As Global stock markets recover from the sudden volatility of the last few weeks, the Euro-Zone nations have been tapping into the bond markets to raise funds to finance their growing budget deficits and maturities on the external debt.
Germany had difficulties selling its 5-year bonds this morning, as record low yields curtailed demand, but the sale of a small issue of Portuguese bonds was well received, helped by more attractive yields.
Berlin's 5-year bonds fell in post-auction trade, driving the yield to a session peak of 1.524% versus 1.492% ahead of the auction. However, it remained near a record low of 1.402% reached on Tuesday.
Portugal sold €1 billion of 2015 bonds at an average yield of 3.70%, drawing demand of 1.8 times the amount sought, steady from the previous auction in February.
Italy will sell up to €1.5 billion of inflation-protected bonds on Thursday and up to €9.5 billion of nominal bonds on Friday.
Spain struggled to issue debt on Tuesday amid rising tensions in the new issue markets after the seizure of one of the country’s savings banks over the weekend.
Spain had to pay a big premium to sell €3.06 billion in 3-month and 6-month bills on Tuesday, reflecting investor anxiety about its growing debt and weakening financial sector, prompting worries that the country could suffer a bond auction failure, where not enough investors turn up to buy its debt.
The yield on Spain’s 6-month bill rose to 1.32% compared with 0.76% in April, while the yield on the 3-month bill rose to 0.7% from 0.549% .
In a sign of how investors are increasingly selective over Euro-Zone debt, the Dutch successfully raised €1.02 billion.
The Netherlands, which has a triple A credit rating with relatively strong public finances, raised the money in 5-year bonds at an average yield of 1.74% and 7-year bonds at an average yield of 2.305%
The debt problem is hardly unique to Europe. The United States is also facing a massive budget deficit and very onerous levels of external debt. In fact, Moody's has warned that the U.S. faces the loss of ITS triple A credit rating if the debt situation is not brought under control. Readers of "Marko's Take" know that the worldwide and domestic debt situation is going parabolic.
Recent statistics on external debt to Gross Domestic Product (GDP) reveal how fragile the global financial structure is. Sometime in the next 12 months, the ratio here in the U.S. will exceed 100%, which will put Washington in a club whose membership is growing rapidly.
Countries with Debt/GDP ratios in excess of 100% include Japan, Britain, Zimbabwe, Sweden, the Netherlands, Greece, Ireland, Belgium, Denmark, Austria, France, Portugal, Finland, Norway, Spain and Italy. Japan, is the highest among the G-20 with a ratio well in excess of 200%.
The proposed solution to the deteriorating situation has been to raise more debt. Would anyone propose assisting a cocaine addict by giving them more cocaine? As a result, the liklihood that the debt problem will be fixed is NIL. The only approach which can solve the problem is a dramatic restructuring of these countries' economic systems, including getting a handle on runaway social welfare programs which are exploding with the aging population structures.
Temporarily, the crisis in Sovereign Debt has taken a back seat with the much better reception in the credit markets. This will prove to be quite fleeting, with a more severe crisis inevitable, especially as the global economic weakness re-asserts itself.
Marko's Take
For new readers with a political bent, come visit us on You Tube. Our new video blog series covers such topics as The Federal Reserve, Social Security, Peak Oil and Personal Income Taxes. To access our videos click here http://www.youtube.com/markostaketv.
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Showing posts with label Portugal. Show all posts
Showing posts with label Portugal. Show all posts
Wednesday, May 26, 2010
Thursday, May 13, 2010
PIGS Go To Slaughter
Now that the Greek bailout has been undertaken, the marketplace is turning its attention to other nations believed to be under economic or financial stress. The term "PIGS" originally referred to the "fearful foursome" of Portugal, Ireland, Greece and Spain. Italy has appeared to be on the verge of joining this uneviable assemblage of financial wreckage - creating the revised "PIIGS".
As has been written here in recent weeks, the so-called austerity program enacted by Greece is a farce. It is hardly "austere" to force lazy government workers to actually work! It is hardly austere to reduce the absurdly generous early retirement packages which allow some civil servants to retire as young as 45. Where can I sign up for that deal?
The other PIGS are now enacting their own "austerity" measures in an attempt to be more pro-active before their nations hit the crisis fever that was triggered by the Greek financial meltdown.
José Sócrates, Portugal’s prime minister, is expected to announce tough new austerity measures today, including a “crisis tax” on companies and wages, to reduce the country’s massive budget deficit.
Portugal's new austerity package, which follows similar moves by Spain, Greece and Ireland, is being introduced under pressure from Lisbon’s European Union partners for sharp budget cuts in support of a €750 billion emergency plan to defend the Euro.
Angry trade union leaders immediately called for a “mobilisation” against what they called “harsh and unjust” measures, expected to include a 1 % increase in value added tax to 21% and increases of up to 1.5 % in income tax. Unions opposed to cuts? Shocking! (Sarcasm intentional)!
The increases are expected to include a 2.5 % increase in corporate tax to 27.5 %. Politicians and public sector managers will also see their salaries cut by 5 %.
The new measures are designed to reduce the budget deficit by an additional €2.1 billion, from 9.4 % of Gross Domestic Product (GDP) in 2009 to 7 % this year and 2.8 % in 2013. Portugal’s original deficit target for this year was 8.3 % of GDP.
José Luis Rodríguez Zapatero, Spain’s prime minister, angered his trade union allies but cheered financial markets on Wednesday when he announced a surprise 5 % cut in civil service pay to accelerate cuts to the country’s budget deficit.
In what he called one of the hardest speeches of his life, Mr Zapatero told parliament how Spain planned to reduce its deficit by an extra 0.5 % of GDP this year and another 1 % of GDP in 2011, a total of €15 billion.
The new measures should help bring the deficit down from 11.2 % of GDP in 2009 to just over 6 % of GDP in 2011.
Surprisingly, trade unionists were outraged at what they said were harsh measures. One regional leader of the small United Left political party called for “rebellion and a general strike”. Shocking! (Sarcasm intentional)!
Thus far, Ireland has surprised the market skeptics by pro-actively embarking on a draconian plan to tackle its debt, which includes large public sector pay cuts, and resolve the bad loan problems at its banks.
Pledging to cut public sector spending by 7.5 % of GDP this year alone has not spared Ireland market pain. Last week its bonds were trading at a spread of 3 % over German Bunds. The moves have prevented the country from being deemed a full-blown basket case.
Italy, has been on the cusp of becoming the 5th member of this elite group. However, a very well received bond sale indicates that Rome is not yet ready for inclusion. Italy just sold €3 billion of 2015 notes at an average yield of just 2.57 %, which was 2 basis points lower than existing comparable debt. This demonstrates a substantial level of market confidence.
The problems in the Euro-Zone only BEGIN with Greece. Bail-out or not, the key to success will be a return to economic growth for all the affected nations. Greek unemployment is now more than 12% and is expected to rise to 14% over the next year or so. Until the European Union economies start to show growth, the budget deficits will continue to widen and the threat of a massive round of sovereign debt defaults will be an ongoing issue.
Marko's Take
Please visit us on You Tube. You can access video blogs covering topics such as the Federal Reserve, Income Taxes, Social Security, Peak Oil and a mock "State Of The Union" address by clicking here http://www.youtube.com/markostaketv. Our most recent video is on the FRAUD and Ponzi Scheme known as Social Security. It can be accessed by clicking here http://www.youtube.com/markostaketv#p/u/0/twFn9XyP2rI.
As has been written here in recent weeks, the so-called austerity program enacted by Greece is a farce. It is hardly "austere" to force lazy government workers to actually work! It is hardly austere to reduce the absurdly generous early retirement packages which allow some civil servants to retire as young as 45. Where can I sign up for that deal?
The other PIGS are now enacting their own "austerity" measures in an attempt to be more pro-active before their nations hit the crisis fever that was triggered by the Greek financial meltdown.
José Sócrates, Portugal’s prime minister, is expected to announce tough new austerity measures today, including a “crisis tax” on companies and wages, to reduce the country’s massive budget deficit.
Portugal's new austerity package, which follows similar moves by Spain, Greece and Ireland, is being introduced under pressure from Lisbon’s European Union partners for sharp budget cuts in support of a €750 billion emergency plan to defend the Euro.
Angry trade union leaders immediately called for a “mobilisation” against what they called “harsh and unjust” measures, expected to include a 1 % increase in value added tax to 21% and increases of up to 1.5 % in income tax. Unions opposed to cuts? Shocking! (Sarcasm intentional)!
The increases are expected to include a 2.5 % increase in corporate tax to 27.5 %. Politicians and public sector managers will also see their salaries cut by 5 %.
The new measures are designed to reduce the budget deficit by an additional €2.1 billion, from 9.4 % of Gross Domestic Product (GDP) in 2009 to 7 % this year and 2.8 % in 2013. Portugal’s original deficit target for this year was 8.3 % of GDP.
José Luis Rodríguez Zapatero, Spain’s prime minister, angered his trade union allies but cheered financial markets on Wednesday when he announced a surprise 5 % cut in civil service pay to accelerate cuts to the country’s budget deficit.
In what he called one of the hardest speeches of his life, Mr Zapatero told parliament how Spain planned to reduce its deficit by an extra 0.5 % of GDP this year and another 1 % of GDP in 2011, a total of €15 billion.
The new measures should help bring the deficit down from 11.2 % of GDP in 2009 to just over 6 % of GDP in 2011.
Surprisingly, trade unionists were outraged at what they said were harsh measures. One regional leader of the small United Left political party called for “rebellion and a general strike”. Shocking! (Sarcasm intentional)!
Thus far, Ireland has surprised the market skeptics by pro-actively embarking on a draconian plan to tackle its debt, which includes large public sector pay cuts, and resolve the bad loan problems at its banks.
Pledging to cut public sector spending by 7.5 % of GDP this year alone has not spared Ireland market pain. Last week its bonds were trading at a spread of 3 % over German Bunds. The moves have prevented the country from being deemed a full-blown basket case.
Italy, has been on the cusp of becoming the 5th member of this elite group. However, a very well received bond sale indicates that Rome is not yet ready for inclusion. Italy just sold €3 billion of 2015 notes at an average yield of just 2.57 %, which was 2 basis points lower than existing comparable debt. This demonstrates a substantial level of market confidence.
The problems in the Euro-Zone only BEGIN with Greece. Bail-out or not, the key to success will be a return to economic growth for all the affected nations. Greek unemployment is now more than 12% and is expected to rise to 14% over the next year or so. Until the European Union economies start to show growth, the budget deficits will continue to widen and the threat of a massive round of sovereign debt defaults will be an ongoing issue.
Marko's Take
Please visit us on You Tube. You can access video blogs covering topics such as the Federal Reserve, Income Taxes, Social Security, Peak Oil and a mock "State Of The Union" address by clicking here http://www.youtube.com/markostaketv. Our most recent video is on the FRAUD and Ponzi Scheme known as Social Security. It can be accessed by clicking here http://www.youtube.com/markostaketv#p/u/0/twFn9XyP2rI.
Wednesday, April 28, 2010
Euro-Zone Contagion Spreads
Greece’s credit rating was cut 3 steps to junk status by Standard and Poor’s (S&P), the first time a Euro-Zone member has lost its investment grade since the currency’s 1999 debut. The Euro weakened and stock markets throughout the region tumbled.
Greece was lowered to BB+ from BBB+ by S&P, which also warned that bondholders could recover as little as 30% of their initial investment if the country restructures its debt. The move, which puts Greek debt on par with bonds issued by Azerbaijan and Egypt, came minutes after the rating agency reduced Portugal by two steps to A- from A+.
Yesterday, the spread on Greek 10-year bonds over German counterparts widened to 6.75%, the highest since at least 1998, as investors increased bets that Greece will restructure its debt. The Portuguese spread jumped 0.59% to 2.77% and the Spanish spread rose to 1.13%.
The spread between Portugese and benchmark German 10-year bonds rose about 0.5% Tuesday to reach its highest point since the creation of the Euro. The higher spread demonstrates less confidence in Portugal, whose bonds had an interest rate of 5.86% higher than German bonds on Tuesday.
Germany, where the bail-out is unpopular with voters, has been slow in authorizing the release of funds. Its delay has furthered market panic and driven Greek 2-year bond yields to as high as 21%.
Greek 5-year yields hit 10.6%, higher than many emerging market economies, including Ecuador at 10.5% and Ukraine at 7.1%.
The carnage continued into this morning's early trading. The yield on 10-year Greek bonds surged to 11.24% early Wednesday from 9.68% on Tuesday. The yield is the highest for the 10-year since the introduction of the Euro in 2002. The 2-year bonds were trading with yields approaching 20%.
Today's jump in the yield on the Greek bond has led to an enormous spread of 8.22% compared with German bond yields. The yield on the German 10-year bond, considered the European benchmark, slipped to 3.02% early Wednesday, suggesting a flight to safety.
Greece needs to raise AT LEAST 9 billion Euros by May 19, but, given the current market yields, will have no chance of attracting institutional investors.
The marketplace has now spoken. Greece will need a major restructuring and existing bondholders will receive a haircut of at least 50% and possibly larger. The bail-out package, just activated, will be insufficient to cure the disease. While Germany continues to say the right things, such as indicating that Greece must not be allowed to fail, it has yet to act. Given the growing unpopularity in Germany of bailing out Greece, any aid package remains to be seen.
The only question now is how far the contagion will spread. Will Portugal be next to fall in the abyss? How many more countries will be taken down? No need to worry. Marko's Take is on the job.
Marko's Take
Please visit our new YouTube channel at http://www.youtube.com/markostaketv. Our new video blog on the Legality of the Personal Income Tax can be accessed by clicking here (http://www.youtube.com/markostaketv#p/u/0/1TInKnCIikg). Our newest video, entitled "Social In-Security: The Problem" will be posted this weekend.
Greece was lowered to BB+ from BBB+ by S&P, which also warned that bondholders could recover as little as 30% of their initial investment if the country restructures its debt. The move, which puts Greek debt on par with bonds issued by Azerbaijan and Egypt, came minutes after the rating agency reduced Portugal by two steps to A- from A+.
Yesterday, the spread on Greek 10-year bonds over German counterparts widened to 6.75%, the highest since at least 1998, as investors increased bets that Greece will restructure its debt. The Portuguese spread jumped 0.59% to 2.77% and the Spanish spread rose to 1.13%.
The spread between Portugese and benchmark German 10-year bonds rose about 0.5% Tuesday to reach its highest point since the creation of the Euro. The higher spread demonstrates less confidence in Portugal, whose bonds had an interest rate of 5.86% higher than German bonds on Tuesday.
Germany, where the bail-out is unpopular with voters, has been slow in authorizing the release of funds. Its delay has furthered market panic and driven Greek 2-year bond yields to as high as 21%.
Greek 5-year yields hit 10.6%, higher than many emerging market economies, including Ecuador at 10.5% and Ukraine at 7.1%.
The carnage continued into this morning's early trading. The yield on 10-year Greek bonds surged to 11.24% early Wednesday from 9.68% on Tuesday. The yield is the highest for the 10-year since the introduction of the Euro in 2002. The 2-year bonds were trading with yields approaching 20%.
Today's jump in the yield on the Greek bond has led to an enormous spread of 8.22% compared with German bond yields. The yield on the German 10-year bond, considered the European benchmark, slipped to 3.02% early Wednesday, suggesting a flight to safety.
Greece needs to raise AT LEAST 9 billion Euros by May 19, but, given the current market yields, will have no chance of attracting institutional investors.
The marketplace has now spoken. Greece will need a major restructuring and existing bondholders will receive a haircut of at least 50% and possibly larger. The bail-out package, just activated, will be insufficient to cure the disease. While Germany continues to say the right things, such as indicating that Greece must not be allowed to fail, it has yet to act. Given the growing unpopularity in Germany of bailing out Greece, any aid package remains to be seen.
The only question now is how far the contagion will spread. Will Portugal be next to fall in the abyss? How many more countries will be taken down? No need to worry. Marko's Take is on the job.
Marko's Take
Please visit our new YouTube channel at http://www.youtube.com/markostaketv. Our new video blog on the Legality of the Personal Income Tax can be accessed by clicking here (http://www.youtube.com/markostaketv#p/u/0/1TInKnCIikg). Our newest video, entitled "Social In-Security: The Problem" will be posted this weekend.
Monday, April 26, 2010
Greece: Going, Going... Gone
In early trading today, Greek bond yields exploded. Two-year Greek bonds surpassed the 14% yield level - a 4% jump in one day. The 10-year bond approached 10%.
Greece has activated a $60 billion bail-out from the International Monetary Fund at rates of 5% and below. The jump in Greece debt yields suggests a market belief that the bail-out, even if implemented, will be insufficient to stem the crisis.
In addition, the yield curve is now "inverted" (short-term yields exceeding long-term yields) indicating an evaporation of liquidity, which will surely translate into more severe economic hardship
Comments from Germany’s foreign minister Guido Westerwelle on Monday saying the German government has not yet committed to providing financial aid to Greece, also didn't help.
When asked about Germany's intentions toward providing assistance to Greece, Chancellor Angela Merkel has continually vascillated, a trait she is now becoming famous for.
Domestically, a German assistance plan for Greece is highly unpopular. The majority of the Germans believe they are rewarding Greece for cheating itself into the Euro, forging its balance sheets and then spending a decade living beyond their means while the German workers had to endure a painful period of restructuring and wage freezes.
The German Chancellor also emphasized that the decision to grant aid to prevent a Greek insolvency would be made only after Greece committed to a rigid deficit-reduction plan for years to come. "These discussions are ongoing," she said. "Greece has to accept harsh measures for several years."
Italian Foreign Minister Franco Frattini expressed concern about Germany's "intransigence" over Greece, saying a quick rescue operation is needed to support the Euro's stability.
Opposition parties blame electoral politics for Berlin's lack of haste to help Greece. Ms. Merkel's CDU party faces a tight regional election in the state of North Rhine-Westphalia on May 9. With German aid for Greece deeply unpopular in Germany, early commitment to bail-out the debt-burdened Mediterranean country could change the minds of some voters and could cost Ms. Merkel her majority in the upper house of Parliament.
Greece has said it wants aid from the joint EU-IMF loan mechanism to be made available within days of its formal request, which Athens made Friday. Spokespersons for the EU and IMF indicated that the response could be "positive or negative". The trading in Greek debt indicates an expectation of a thumbs down.
Marko's Take
Please visit our new YouTube channel at (http://www.youtube.com/markostaketv). Our latest video on the Legality Of The Personal Income Tax can be accessed by clicking here (http://www.youtube.com/markostaketv#p/u/0/1TInKnCIikg).
If you're interested in 3D content delivered to your mobile phone, please visit our website at (http://www.e3dlabs.com/).
On the contagion side, the cost of insuring Portuguese government debt against default jumped to a record high of 288 basis points on Monday versus 278.8 basis points on Friday, according to Reuters.
Greece has activated a $60 billion bail-out from the International Monetary Fund at rates of 5% and below. The jump in Greece debt yields suggests a market belief that the bail-out, even if implemented, will be insufficient to stem the crisis.
In addition, the yield curve is now "inverted" (short-term yields exceeding long-term yields) indicating an evaporation of liquidity, which will surely translate into more severe economic hardship
Comments from Germany’s foreign minister Guido Westerwelle on Monday saying the German government has not yet committed to providing financial aid to Greece, also didn't help.
When asked about Germany's intentions toward providing assistance to Greece, Chancellor Angela Merkel has continually vascillated, a trait she is now becoming famous for.
Domestically, a German assistance plan for Greece is highly unpopular. The majority of the Germans believe they are rewarding Greece for cheating itself into the Euro, forging its balance sheets and then spending a decade living beyond their means while the German workers had to endure a painful period of restructuring and wage freezes.
The German Chancellor also emphasized that the decision to grant aid to prevent a Greek insolvency would be made only after Greece committed to a rigid deficit-reduction plan for years to come. "These discussions are ongoing," she said. "Greece has to accept harsh measures for several years."
Italian Foreign Minister Franco Frattini expressed concern about Germany's "intransigence" over Greece, saying a quick rescue operation is needed to support the Euro's stability.
Opposition parties blame electoral politics for Berlin's lack of haste to help Greece. Ms. Merkel's CDU party faces a tight regional election in the state of North Rhine-Westphalia on May 9. With German aid for Greece deeply unpopular in Germany, early commitment to bail-out the debt-burdened Mediterranean country could change the minds of some voters and could cost Ms. Merkel her majority in the upper house of Parliament.
Greece has said it wants aid from the joint EU-IMF loan mechanism to be made available within days of its formal request, which Athens made Friday. Spokespersons for the EU and IMF indicated that the response could be "positive or negative". The trading in Greek debt indicates an expectation of a thumbs down.
Marko's Take
Please visit our new YouTube channel at (http://www.youtube.com/markostaketv). Our latest video on the Legality Of The Personal Income Tax can be accessed by clicking here (http://www.youtube.com/markostaketv#p/u/0/1TInKnCIikg).
If you're interested in 3D content delivered to your mobile phone, please visit our website at (http://www.e3dlabs.com/).
On the contagion side, the cost of insuring Portuguese government debt against default jumped to a record high of 288 basis points on Monday versus 278.8 basis points on Friday, according to Reuters.
Sunday, April 25, 2010
Greek Financial Crisis Passing Point Of No Return
After months of increasingly desperate attempts to fix Greece, things have deteriorated to such an extent that they may be no longer fixable.
On Friday, Greece formally requested to access a $60 billion emergency aid package, initiating a bailout process that will test the financial strength of Euro-Zone.
Prime Minister George Papandreou called his country's economy a "sinking ship," as borrowing costs reached 12-year highs and recent fiscal measures didn't create the market support needed to save his country.
The yield on Greece's benchmark two-year note topped 11%, ten-year bond yields reached 8.83%, while rating agency Moody's downgraded the country's credit rating one notch to A3 - the second downgrade this year. European Union statistics service Eurostat on Thursday revised Greece's deficit to 13.6% of Gross Domestic Product (GDP) in 2009, up from 12.7%, questioning the country's ability to reduce the budget deficit to 8.7% this year as planned. The revision is up from 13% of GDP just a month ago.
Greece is facing $11.4 billion of bonds maturing on May 19 and hopes a request made now will accelerate the bailout process in time to meet that deadline.
Even if this initial bailout package is adopted, it is questionable as to whether it will even cover Greece's debt obligations for 2010.
The Economist projects Greece will run up an additional $89 billion in debt by 2014, doubting Greece's ability to make effective budget cuts while trying to emerge from a recession. As debt piles up, investors will be less likely to buy Greek bonds and draconian austerity fixes will hinder economic growth.
Sovereign debt concerns have already spread to other Euro-Zone nations and are escalating with Greece's situation. Fellow "PIGS" (Portugal, Ireland Greece and Spain), already faced increasing bond yields this week, strengthening the argument that Greece is the start of a debt contagion spreading through Europe to the United States.
The aid package will give Greece $40 billion in 3-year loans from its fellow Euro-Zone nations at a 5% interest rate and an additional $20 billion from the International Monetary Fund (IMF) will be available at an even lower rate. The offer was announced a couple of weeks ago in hopes the pledge of support would be enough to encourage investor confidence.
As yields on sovereign debt of the "PIGS" nations grow, the likelihood of raising capital from institutional investors diminishes. Greece had hoped to raise $10 billion from U.S. investors, but now that appears to be dead. As the contagion continues to spread, it's a matter of time before the thin fabric of the global financial community takes many more countries down with it.
Marko's Take
Please visit us on YouTube. We have just posted a video blog on the Legality Of The Personal Income Tax (http://www.youtube.com/markostaketv#p/u/0/1TInKnCIikg) or, if you're interested in a new technology to put 3D content on any smart phone, visit my new website at http://e3dlabs.com/.
On Friday, Greece formally requested to access a $60 billion emergency aid package, initiating a bailout process that will test the financial strength of Euro-Zone.
Prime Minister George Papandreou called his country's economy a "sinking ship," as borrowing costs reached 12-year highs and recent fiscal measures didn't create the market support needed to save his country.
The yield on Greece's benchmark two-year note topped 11%, ten-year bond yields reached 8.83%, while rating agency Moody's downgraded the country's credit rating one notch to A3 - the second downgrade this year. European Union statistics service Eurostat on Thursday revised Greece's deficit to 13.6% of Gross Domestic Product (GDP) in 2009, up from 12.7%, questioning the country's ability to reduce the budget deficit to 8.7% this year as planned. The revision is up from 13% of GDP just a month ago.
Greece is facing $11.4 billion of bonds maturing on May 19 and hopes a request made now will accelerate the bailout process in time to meet that deadline.
Even if this initial bailout package is adopted, it is questionable as to whether it will even cover Greece's debt obligations for 2010.
The Economist projects Greece will run up an additional $89 billion in debt by 2014, doubting Greece's ability to make effective budget cuts while trying to emerge from a recession. As debt piles up, investors will be less likely to buy Greek bonds and draconian austerity fixes will hinder economic growth.
Sovereign debt concerns have already spread to other Euro-Zone nations and are escalating with Greece's situation. Fellow "PIGS" (Portugal, Ireland Greece and Spain), already faced increasing bond yields this week, strengthening the argument that Greece is the start of a debt contagion spreading through Europe to the United States.
The aid package will give Greece $40 billion in 3-year loans from its fellow Euro-Zone nations at a 5% interest rate and an additional $20 billion from the International Monetary Fund (IMF) will be available at an even lower rate. The offer was announced a couple of weeks ago in hopes the pledge of support would be enough to encourage investor confidence.
As yields on sovereign debt of the "PIGS" nations grow, the likelihood of raising capital from institutional investors diminishes. Greece had hoped to raise $10 billion from U.S. investors, but now that appears to be dead. As the contagion continues to spread, it's a matter of time before the thin fabric of the global financial community takes many more countries down with it.
Marko's Take
Please visit us on YouTube. We have just posted a video blog on the Legality Of The Personal Income Tax (http://www.youtube.com/markostaketv#p/u/0/1TInKnCIikg) or, if you're interested in a new technology to put 3D content on any smart phone, visit my new website at http://e3dlabs.com/.
Friday, March 26, 2010
When Irish Eyes Aren't Smiling: More Problems In The Euro-Zone
The Euro-Zone is falling apart country-by-country. We've written about the panoply of problems facing Greece, Portugal and Great Britain (http://markostake.blogspot.com/2010/03/soverign-debt-redux-spill-over.html).
Ireland is also suffering and perhaps as badly as Greece (http://markostake.blogspot.com/2010/03/greek-crisis-threatening-global.html).
Ireland's deeper recession continued in the fourth quarter of 2009, as the economy shrunk another 2.3%, as the result of devastating floods in the west of the country and a steep decline in building activity, following the crash in real estate.
This marked a reversal from the third quarter, which had shown a small increase in Gross Domestic Product (GDP) of 0.3% – giving rise to false optimism that Ireland had come out of recession. Third quarter GDP was later revised to a negative 0.1%.
Minister of Finance, Brian Lenihan, said the year-on-year GDP decline of 7.1% was “marginally better” than the estimate at the time of the budget in December of 7.5%.
Economists, however, were more gloomy. Alan McQuaid, of Bloxham Stockbrokers, said “not only did Ireland not come out of recession in Q3, but it actually went into a deeper downturn in the final quarter”.
He calculated the cumulative decline in GDP since the end of 2007 was a “staggering” 12.7%, more than double the rate of the slowdown in the Euro-Zone as a whole!
Ireland is particularly beset with fall-out from the "boom-bust" in real estate. Officials estimate the number of house completions in 2009 at 26,000, half the 52,000 built in 2008. With an overhang supply of 120,000 houses for sale or rent, not including vacant homes, the rate of housebuilding in 2010 is expected to halve again.
At the height of the boom in 2007 there were 87,000 houses built in Ireland. This compares with England and Wales, an area with 13 times the population, where house building is running at about 150,000 units a year.
Finance Minister Lenihan warned on Tuesday that the nation faced “the challenge of [its] life”, as he slapped higher taxes on the middle classes in an emergency budget aimed at tackling the spiralling economic crisis.
Mr. Lenihan outlined plans to set up a national asset management agency to take over an estimated €80 billion-€90 billion of bad loans extended by local domestic banks to developers and property companies that now look as if they will not be able to repay.
Forecasting an 8% drop in Ireland’s GDP this year, Lenihan said he had to tackle soaring government borrowing and called on political opponents to “set aside narrow sectional interests” and support the tax increases, which are highly unpopular domestically.
Rating agency Standard & Poor’s recently downgraded Ireland’s sovereign debt. Even after Tuesday’s measures, Mr Lenihan forecast government borrowing would be the equivalent of 10.75% of GDP – more than 3 times the limit on countries joining the Euro.
So, unhealthy countries continue to get less healthy. Tragically, this vicious cycle is threatening the entire Euro-Zone and is making it impossible for the EU, as a whole, to provide emergency aid. As a result, the situation threatens to be a contagion to the entire global financial community.
Marko's Take
If you're wondering about the legality of the Personal Income Tax, our latest video blog will be posted in the next several days covering this complex topic as we head into tax season. To view our current YouTube videos, you can visit them here http://www.youtube.com/markostaketv.
Ireland is also suffering and perhaps as badly as Greece (http://markostake.blogspot.com/2010/03/greek-crisis-threatening-global.html).
Ireland's deeper recession continued in the fourth quarter of 2009, as the economy shrunk another 2.3%, as the result of devastating floods in the west of the country and a steep decline in building activity, following the crash in real estate.
This marked a reversal from the third quarter, which had shown a small increase in Gross Domestic Product (GDP) of 0.3% – giving rise to false optimism that Ireland had come out of recession. Third quarter GDP was later revised to a negative 0.1%.
Minister of Finance, Brian Lenihan, said the year-on-year GDP decline of 7.1% was “marginally better” than the estimate at the time of the budget in December of 7.5%.
Economists, however, were more gloomy. Alan McQuaid, of Bloxham Stockbrokers, said “not only did Ireland not come out of recession in Q3, but it actually went into a deeper downturn in the final quarter”.
He calculated the cumulative decline in GDP since the end of 2007 was a “staggering” 12.7%, more than double the rate of the slowdown in the Euro-Zone as a whole!
Ireland is particularly beset with fall-out from the "boom-bust" in real estate. Officials estimate the number of house completions in 2009 at 26,000, half the 52,000 built in 2008. With an overhang supply of 120,000 houses for sale or rent, not including vacant homes, the rate of housebuilding in 2010 is expected to halve again.
At the height of the boom in 2007 there were 87,000 houses built in Ireland. This compares with England and Wales, an area with 13 times the population, where house building is running at about 150,000 units a year.
Finance Minister Lenihan warned on Tuesday that the nation faced “the challenge of [its] life”, as he slapped higher taxes on the middle classes in an emergency budget aimed at tackling the spiralling economic crisis.
Mr. Lenihan outlined plans to set up a national asset management agency to take over an estimated €80 billion-€90 billion of bad loans extended by local domestic banks to developers and property companies that now look as if they will not be able to repay.
Forecasting an 8% drop in Ireland’s GDP this year, Lenihan said he had to tackle soaring government borrowing and called on political opponents to “set aside narrow sectional interests” and support the tax increases, which are highly unpopular domestically.
Rating agency Standard & Poor’s recently downgraded Ireland’s sovereign debt. Even after Tuesday’s measures, Mr Lenihan forecast government borrowing would be the equivalent of 10.75% of GDP – more than 3 times the limit on countries joining the Euro.
So, unhealthy countries continue to get less healthy. Tragically, this vicious cycle is threatening the entire Euro-Zone and is making it impossible for the EU, as a whole, to provide emergency aid. As a result, the situation threatens to be a contagion to the entire global financial community.
Marko's Take
If you're wondering about the legality of the Personal Income Tax, our latest video blog will be posted in the next several days covering this complex topic as we head into tax season. To view our current YouTube videos, you can visit them here http://www.youtube.com/markostaketv.
Wednesday, March 24, 2010
More Euro-Zone Problems: Who's Next?
Yesterday, we discussed the acute and growing problems in Greece (http://markostake.blogspot.com/2010/03/greek-crisis-threatening-global.html). Sadly, the problems in the Euro-Zone are showing signs of spreading.
Portugal's sovereign debt was just downgraded. Sentiment soured towards the Euro after rating agency Fitch downgraded Portugal’s credit rating to AA- from AA. Fitch cited “significant budgetary underperformance in 2009” and “structural weaknesses”.
Ahead of the announcement, the Euro was already under pressure as hopes faded that this week’s two-day European Union summit, which starts on Thursday, would result in a concrete pledge of financial support for Greece.
Germany said for the first time, that it would consider financial support for Greece, but pegged its support to 3 conditions. First: Greece would have to explore any alternative options to attempt to gain access to the credit markets. Second: the International Monetary Fund must be a significant participant to the rescue, and Third: any potential aid package must be accompanied by additional means of verifying strict compliance.
The growing uncertainty has raised speculation of a temporary Greek exit from the euro-zone to address the currency issue, which would put further pressure on the single currency.
In Great Britain, banks were told to expect “payback time”, as Alistair Darling, Chancellor of the Exchequer, put the finishing touches to a budget that intends to propose new bank taxes and force them to improve the way they deal with customers and small businesses.
The Chancellor’s pre-election budget on Wednesday will employ tactics to force the banks to repay society for the damage inflicted on the economy over the past two years. Lord Myners, City Minister, set the tone on Tuesday when he said: “The taxpayer rescued the banking system 18 months ago. The time now is for payback.”
Treasury officials say they no longer “trust the banks as much” to deliver on promises to voluntarily improve their level of service and that the budget marks an attempt by Mr Darling to treat them more like a utility.
He is expected to announce measures to improve service to small enterprises, amid a myriad of complaints about both the onerous rate of charges and difficulties in obtaining credit. Business organizations are confident the budget will include a mechanism allowing entrepreneurs to challenge adverse lending decisions, or rises in interest rates.
The inter-connectivity of the global financial system makes dealing with individual country's interests quite problematic, as the result of the spill-over into other countries. The most frightening aspect of the situation, BY FAR, is that the number of problem countries grows as the proportion of "healthy" countries countinues to shrink.
Marko's Take
Please visit us on YouTube at http://www.youtube.com/markostaketv. We will have our next episode on the legality of the Personal Income Tax posted within the next several days.
Portugal's sovereign debt was just downgraded. Sentiment soured towards the Euro after rating agency Fitch downgraded Portugal’s credit rating to AA- from AA. Fitch cited “significant budgetary underperformance in 2009” and “structural weaknesses”.
Ahead of the announcement, the Euro was already under pressure as hopes faded that this week’s two-day European Union summit, which starts on Thursday, would result in a concrete pledge of financial support for Greece.
Germany said for the first time, that it would consider financial support for Greece, but pegged its support to 3 conditions. First: Greece would have to explore any alternative options to attempt to gain access to the credit markets. Second: the International Monetary Fund must be a significant participant to the rescue, and Third: any potential aid package must be accompanied by additional means of verifying strict compliance.
The growing uncertainty has raised speculation of a temporary Greek exit from the euro-zone to address the currency issue, which would put further pressure on the single currency.
In Great Britain, banks were told to expect “payback time”, as Alistair Darling, Chancellor of the Exchequer, put the finishing touches to a budget that intends to propose new bank taxes and force them to improve the way they deal with customers and small businesses.
The Chancellor’s pre-election budget on Wednesday will employ tactics to force the banks to repay society for the damage inflicted on the economy over the past two years. Lord Myners, City Minister, set the tone on Tuesday when he said: “The taxpayer rescued the banking system 18 months ago. The time now is for payback.”
Treasury officials say they no longer “trust the banks as much” to deliver on promises to voluntarily improve their level of service and that the budget marks an attempt by Mr Darling to treat them more like a utility.
He is expected to announce measures to improve service to small enterprises, amid a myriad of complaints about both the onerous rate of charges and difficulties in obtaining credit. Business organizations are confident the budget will include a mechanism allowing entrepreneurs to challenge adverse lending decisions, or rises in interest rates.
The inter-connectivity of the global financial system makes dealing with individual country's interests quite problematic, as the result of the spill-over into other countries. The most frightening aspect of the situation, BY FAR, is that the number of problem countries grows as the proportion of "healthy" countries countinues to shrink.
Marko's Take
Please visit us on YouTube at http://www.youtube.com/markostaketv. We will have our next episode on the legality of the Personal Income Tax posted within the next several days.
Tuesday, February 9, 2010
Sovereign Debt Crisis Threatens To Take Down World Economy
First we had countries which fell under the acronym "BRIC" - Brazil, Russia, India and China. These countries were believed to be the emerging world powerhouses. Now, we have a new one: "PIGS", or Portugal, Italy, Greece and Spain. In the case of PIGS, the acronym is not in the least flattering. Rather, it refers to a group of countries in such financial trouble that their sovereign debt is threatening to pull down the European Union (EU) and possibly the global economy altogether!
The sign that major stresses can be felt is being witnessed in both the bond markets and the countries'
"Credit Default Swaps" (CDS), which price the "insurance" against default. Recently, Spain's and Italy's bonds have carried a CDS of 1.65%, Italy's have risen above 1.5%, while Greece's have expanded to a frightening 4%. To put things in perspective, the United States, no longer considered a great credit, has an active CDS market priced at less than 0.5%! Ireland, not officially a PIGS country, but guilty by association, has its CDS in the 1.5% range.
About six weeks ago, I wrote a piece on Soverien Debt (http://markostake.blogspot.com/2009/12/investing-in-soverign-debt-much-riskier.html. Reading this might provide some excellent background for anyone unfamiliar with the issues.
According to a recent article in the Wall St. Journal, the global economic downturn and extensive government spending to fight it, have led to major fiscal problems in Europe, especially for less-dynamic economies like Greece, Portugal, Ireland and Spain. Such countries took advantage of their membership in the 16-nation euro-bloc during the boom by borrowing at unusually low interest rates. But now, investors are worried about how they will reduce yawning budget deficits that exceed 12% of their economic output in the case of Greece and Ireland.
European policy makers are trying to pressure countries like Greece into taking stronger action to fix their finances.
The potential damage from any sovereign default in the EU will affect the entire region which shares a currency but NOT fiscal policies. Now there is talk that Greece is looking to be "bailed out". Wonder where I've heard the words "bailed" and "out" before?
The sovereign debt isssue is another reason that 2010 is shaping up to be one nasty year!
Questions? Disagree? Agree? TAKE ME ON!
Marko's Take
The sign that major stresses can be felt is being witnessed in both the bond markets and the countries'
"Credit Default Swaps" (CDS), which price the "insurance" against default. Recently, Spain's and Italy's bonds have carried a CDS of 1.65%, Italy's have risen above 1.5%, while Greece's have expanded to a frightening 4%. To put things in perspective, the United States, no longer considered a great credit, has an active CDS market priced at less than 0.5%! Ireland, not officially a PIGS country, but guilty by association, has its CDS in the 1.5% range.
About six weeks ago, I wrote a piece on Soverien Debt (http://markostake.blogspot.com/2009/12/investing-in-soverign-debt-much-riskier.html. Reading this might provide some excellent background for anyone unfamiliar with the issues.
According to a recent article in the Wall St. Journal, the global economic downturn and extensive government spending to fight it, have led to major fiscal problems in Europe, especially for less-dynamic economies like Greece, Portugal, Ireland and Spain. Such countries took advantage of their membership in the 16-nation euro-bloc during the boom by borrowing at unusually low interest rates. But now, investors are worried about how they will reduce yawning budget deficits that exceed 12% of their economic output in the case of Greece and Ireland.
European policy makers are trying to pressure countries like Greece into taking stronger action to fix their finances.
The potential damage from any sovereign default in the EU will affect the entire region which shares a currency but NOT fiscal policies. Now there is talk that Greece is looking to be "bailed out". Wonder where I've heard the words "bailed" and "out" before?
The sovereign debt isssue is another reason that 2010 is shaping up to be one nasty year!
Questions? Disagree? Agree? TAKE ME ON!
Marko's Take
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