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2010-05-20 Europe

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Posted by lotp 2010-05-20 00:00|| || Front Page|| [1 views ] Top

#1 Karl Denninger sees a broader perspective:
The entirety of the rally off the 2009 lows was predicated on the US borrowing and spending $1.5 trillion a year, or 11% of GDP, for the last two years!

The extreme volatility you've seen the last couple of weeks is not about Greece. Nor is it about Merkel, or Sarkozy, or any of the clown car brigade in Washington DC.

The volatility is the market debating whether governments worldwide can continue to borrow and spend 10% or so of their GDP on an ongoing, continual and perpetual basis.

It's that simple folks, because the underlying economic fundamentals and private activity has not come back at all - there has been zero advancement in private activity sufficient to allow any pullback of that support!

If this cannot be continued, and the recent events in Greece strongly suggest that it cannot, then market prices are dramatically too high, as they reflect a fully-priced in "V" shaped recovery that is being created and sustained as a consequence of this deficit spending!

Posted by Anguper Hupomosing9418 2010-05-20 00:53|| 2010-05-20 00:53|| Front Page Top

#2 Auction of Spanish debt close to failure Spain came close to its first debt auction failure yesterday, highlighting the funding problems for weaker eurozone economies.
Spain was supposed to fund part of the Greek bailout, but its ability to do so is in question.
The government's difficulties in selling 6.44bn ($7.96bn) in one-year and 18-month bills sparked worries over its 10-year debt auction tomorrow.

It planned to issue 8bn yesterday, but only just attracted that amount of bids, with yields at record highs. This prompted debt managers to reduce the size of the sale by 1.56bn. Normally a government bill auction would be covered at least 1.5 times.

Steven Major, head of fixed income at HSBC, said: "The Spanish auction was very disappointing and does not bode well for further issuance. It's becoming more apparent just how difficult it is for Spain, which is a big worry so soon after the launch of the international rescue package.

Posted by Anguper Hupomosing9418 2010-05-20 01:04|| 2010-05-20 01:04|| Front Page Top

#3 Pretty simple, really. The US economy is the engine of world growth, and of recovery from recession now. That economic engine is still ca. 70% dependent on the US consumer, ie, on millions of households buying stuff they DON'T NEED with money they DON'T HAVE.

Aside from purchases of iPhones, laptops, alcohol, porn, and other forms of cheap stimulation, the US consumption engine is exhausted. There will have to be a reset, to a significantly lower level, as US households move from their recent negative savings rate to a positive savings one.

Bottom line, the market's runup since March 2009 was a mirage. Stocks are way overvalued.

Posted by lex 2010-05-20 20:44|| 2010-05-20 20:44|| Front Page Top

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