Spain took another step closer to becoming the next Greece yesterday, June 15.
In case you’ve been on vacation for the last six months or so that’s not a good thing.
An auction of 12- and 18-month Spanish government bill raised $6.4 billion but the interest rate on the 12-month bills demanded by investors was 2.3%. That’s a huge 0.7 percentage points more than Spain paid last month.
The fear now running through European financial markets is that at some point not too far in the future the cost of financing its debt will rise too high and Spain will have to tap into the rescue fund set up by Euro Zone countries after the Greek bailout.
It looks like Spain is trying to avoid taking this route by calling on its banks to buy more government debt. That’s exactly what Greece did in the early stages of its crisis.
And all that does is increase the odds that a sovereign debt crisis will become a wider Spanish financial crisis.
Spain’s debt load is only roughly half that of Greece (which stood at 115% of GDP recently) but the country relies on overseas investors to finance that debt. The country needs to finance about $60 billion in debt by the end of August.
If you really want something to worry about think about this: there are signs, still very preliminary, that the bond market is starting to think beyond Spain. Next on the list of worry beads are Italy (of course), Belgium (small stuff) and France (surprise!). France needs to raise 25% of GDP in financing this year.
Yeah, the euro debt crisis is over.
Can’t Spain cash in some of the riches they stole from the Western Hemisphere centurys ago? You know, armadas of precious metals, gems, etc. They had their “flash in the pan” moment back then, but what have they done since? Kind of like the multi million $ lottery winner who is broke few years later. Holding STD, but getting a little nervous.
Just my opinion, but I don’t think we have mastered the art/science of economics. How many recessions/depressions do we have to go through before we figure out that Keynesian economics doesn’t work?
On the other hand, contra-Keynesians such as the Austrian School are flawed in their insistence on a gold standard, which ignores the historical precedent of what happened in Spain during the colonial era, when the gold supply there increased substantially. Gold can be every bit as inflationary as fiat currencies.
I have yet to see an economic school of thought which works completely. But I am still looking…
I am beginning to think that keeping STD as a long-term hold (appropriate to the dividend portfolio) is a very…uncertain option. Will Brazilian/Mexican investors be willing to buy Spanish bonds? Will they buy shares in a bank with orders to do so?
I’m up 10% since buying last month – and am about to pull out unless someone gives me a good argument to hold on.
http://en.wikipedia.org/wiki/Gross_domestic_product
Components of GDP by expenditure
Components of U.S. GDP
GDP (Y) is a sum of Consumption (C), Investment (I), Government Spending (G) and Net Exports (X – M ). X = Exports I = Imports
Y = C + I + G + (X − M)
It is a formula:
Y = C + I + G + X – M
Y=the equilibrium level of national income
C=domestic household consumption of goods and services
I=domestic real investment in buildings, equipments, software, and inventories
G=government spending on goods and services
X=foreign purchase of the country’s exports of goods and services
M=the country’s purchase of import of goods and services from other countries
Okay, I’ll take the bait.
What is CIGXM?
Andy, I didn’t dismiss Keynesian’s at all. It was you I dismissed b/c of your cheap shots and for looking down your nose. Most who do that are Keynesian cultists, but the real economists (except post-economists a.k.a. book and magazine sellers) are worth listening to.
Keynesian stimulus works just fine as long as you have additional debt capacity and a population willing to play the game. IMO, US history since Ronald Reagan is the best proof, but nobody wants to talk about that since it would be an indictment of their favorite political leaders. It failed in Japan because the people weren’t willing to take on more debt. The government tried to do it all for them, just as the USG is now, but it doesn’t seem to work without the private sector joining the parade. The US population has been willing to take on more debt every time the USG has stimulated in the past. This time is different and the private sector is delevering.
To me the question is not does it work, but when does it quit working? We’re seeing the law of diminishing returns as it takes more and more debt to fuel new GDP growth. It is not working as well as it used to, and we are approaching zero return. So how long can we extend and pretend, and pray that growth kicks in to bail us out? How many more backstops are left? Housing is gone. Government debt is in serious question. China could and maybe has to step up, especially now with the EUR threatening to kill their trade.
The debate over G in C+I+G+X-M is a political one. Because it involves collection and distribution, it is unavoidable that people will raise concerns over fairness.
My objection here has precious little to do with politics or, of all things, “whining”. This is about economics. It may be the “dismal science”, but it’s a science nonetheless, and you can’t simply dismiss the entirety of Keynesian economics as a bunch of poppycock or a religious cult and expect to be taken seriously.
It begs the question of why you’d even read this blog in the first place. If you’re so convinced that government stimulus is the devil, why would you take investing advice from a guy who writes posts likes this: https://jubakpicks.com/2010/06/07/is-the-global-economic-recovery-about-to-go-into-reverse-watch-germanys-proposed-spending-cuts-to-see/ Oh noes, Jim’s been drinking the Keynesian Kool-Aid!
Hey Andy, If it’s so “basic”, please explain why 20 years of stimulus spending in Japan has gotten them nothing more than a 200% + debt/GDP ratio. Or, use your expertise to explain why the massive UK stimulus the last two years has gotten them no growth and too much debt to handle.
Did the Spanish tank their World Cup game to Switzerland today so as to get better debt treatment from Swiss banks? That’s the only way I can understand this 1-0 result.
You know the wild card in this isn’t the actual numbers it has more to do with what people believe. If you don’t trust someone you keep them on a very short leash, for the people you trust you let them go farther then you should. Once the trust is gone things move in a downward spiral that can’t be controlled.
I doubt that if the numbers on the debit improved a little bit that it would improve the trust (well maybe delay throwing to the wolves, but not trust). What do you think it would really take to get the trust back once lost?
The only thing I can think of is a long period of time doing the right, thing… Sounds like a very long and painful time for all involved.
Dear wb.3355:
I don’t think they can…their whing is attached!
sigli, andy, etc,
Please, kindly take your political views and whing to a different web site.
Thank you in advance
marr.bo,
I share the same sentiment. I have pet budgies and those are my only pets. Last week, I bought RIG when it went down to 42 and sold it in 3 days when it went up to 47 something. I am planning to donate the extra bucks I made there to the bird clean-up effort. Take it from em and give it back to who they hurt!
marr.bo,
Don’t worry about the pelicans. I hear the oil burns off in cooking. And remember, white wine with fowl…
Hey Andy, it looks like you’ve got the religion memorized frontward and back. Thanks for preaching what the basic stuff is. Can you tell me what “basic stuff” bible you prefer? Seriously, there’s more than one side to the argument.
Samuel Huntington (in his “The Clash of Civilizations”) thinks West will loose out eventually in military power. He suggests us to take the path of research and innovation where we can keep our lead for few more centuries, and give up on war and conquest. Although, I don’t see the world as West vs Islam (Black vs White, “with us or with them”) eyes, I agree with his suggestion on reducing “defense” (actually war and colonization) budget. This will help with deficits.
the technical charts look really good to buy right now, indicators show upward momentum on just about everything http://www.stockcharts.com
Thinking about buying some RIG, but feel extremely evil doing it when cute little oil soaked pelicans are struggling to survive, anyone else share this sentiment?
Off topic… More than 90 banks miss TARP payments:
http://www.reuters.com/article/idUSN1615368020100616
When you think about it the whole money/debt thing is kind of absurd anyhow. The entire global economy is based on a fictional concept rooted in the “belief” of value.
Sigli: were you Herbert Hoover in a former life or something? No doubt this’ll fall on deaf ears, but a recession really isn’t the time to cut spending. Seriously, this is pretty basic stuff.
As for the gasoline, I have no clue what you’re on about. Gasp, you mean the price of energy has increased as the global economy has begun to recover from near-collapse? Dear God, someone alert the media.
China’s AgBank to launch Shanghai IPO this week
http://www.reuters.com/article/idUSTRE65F26I20100616?type=innovationNews
I don’t know CallofDutyFan, the first thing I saw over there was a cut defense spending piece. That obviously won’t do for a “tea bagger/repub creed” like myself. My eyes are burning. Thanks. Don’t you know the defense budget can grow forever, just like housing prices did? It’s sustainable and doesn’t result in any D.C. corruption whatsoever.
To be serious, thanks for the heads up. I’ve read a little bit from them in the past, but am not big on institutions no matter what the flavor. I find personal investigation to be more useful, and it tends to be a lot funner than reading someone else tell you what to think. Regardless, it’s nice to hear there are still a few objective thinkers alive that don’t spasticlly knee jerk all the time.
Been watching STD for a while but very hesitant to go in. This news certainly adds to nervousness.
Sigli, you may be interested in newsletters from the Cato Institute. I disagree with their position on climate change, which borders denial. However, they have the most reasoned, non-partisan positions and consistently criticize government overreaching – whether by Democrats or Republicans – or whether in the area of fiscal prudence or civil liberties.
Sigli,
stop blaming and scapegoating others for your problems. Live your tea bagger/repub creed and reach down and pull yourself up by your damn bootstraps!
This will obviously never happen to America. We’re all idiots who don’t get it and should adopt the Pauline Krugman Doctrine (copyright pending application). We need to spend more, starting with extending unemployment benefits infinitely, especially because there are only 4 million job postings online. Spending is the only way out of this hole and to prosperity. Recessions are not the time to cut spending, and there are no consequences to our actions. Spend, spend, spend, and pray it works, cause if it doesn’t… Yeah, don’t think about the risk ’cause it’s too scary. And, oh by the way, Americans are spending $300 billion more per year in gasoline since Obama’s stimulus was enacted. Thank you all for that stimulus! It’s wonderful paying twice as much for gasoline! That helps out Americans so much! I could have saved enough for a trip to Vegas, that would have put people to work, but that’s a crazy, crazy, crazy idea.
That made me feel better.
My EFZ stopped out yesterday. Looks like it may be time to get back on this..
If we see poor inflation data we may see a big bear claw tomorrow.
Jim,
who in the hell is actually buying Spanish/Greek/Italian/etc debt and why?!?!
They obviously love losing money