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HomeDebt/GDP: Ring of Fire
Posted by Larry Doyle on February 15th, 2010 11:45 AM |
All eyes within the markets and on the global financial landscape are currently fixated on Greece. Will it default? Will the EU bail out this island nation? If so, at what cost and on what terms? What is at the core of Greece’s fiscal nightmare? Excessive debt. So, what else is new?
Do not think that the excessive debt within Greece is the only nation on our global financial landscape facing this problem. What other nations do we need to keep on our radar? Bloomberg addresses this question in writing, Carney Says Investors Signal Stimulus ‘Limits’ as Deficits Grow:
Alongside Greece, Pacific Investment Management Co. identifies the U.S., Italy, France, Japan and the U.K. as economies sitting in a “ring of fire.” Each has debt above 90 percent of gross domestic product or the potential for it to rise there soon, slowing economic growth, Pimco said.
Deutsche Bank AG this month warned that the increased cost of insuring against debt defaults by peripheral European nations may be a “dress rehearsal” for the U.S. and U.K. Credit- default swaps on Greece’s debt rose to a record this month.
Living beyond one’s means is no recipe for future economic prosperity. While politicians may talk about the need for fiscal discipline, talk is cheap. Pork piled upon pork wrapped in more pork has stolen our children’s future. Washington may not appreciate the ring of fire, but Main Street is engulfed in it.
As we navigate our global economic landscape, we now need to make sure we pack fire retardant clothing in addition to other protective materials.
What a world.
LD
China, Greece, and Germany Rattle Overnight Markets
Posted by Larry Doyle on February 12th, 2010 7:11 AM |
No rest for the weary.
If you thought yesterday’s nice 1% upward move in our equity markets was a precursor for calmer and stronger markets ahead, think again.
Overnight developments in China, Greece, and Germany are clear signs that our economic landscape remains challenging and our markets remain fragile. Let’s navigate:
1. Looking eastward, China’s central bank raised reserve requirements (interest rates) by 50 basis points (.50%). Why? (more…)
Will the EU ‘Greece the Wheels?’
Posted by Larry Doyle on February 9th, 2010 11:03 AM |
The recent market volatility reflects the fact that our overall economic and market foundations are anything but secure. In fact, dare I say the market over the last few weeks resembles a rollercoaster. While our market rollercoaster, with Uncle Sam’s assistance, climbed the wall of worry in 2009, so far in 2010 we are cascading along and taking some hard turns at full speed. Keep those seats belt fastened.
What has precipitated our 1% upward move this morning? News from the Euro-zone that the EU will backstop Greece’s budget deficit or, if I could stick with our theme, the EU will “greece the wheels” of our rollercoaster. (more…)
When Will Euro-PIGS Fly?
Posted by Larry Doyle on February 5th, 2010 10:56 AM |
Wall Street has more than bulls and bears. Trading desk banter often refers to the presence of ‘pigs’ in the market. Years removed, I can still hear traders saying, “this market’s a pig,” “this bond’s a pig,” and “that account is a pig.” Well, with my morning coffee I saw a new utilization of this famed reference. I chuckled but also realized the seriousness of the new pig reference in regard to the increasingly dire fiscal situation in the European Union.
What are the PIGS across the pond? Portugal, Italy, Greece, and Spain.
The Wall Street Journal highlights the disastrous fiscal situation in these countries in writing, Sovereign Risk Meets Sovereign Reality:
After months of shrugging off debt problems in Dubai, Greece and other smaller economies, markets yesterday seemed suddenly aware of the risks of sovereign default. (more…)
Let’s Revisit Europe: The Weakest Link
Posted by Larry Doyle on March 17th, 2009 5:15 AM |
I thank our loyal reader in Michigan, Mr. Fiscal Liberal, for sharing with us a piece written by Simon Johnson, the former chief economist of the International Monetary Fund, a professor at the MIT Sloan School of Management, and a senior fellow at the Peterson Institute for International Economics.
Mr. Johnson writes about the growing problems in Europe. I am hard pressed to see how the European situation, both in the East and West, can not end badly. There are too many economies that are effectively insolvent or on the brink of insolvency. I believe this is the region of the world which will experience increased economic strife leading to social unrest and political change. Can the problems in Europe be contained given the massively interconnected world of global finance?
Thank you again FL for sharing this very enlightening piece from Simon Johnson!!
G-20s Real Agenda Should be Saving Europe from Itself
By Simon Johnson
Last Updated: 10:28AM GMT 16 Mar 2009The media coverage of the G20 finance ministers meeting this weekend was dominated by the apparent battle between those who support more fiscal stimulus and those who want to impose more regulations on the financial system.
This, we are led to believe, is the big debate facing the full G20 heads of government summit early next month: the US is pushing for a bigger global fiscal stimulus (2pc extra government spending from everyone, to be monitored by the IMF), while the continental Europeans are holding out for greater regulation. Gordon Brown is trying hard to cast himself as the broker for any apparent deal. (more…)
Why Are Interest Rates Headed Higher?
Posted by Larry Doyle on March 1st, 2009 3:57 PM |
While our domestic stock markets are down approximately 50% over the last 14 months, there has been a rush of cash into short term money market funds, government bond funds, and in the last few months corporate bond funds and municipal bond funds. As I mentioned in my February 2009 Market Review, I am increasingly nervous about bond investments at this juncture. Why? I’m glad you asked.
1. Primarily due to the massive global government funding needs which are just starting to hit the market. In a recent piece, the highly regarded Financial Times projects global government debt issuance to TRIPLE in 2009.
German Prime Minister Angela Merkel is concerned about European countries looking to tap the markets on or near the same dates. She is proposing global coordination of debt issuance so as to insure that rates are not DRIVEN higher. (more…)
