s said.
“The risk is there that the program will fall apart and with that, the downside risks would increase very considerably,” Moritz Kraemer, S&P’s managing director for Europe, the Middle East and Africa, said in a Jan. 15 telephone interview. If the outlook for the bailout program doesn’t improve, “it’s quite possible” the government will collapse...

Monday, January 11, 2010

Secrets of the temple under siege

Jan. 11 (Bloomberg) -- The Federal Reserve will ask a U.S. appeals court to block a ruling that for the first time would force the central bank to reveal secret identities of financial firms that might have collapsed without the largest government bailout in U.S. history...

Saturday, January 9, 2010

China bubble about to pop

James S. Chanos built one of the largest fortunes on Wall Street by foreseeing the collapse of Enron and other highflying companies whose stories were too good to be true.
Now Mr. Chanos, a wealthy hedge fund investor, is working to bust the myth of the biggest conglomerate of all: China Inc.
"Bubbles are best identified by credit excesses, not valuation excesses," he said in a recent appearance on CNBC. "And there's no bigger credit excess than in China." --

Comment: While I share many investment ideas with Jim Rogers, I think he is wrong about China. As to China, I rather side with Chanos. What kind of scenario could one invision after the fall of China? How would it affect the rest of the world? What will happen to China'a reserves. Will the fall of China bring down the US with it?

Thursday, January 7, 2010

End of the rally

There is a clear warning now out about higher interest rates. This means that both the bond market and the stock market are at high alert levels of risk.
Jan. 7 (Bloomberg) -- U.S. regulators including the Federal Reserve warned banks to guard against possible losses from an end to low interest rates and reduce exposure or raise capital if needed.
Full text

Sunday, January 3, 2010

Year in review

Dec. 31 (Bloomberg) -- U.S. stocks posted the biggest annual gain since 2003 and commodities rallied as the Federal Reserve kept its benchmark interest rate near zero and governments around the world enacted stimulus programs to halt the first global recession since World War II.

U.S. Treasuries Post Worst Performance Among Sovereign Markets

Treasuries fell, posting the worst performance this year among sovereign debt markets as the U.S. sold record amounts of securities, including $118 billion of notes this week, to help spur a recovery from recession.

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