Mish's Global Economic Trend Analysis |
- Treasury Spreads Widen on Debt Concerns; Bond Market Revolt Awaits QE3
- EU Running Out of Rabbits; 60% of Germans Have "Little or Very Little Trust in Euro"
- Bank of America Clobbered on $50 Billion Capital Shortfall Related to Mortgage Losses
- Greece 2-Year Debt Hits 35.98%, Ireland Hits 23.31%, Italy 10-Year Debt Tops 6%, New Highs In Spain; Sovereign Debt Charts
- 30-Year Extend-and-Pretend Plan for Greece, Ireland, Proposed Amid Total Confusion; Plane Crash Looking More Likely
Treasury Spreads Widen on Debt Concerns; Bond Market Revolt Awaits QE3 Posted: 18 Jul 2011 09:17 PM PDT The long-end of the treasury curve is acting sick, smack in the face of a clearly slowing global economy. Please consider Treasury Five-to-30 Spread Near Widest This Year on Debt Ceiling Concern The spread between five- and 30-year Treasury yields was near the widest since November as U.S. officials struggled to reach agreement on how to raise the debt ceiling to avoid a default.Treasury spreads, oil prices, and food prices would likely make Bernanke's life miserable should he decide any time soon to embark on another round of Quantitative Easing. Sadly, some economists calling for QE3 simply cannot see the obvious. Please see University of California Economist Bradford DeLong is Blind: "I Don't See Any Argument Against QE3" for a discussion. Yield Curve 2011-07-18 click on chart for sharper image Not Just a Debt Ceiling Concern The long end of the curve is acting sick. I do not believe this is merely a "debt ceiling" concern, but rather a "debt" concern. Democrats and Republicans alike have refused to do much of anything but point fingers and throw stones at the other party. Bernanke has not helped matters by butting into fiscal issues and by threatening QE3 if the economy worsens. For further discussion, please see Bernanke Interferes in Fiscal Policy Yet Again, This Time Hoping to Place the Blame on Congress Rather than the Fed In 2010, the bond market and stock markets were both cooperative with Bernanke's actions. However, it is a huge mistake to believe that will always be the case. At some point the bond market will revolt when Bernanke gets too cute, too many times. That revolt may be sooner than anyone thinks. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Click Here To Scroll Thru My Recent Post List |
EU Running Out of Rabbits; 60% of Germans Have "Little or Very Little Trust in Euro" Posted: 18 Jul 2011 03:51 PM PDT One of the things that can "save" the Euro is the creation of a European Nanny State, complete with joint fiscal policy and joint government bonds. Jean-Claude Juncker, head Euro-Zone finance minister, is in favor of the idea and ECB president Jean-Claude Trichet is agnostic. However, Jens Weidmann, the head of German Central Bank has ruled out the idea. Please consider Bundesbank chief slams eurobonds The head of Germany's Bundesbank central bank attacked Sunday proposals to issue eurobonds guaranteed by eurozone states as a way of helping Greece, saying it would lead to a "transfer union."One of the proposals on the slate for Thursday is creation of Eurobonds. That proposal is clearly dead-on-arrival. The 30-year extend-and-pretend option floating around constitutes default, and Trichet insists "no defaults". Indeed, there are no solutions only a mountain of unworkable ideas as noted in 30-Year Extend-and-Pretend Plan for Greece, Ireland, Proposed Amid Total Confusion; Plane Crash Looking More Likely Thursday's emergency meeting might get interesting. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Click Here To Scroll Thru My Recent Post List |
Bank of America Clobbered on $50 Billion Capital Shortfall Related to Mortgage Losses Posted: 18 Jul 2011 09:11 AM PDT Shares of Bank of America corporation are getting clobbered once again, this time on news of a $50 billion capital shortfall related to devastating mortgage losses. Please consider BofA Mortgage Settlements Magnify Capital Strain as $50 Billion Gap Looms Bank of America Corp. (BAC) may have to build its capital cushion by $50 billion and renege again on Chief Executive Officer Brian T. Moynihan's pledge to raise the firm's dividend as mortgage losses drain funds.Bank of America Daily Chart The idea that Bank of America would soon be in a position to raise its dividend was silly when Moynihan proposed it and looks absurd now. Indeed, Bank of America should not have a dividend at all given its huge capital problems. All the nay-sayers who said the Countrywide Financial takeover would kill Bank of America got it correct. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Click Here To Scroll Thru My Recent Post List |
Posted: 18 Jul 2011 08:19 AM PDT 2-Year Government Bonds Greece 2-Year Government Bonds Ireland 2-Year Government Bonds Spain 2-Year Government Bonds Italy 2-Year Government Bonds Germany 2-Year Government Bonds 10-Year Government Bonds Greece 10-Year Government Bonds Ireland 10-Year Government Bonds Spain 10-Year Government Bonds Italy 10-Year Government Bonds Germany 10-Year Government Bonds Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Click Here To Scroll Thru My Recent Post List |
Posted: 18 Jul 2011 07:21 AM PDT Confusion reins supreme ahead of Thursday's EU summit that German Chancellor Angela Merkel thinks is "urgently necessary." However, Merkel will only attend if there is a plan that will be approved. Is there any conceivable solution that can be worked out in 4 days? I suggest it is impossible. Please consider Confusion reigns as Europe limps toward Greece summit Confusion over competing policy proposals reigned among officials and bankers on Monday as Europe struggled to put together a second bailout of Greece and prevent the region's debt crisis from spreading.For starters you cannot prevent something from spreading that has already infected Greece, Ireland, Portugal, Spain, and Italy. French government spokeswoman Valerie Pecresse said she believed a summit of the euro zone's 17 national leaders scheduled for Thursday in Brussels would agree on a rescue of Greece, supplementing a 110 billion euro ($154 billion) bailout launched in May last year.So Many Proposals One Cannot Rule Out Anything Officials are wrestling with a range of schemes for Europe's bailout fund, the European Financial Stability Facility, to finance a voluntary buy-back or swap of Greek debt that would be conducted at a discount to face value, helping to reduce Greece's 340 billion euro mountain of sovereign debt.That there are so many proposals is evidence of massive confusion. It is also evidence none of the proposals can possibly work. If a deal on private creditor participation is reached, it may cut Greece's debt by just 20 or 30 billion euros, not nearly enough by itself to solve the problem. Analysts have estimated the debt would have to be roughly halved, to 80 percent of gross domestic product, to make it manageable in the long run.No Acceptable Solution By now it should be obvious that there is no real solutions, only 30-year can-kicking proposals. Even default is not a solution because default does not fix the underlying problem of widely varying fiscal policies and structural issues among member countries. The ECB's "One Size Fits Germany" interest rate policy greatly compounds the problem. Once again we return to the Right Place to Crash the Plane The Plane Crash Solution has two Options.
Either one is a serious undertaking requiring complex revisions to the EU treaty. Which will it be, and how long will it take? Sovereign Debt Yields Soar In the wake of the mass confusion (panic is probably a better word), European sovereign debt yields have soared to new highs. For a look at 2-Year and 10-Year charts please see Greece 2-Year Debt Hits 35.98%, Ireland Hits 23.31%, Italy 10-Year Debt Tops 6%, New Highs In Spain; Sovereign Debt Charts Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Click Here To Scroll Thru My Recent Post List |
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