If you're at all interested in the sovereign debt markets, you've no doubt seen the wild swings in Spanish debt this week. The following is a good explanation of what's going on and, while I don't agree with Henry that the Keynesians are right, it is a downright ugly situation for Spain (and Italy further down the road). I've been calling for a Eurozone breakup for over two years now, and I'm frankly baffled at the Euro's continued strength over the dollar. All good things come to those who wait, I suppose:
Trending Content
| +90 | GF doesn’t care about her looks | 57 | 10h | |
| +60 | Affair with my Associate… In Desperate Need for Advice | 23 | 1d | |
| +51 | How to sound more eloquent? | 19 | 5h | |
| +40 | 400k/year in HVAC sales? | 26 | 2d | |
| +37 | WSO Ranking On Resume??? | 9 | 5h | |
| +35 | Are you “less ambitious” for having long term goals outside of NYC | 13 | 12h | |
| +33 | Would you rather live alone in an outer borough or with roommates in Manhattan? | 23 | 3d | |
| +28 | Why do people listen to Jim Cramer Investing Advice? | 11 | 10h | |
| +27 | Carnivore Diet | 12 | 12h | |
| +26 | Is my boss gaslighting me? | 3 | 1d |
Career Resources
The failed experiment that is the Eurozone needs to go away, and go away quickly. This LTRO bullshit is only making matters worse. The last thing that they need are banks buying bonds of governments then pledging some type of shitty collateral to get more loans to do the same thing. That has disaster written all over it. The only issue I have is that if you break them out and let them attempt to stand on their own, most of them will probably just fail. Greece can't stand by itself, neither can Spain or Italy. Germany is going to get fed up with supporting an entire continent at some point (they already are really) and I don't think that France or England are in any position to be the white night in this scenario.
Eddie,
How much of the Euro's value is being artificially being propped up by swap lines and currency manipulation by the Fed and ECB? I do agree that Italy and Spain are both screwed. I think it's just a question of when Germany is going to say "Enough is Enough" and the Eurozone goes the way of the Dodo.
The Eurozone ponzi is getting beyond ridiculous. Spain is a $1T hole that they are going to have to plug. What can the technocrats do? I mean there's only so much lipstick they can put on the PIIGS.
Spanish Bad Loan Ratio
FED buying European bonds? What the hell is he talking about? If that is going down I am moving as far away from Europe as possible
Don't forget that Germany is killing it right now as it reaps the benefits of being in the Eurozone. Look at how das Germans currently stand: their unemployment is lower than it has ever been, their government is borrowing at rates lower than US Treasuries and they recently auctioned 1- year notes for record low ~1.75% yields. Germany benefits from the euro for two big reasons:
1) Spain, Greece, Italy…etc all love buying German manufactured goods because they are high quality - that has always been the case - but with the euro they buy MORE German goods because there is no currency risk. If European countries had to buy German imports with the Deutsche Mark, then they would have to hedge the currency risk, which makes importing more expensive and they would therefore buy less German goods.
2) The euro is weak - much weaker than what the Deutsche Mark would be worth right now. This is simple because of the current sovereign debt crisis (see the first two posts above - both guys think the euro will fall apart). A weak euro means that German goods are cheaper for Americans, Chinese, and anyone else that doesn't use the euro. If Germany had its own currency right now then it would be the best safe haven in the world and it would appreciate like crazy. The value could double in value, which makes German goods twice as expensive for you and me. An appreciating German currency would badly damage their export-reliant economy. Don't forget what happened to Switzerland last year - their Swiss Franc was a safe haven during the peak of the Euro debt crisis and the appreciation destroyed Swiss companies' ability to export, causing the central bank to intervene in the market to lower the value of the Swiss Franc.
Germany has a smorgasbord of reasons to like the euro, and their credit rating remains untarnished at AAA so far. Check out the recent MarketSnacks post for recent sovereign debt crisis news:
http://marketsnacks.com/2012/04/17/confidence-in-spanish-bond-auction-h…
Everyone is missing the point. The Eurozone is not going to breakup, it is going to get stronger and if anything will add members in the coming years. There is a big distinction between bonds, banks, and currency. Bonds and banks = complete mess, currency = OK. The shitshow in Europe right now is more a bank problem than a sovereign problem. Banks are holding countries hostage because if they don't they will fail. The most important dynamic here is that it is the policy of both the US and China to maintain a weak currency to promote exports. The US and China will not let the Euro implode.
http://www.bloomberg.com/video/90738469/
[quote=JeffSkilling]Everyone is missing the point. The Eurozone is not going to breakup, it is going to get stronger and if anything will add members in the coming years. There is a big distinction between bonds, banks, and currency. Bonds and banks = complete mess, currency = OK. The shitshow in Europe right now is more a bank problem than a sovereign problem. Banks are holding countries hostage because if they don't they will fail. The most important dynamic here is that it is the policy of both the US and China to maintain a weak currency to promote exports. The US and China will not let the Euro implode.
http://www.bloomberg.com/video/90738469/[/quote]
Gentle reminder: these forums are way too anti-european to ever agree with any statement which implies long-term EU stability.
The economic situation of some EU countries is definitely crap, but most developed countries are extremely dependent on each other due to international trade. If the EU would explode, breakdown or anything would fuck-up at a major scale, the US and other developed nations would suffer as well. A breakdown of the EU automatically means sovereign defaults or big debt haircuts. This would trigger bank defaults and cause a liquidity crisis within the banking sector (yet again wohoo....)
Just look at the amount of trade the EU does with the US: http://ec.europa.eu/trade/creating-opportunities/bilateral-relations/co…
^I was thinking the same thing, a euro collapse would be terrible for the global economy. How much European debt does the US hold and vice versa?
The guy talked more than Henry. So much for an interview.
Anyways, I agree the LTRO is not working. These type of temporary solutions only buy a limited amount of time and do not address the principal structural problems in Europe. The way I see it, all this money is just being thrown into an empty hole. Plus, like the video states after a few months of Spain the focus will shift to Italy and so forth. It's a revolving door.
This article is a few months old but I think it does a good job at summarizing how much debt each country owes and to who.http://www.bbc.co.uk/news/business-15748696
[quote=luccabananas] This article is a few months old but I think it does a good job at summarizing how much debt each country owes and to who.
http://www.bbc.co.uk/news/business-15748696[/quote]
In my mind, this is how I interpret the BBC's graph: The red, pink and Yellow countries have a nasty STD called herpes (or crabs or chlamydia, you choose). The more countries have "foreign debts" to other clean countries, the easiest the STD spreads.
http://www.bbc.co.uk/news/business-15748696[/quote]
Interesting chart. One good thing (and there's not much) is that the other PIIGS are relatively unexposed to Spain, and that Spain is pretty unexposed to them (other than Portugal).
Chart also makes me worry about France - they hold way too much PIGS debt and are already pretty heavily indebted themselves.
I would be curious to see the government debt broken out separately by owning country..anyone know where to find that?
i don't know much about this so hopefully someone can chime in.
I know that in Ecuador the US dollar is the de facto currency. I don't know much about how it works but how can the EU get the Euro to work in spain/italy/greece like the US works in Ecuador? Like what steps need to happen in order to get there so that eventually they get there?
So... best way to profit from shorting Spain is what lol?
Go long Euro.
Rerum omnis consequatur beatae aut voluptas consequatur. Vel maxime ad modi in. Saepe quo rerum consequatur facilis. Officia et minus placeat laudantium quia culpa in.
Pariatur atque sit sapiente temporibus odit. Aspernatur libero id quis repellendus incidunt eum. Similique ea non nobis cupiditate.
Suscipit ut eveniet culpa fugit. Aut nihil ullam nihil. Quas tempora ipsam voluptatem repellendus ut quo recusandae. Quia cupiditate in quia voluptatem aut exercitationem.
Voluptas eligendi rem dolore reprehenderit quia voluptatem corporis eligendi. Adipisci voluptatem quia mollitia repudiandae.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...