Debt crisis – theMarketSoul ©1999

The Return of Risk?

Department of Treasury Seal (Photo credit: woodleywonderworks)

We take a brief look at two interesting Treasury Yield curves today.

The first Yield Curve takes a snapshot view of the yield curves at the end of Q1 2011 and Q1 2012.
What is very noticeable is the fact that the overall yields for the end of Q1 2012 is significantly lower than a year ago. Taking a look at the at the 5 year T-Note yields as an example, the spread between the end of March 2011 (5Yr T-Notes at 2.24% ) and the end of March 2012 (5Yr T-Notes at 1.04%) was 1.20% down. The question is what factors drove down the ‘risk-free’ rate on US Treasuries?

However, turning our attention to the second graph below, indicates a slightly different perspective; and hence the title of this post. Has and is risk returning to the capital and stock markets to levels we previously experienced?

Not quite, is the short answer, because the spread between 31 December 2011 (0.83%) versus the 1.04% rate at the end of March 2012, only indicates an uptick of 21 basis points in the yield rate. The significance is not the percentage spread, but rather the direction of movement and we will continue our analysis at the end of Q2 2012 to establish whether the direction in Q1 2012 will be maintained into Q2 and beyond.

The final question to ponder is this:

Are we finally seeing the corner turned, or are there still significant risks in the global economy and sovereign debt markets to cause a few further after shocks in the months to come?

Where will all the new money come from? (themarketsoul.com)
The BIG Sovereign Debt Structure cliff – Part 1 (themarketsoul.com)
The Fed’s Undistinguished Macro Discussions Circa Jan 2006 (wallstreetpit.com)
The Real Yield Curve and a Double-Dip Recession (yelnick.typepad.com)
Pricing of liquidity (jrvarma.wordpress.com)
Rates are rising! Oh wait, scratch that. (theglobeandmail.com)
Treasurys bounce back as European debt falters (sfgate.com)
Analysts see more gradual rise in U.S. Treasury yields (theglobeandmail.com)
Is the bond market tightening for the Fed? (superbullinvestor.com)
Surging U.S. Treasury yields set to take a breather (theglobeandmail.com)

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The BIG Sovereign Debt Structure cliff – Part 1

In yesterday’s article, “Where will all the new money come from?” we concluded the brief analysis with the Sovereign Debt Maturity profiles (otherwise known as the Debt Structure) of both the USA and Italy, noting how similar the two profiles looked at first glance.

English: Update history of the rates of the Eu... — Image via Wikipedia

Digging a bit deeper today, we would like to compare those charts to cliff edges. We trust that the sentiment of the article is that we perceive Central Banks across the globe fretting about the ‘New Money’ we were referring to. With general economic confidence waning and the outlook for a sustainable long-term solution to sovereign over (indulgence) spending fading, the landscape is looking very bleak at moment.

New money will have to be printed (Quantitative Easing or QE) if investors in the capital markets cannot be found to bear the burden of purchasing new Bond and Treasury issues.

Some headlines over the few weeks alluded to Bond auctions in Portugal, Italy and Spain being well supported (see related article at the bottom of this post), but these were not major refunding and roll-over exercises. Greece is continuing to be a welcome distraction for politicians and Central Bankers in both taking investor’s eye off the bigger problems coming along the line in Q2 2012 and in winning time to hopefully come up with a credible longer-term plan to reduce debt levels and then return to growth.

Auction Calendars

Let’s take a look at some of the crucial Sovereign Debt auctions coming up in the next few months:

The link below provides a time table schedule issued by the US Treasury for T-Bills, T-Notes, T-Bonds and TIPS, for at least the next six months.

US T-Bill Auctions schedule

To get the equivalent Eurozone calendar is not so easy. (Partly because each individual country issues Bonds, as there is no Central Eurozone issuer of Bonds, but at least a central purchaser, namely the ECB – European Central Bank)

We are currently investigating sources of information for Eurozone Sovereign Debt Bond auctions and will return to this theme in very near future.

Italian Debt Auction Sends Yields Tumbling: What Investors Need to Know (fool.com)
Investors eye European bond auctions (bbc.co.uk)
Successful debt auctions give boost to Spain and Italy (independent.co.uk)
Italy borrowing rates drop again in bond auction (newsok.com)
Italy sells more bonds as Greece struggles with debt (ctv.ca)
Italian Debt Auction Sends Yields Tumbling: What Investors Need to Know (dailyfinance.com)
Stock Market To Cast Confidence Vote On Eurozone Monday After Disastrous German Debt Auction (jhaines6.wordpress.com)
Italy’s borrowing costs tumble after debt auction (guardian.co.uk)
S&P cuts French rating to AA, hurting eurozone confidence (ctv.ca)
Eurozone faces tough hurdles early in 2012 (sfgate.com)
EU Faces Debt Hurdles Early in 2012 (abcnews.go.com)
The road ahead for the struggling eurozone economy (oregonlive.com)
Eurozone faces tough hurdles early in 2012 (seattletimes.nwsource.com)
The eurozone’s borrowing costs may stay lethally high (bbc.co.uk)
Buba’s Jens Weidmann Voted Against ECB’s Decision To Undermine The Sovereign Bond Market (zerohedge.com)
Eurozone will pivot on Italy in 2012 (cbc.ca)
Eurozone faces tough hurdles early in 2012 (ctv.ca)
Stock Market Plunges On German Debt Concerns (huffingtonpost.com)

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A matter of CULTURE or PSYCHOLOGY in Europe?

Are the European and more specifically the Euro-zone problems purely a matter of cultural differences, engrained in generations of ‘Nation Staters’ or something deeper in each nation-people’s psychology?

Countries using the Euro de jure Countries and... — Image via Wikipedia

It cannot purely be a difference of political ideology between the leaders and individual nations of Europe that has lead us to the brink of the Euro abyss. But, yet maybe the way the debate and challenges facing Europe are being framed, has a great part to play in it.

Europe always seemed to be a halfway house between cultures, trade, ideologies, beliefs and norms. And the fact that the Euro single currency zone was stitched together based on these ‘halfway house’ ideas should therefore not have been a surprise.

How long does it take to build a vision? Or rather, why did Europe take so long to get to the chasm, build a rickety Monetary Union bridge, without firming up the foundations that holds together the infrastructure once the traffic crossing that bridge started increasing in volume?

If there is something Trade theory should have taught us, it must be that once opportunity (to trade and create wealth) is established, the trickle would eventually turn to a steady stream and the steady stream to an eventual throng. Yet not one European leader or institution foresaw this? Takes us full circle to the original question, namely: “How long does it take to build a VISION?”

united states currency eye- IMG_7364_web — Image by kevindean via Flickr

The truth might lie somewhere in the nature, establishment and deep rooted psyches of the Europeans themselves. Europe might be the collective noun; yet staunch nation state individualism (the communities we all hunker after) is the actual bedrock and foundation of the people who live in Europe. Unlike the USA, with a common language, full monetary and federal fiscal union, Europe is and will always remain a loosely led together community (but not a collective) of nation states and peoples.

Fairness, freedom, equality and openness, some of the most fundamental tenets of a market and community to function properly, are not necessarily on the agendas when ideological political, rather than economic (for the greater good), issues are considered by both politicians, technocrats and bureaucrats in the institutions and fabric at the heart of a (dis)United Europe.

Therefore, until and unless we can prize Europeans from there deeply held ‘national interest’ debates and frames of reference, in terms of establishing a common and united front; we feel that there is no hope of sustainably solving the Euro-zone sovereign debt and monetary union problems.

A possible mechanism might have to be the establishment of a ‘fourth branch’ of governance, outside the Executive, Legislature and Judiciary, being an outside force or rather an Adjudicator comprised of non dominant European member countries and quite possibly with an Advisory Board consisting of non Europeans themselves, to allow for the establishment of a fair, free and an open implementation of the Legislature’s policy decisions, hence and overseer of the Executive, but an equal to the Judiciary, with a final veto by the citizenry of Europe themselves, as a balancing mechanism, should a stalemate ever arise.

The enabling driver of such an European Adjudicator must surely be the Digital Economy with its various platforms and reach extending now and in the future across the ‘Net’ that is European integration.

Crisis On The Continent (thedailybeast.com)
What S&P’s Downgrades Mean for the Euro’s Future (curiouscapitalist.blogs.time.com)
No Country Will Exit the Euro Zone This Year: Jim Rogers (wallstreetpit.com)
“Euro Zone Crisis is Germany’s Fault” (twistedeconotwist.wordpress.com)
Euro zone jobless hits highest level since birth of euro – Reuters (reuters.com)

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Reflections on January 2012

The team at theMarketSoul have not been busy enough putting blog article out during January 2012; however, it has given us the opportunity to reflect on the goings on in the various regions around the globe.

The themes of this article are:

Taxation
Collaboration

The USA

The only great point of interest was the State of the Union address by President Barack Obama. Again as a liberal statist the theme of taxation and MORE taxation to come down the road for the ‘more’ well-off in society raised its ugly [spectre] head again.

Europe

President Van Rompuy addresses to the press co... — Image by President of the European Council via Flickr

Oh dear! Let us think very hard about something positive to reflect on this month during the kick-off to 2012…

Enough said. Unfortunately the Eurozone crises (yes, several on different fronts) are still dragging on.

We see yet again how difficult it is to undo a few decades worth of the nation state experiments in Europe and bring everyone together under the guide of collaboration, but with no formal overall governance framework in place. The Eurozone crisis, as well as being one of sovereign over indulgence, is also one of a twisted underground power struggle between the European traditional heavy weights.

But, alas, it is all politics in the end and with Standard and Poor and Fitch getting on the downgrade bandwagon during the month, angering politically challenged politicians like Monsieur Sarkozy (French presidential elections coming up in April and May 2012 [two rounds scheduled, if necessary]).

The Middle East

BBC Key Pins — Image by barnoid via Flickr

One matter of interest raised during a panel discussion on the BBC programme DateLine London on 28/01/2012 regarding the tension in the Straits of Hormuz, by Adbel Bari Atwan, is the fact that the entire Iranian issue around nuclear armament is a ‘manufactured’ threat by the USA and Europe. True, with Pakistan, India, Israel, China and Russia being nuclear enabled nations in the region, what difference will one more nation make to this perilous equation? Perception seems to be everything, both in the discourse and actions taken in reshaping the Geo-political order of the post ‘Arabian spring’ Middle East.

Please, just keep collaborating in OPEC; pumping the Black Gold and thus keeping prices lower and stable, for the sake of a stable Global Economy!

Fitch downgrades Italy and Spain (bbc.co.uk)
Brussels takes control of taxation and spending in eurozone countries (telegraph.co.uk)
Roundup: Obama’s address focuses on the economy (globalpublicsquare.blogs.cnn.com)
Middle East Presidential Advisor To Four Presidents Bruce Riedel: Iran Is Not an Existential Threat to Israel or the United States! (politicalvelcraft.org)
What Eurozone Crisis? (ritholtz.com)
Report: US to Send “Mothership” to Middle East – Voice of America (blog) (blogs.voanews.com)
Eurozone crisis: ratings agency downgrades nine countries (newstatesman.com)

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Irony and Downgrade Anger

It is with a little amusement that we scanned through the Economic headlines today, following Standard & Poor’s decision to finally downgrade France’s and other Eurozone nation’s Sovereign Debt rating. France lost its prestigious triple A (AAA) grade to AA+.

Sarkozy and French anger? Indeed!

Off course the irony is that an “outsider market agency” has at last pushed a button it has threatened to utilise, forcing a pause for both governments and investors alike.

But the problem is timing as far as Mr Sarkozy is concerned. This is a Presidential election year in France, so this comes as a slight humiliation to Mr Sarkozy. And so it should be! He should be shamed out of office! Therefore, hopefully S&P’s decision will help the voters and tax payers of France sit up and realise that incompetent leadership and decision making in the Eurozone economies now urgently needs to be ‘punished’.

Thank you S&P, for taking this action, because the actions (or rather inaction) of the Eurozone bureaucracy and leadership so far in addressing the root causes of the multiple crises, is continuing to drag the global recovery off course.

Decisions to circumvent exiting (inadequate) European Institutional frameworks and pulling the wool over European Citizens eyes over the inadequate administrative burdens the bureaucrats have imposed on its Citizenry must finally come to an end.

Eurozone 02 — Image by slolee via Flickr

Hopefully, we’ll see some slightly more competent new faces in the Eurozone leadership pool and summit photo call line ups very soon… Innovation in Europe might have to start with a new set of leaders?

Eurozone crisis: ratings agency downgrades nine countries (newstatesman.com)
French president Nicolas Sarkozy sends his PM to face cameras after credit rating is downgraded (dailymail.co.uk)
French PM vows reforms after ratings downgrade (ctv.ca)
It’s Official: S&p Announces Mass Downgrade of Eurozone Countries (tarpon.wordpress.com)
France to pursue reforms after downgrade (thehindu.com)
AAA No More: Credit Downgrade Hits France (npr.org)
Credit rating slashed, France promises reforms (csmonitor.com)

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More and Bigger Europe –Part 2 – It is MORE…

Image via Wikipedia

We pick up from the introductory article by expanding on the issue of MORE Europe, which we did not cover in enough depth.

More Europe

It is without a shadow of doubt that belonging to an enlarged common market has huge beneficial advantages to all its participants.

However, the question of the Cost / Benefit analysis dynamics is never really explored in more detail. Perhaps it is easier to focus on just one or the other of the two interlinked dynamics, but for it to be a balanced appraisal; we need to focus on the interactions of both COST and BENEFITS.

And when the leaders of Europe cannot tell anymore what the difference is between a COST and a BENEFIT of being in a single currency Eurozone, then what chance do the rest of us have? Is our COST the misplaced belief that leaders will make decisions in our best interest that will BENEFIT us in the long run?

But if the COST is the lesson of Moral Hazard, why have they not learnt yet that working towards an orderly default is better than raiding the futures of millions of current and future taxpayers in Europe. The COST of an uncompetitive and stagnating Europe (which has been brewing and developing for a few decades now), is that we have lost the ‘child like’ curiosity of inventing and innovating our why towards sustainable economic development and growth.

Rather than embrace the opportunity to learn from the younger cultural of the Eastern European and Baltic States integration onto Europe, we are in danger of smothering their youthful exuberance with a bureaucratic Welfare State super-state, with a healthy dose of Welfare and Debt dependency for decades to come.

No-one is saying that the transition will be painless, but it seems that most leaders in Europe have forgotten to keep an eye on both the COST and BENEFIT dynamics. Except for the brave decision made by David Cameron on Friday morning.

English: David Cameron's picture on the 10 Dow... — Image via Wikipedia

Veto the madness and risk what some call isolation, but we here at theMarketSoul call the grasp for our economic sanity.

We can still be part of a common market and then there is still a Common Wealth to leverage, should both the EU and the USA decide to marginalise Britain on the international stage, as some commentators are fearing.

Maybe a true third balancing force and alliance will help us move out of the doldrums of the CRISES of 2008 – 2011 (and quite possibly beyond).

More and Bigger Europe…Is that what we really want? (themarketsoul.com)
Robert Reich: The Remarkable Political Stupidity of the Street (huffingtonpost.com)
The Remarkable Political Stupidity of the Street (robertreich.org)
Lessons From Europe (krugman.blogs.nytimes.com)

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More and Bigger Europe…Is that what we really want?

Yes, it will be more bureaucracy and bigger financial problems down the line…

We pick up our analysis this week in the dusky glint of the aftermath of the (latest) EU Leader summit to put together a rescue package for the Euro.

More bureaucracy?

The inspiration for this comes for the ‘people pulling the wagon versus the people in the wagon’ analogy utilised by Dan Mitchell of International Liberty.

In an article we wrote earlier this year we very clearly called for INNOVATION as an engine of growth in Europe, yet all the politicians and bureaucrats can deliver are bigger EU institutions, hence, more and more people piling into the wagon! Aren’t some of us getting not just tired of pulling the wagon, but frustrated and exhausted too. Are these not some of the ingredients necessary to breed and incubate extremism?

Bigger financial problems?

In another of our earlier articles we mentioned the dangers of Moral Hazard. By not addressing the fundamental problems of big bureaucracy (we are in danger of starting a circular argument here), debt accumulation, regulatory stifling, the ‘EFFICIENCY’ drive will permanently drive INNOVATION (and hence future growth) out of Europe. Let’s face it, if it was not for the expansion of the EU towards the vigour of the Eastern and Baltic states, there would be no growth and opportunity and Europe would not be an attractive place to do business.

Europe’s maturity (and risk averse cultural norms) are now so engrained and an anchor and drag on innovation that attracting Foreign Direct Investment (FDI) (and purchasers of sovereign debt) will come more and more of a challenge in future.

The brave thing to do, in our opinion, was to stand up for a fragmented Europe, as David Cameron was prepared to do, because to be lead blindly down the alley, just to be beaten and bruised by the rest of Europe, would not only be folly, but a disaster for Britain.

Deutsch: Weltkarte mit Fokus auf Europa Englis... — Image via Wikipedia

Only time will tell, but the Eurozone and sovereign debt crisis has dominated the headlines for long enough, and will continue to do so for some time to come…

Steen’s Chronicle: Europe’s disease – sagging growth (tradingfloor.com)
No IMF aid for eurozone: Canada (business.financialpost.com)
Time to confront the repercussions of the European crisis (seattletimes.nwsource.com)
WAIT! Is Europe About To Do ‘The Single Worst Thing It Can Do’? (businessinsider.com)
Canada urges EU to carry own debt, refuses to help IMF plea (vancouversun.com)

Tag: Debt crisis

The Return of Risk?

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The BIG Sovereign Debt Structure cliff – Part 1

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A matter of CULTURE or PSYCHOLOGY in Europe?

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Reflections on January 2012

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Irony and Downgrade Anger

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More and Bigger Europe –Part 2 – It is MORE…

More Europe

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More and Bigger Europe…Is that what we really want?

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More Europe

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