Guest post by Azizonomics.
Most of us are at least passingly familiar with the theory: the completion of a new tallest skyscraper presages a market crash. Over-exuberant construction reflects over-exuberant markets, and over-confidence often spills over as the hyper-bullish slowly (and then quickly) realise that the good times are over
Here’s the story so far:
Restoring stability, while avoiding the contagion effects is a failed policy. This should be clear to majority of people by now. The bigger question is, what do the politicians need to do going forward? From Voxeu.
The EZ rescue strategy adopted in May 2010 failed to restore debt sustainability, avoid contagion, or reduce moral hazard. This column argues that a volte face is needed. The debt of Greece, Portugal and Italy – and perhaps Ireland, Spain and France as well – must be restructured to restore growth and end the crisis. All EZ nations should pay since their leaders’ decision to violate the Maastricht Treaty’s no-bail out clause is what brought us here.
Chancellor Angela Merkel has sent word that Germany cannot save the euro. She is right.
From the very start of the Eurozone crisis, it was clear that a domino game was under way and that a highly indebted German government should not be seen as the residual saviour. But keeping the euro will be costly and Germany will have to share the burden.
The solution will have to combine debt structuring and ECB lending in last resort to banks and governments. Angela Merkel needs now to lift the German veto.
As austerity has hit Europe, things are developing beyond the financial markets. At the moment people are suffering, and tragic developments occur across the austerity hit countries, while the “strong” countries continue living the normal life. If things get worse, Europe will start boiling for real. Via Newsweek.
In late May, Marco Turrini reached his breaking point. Out of work for more than a year and under pressure from tax collectors, the 41-year-old publicity agent picked up his 4-year-old son, Samuele, and 14-month-old daughter, Benedetta, and threw them out of their sixth-floor window in Brescia, near Milan. He then struggled to push his wife to the same fate. She escaped, but he turned to the window and jumped. He died on impact, but his two young children lived for several long minutes while neighbors tried to save them. The story is tragic, but continues to repeat itself in scenes of desperation across Italy.
On the afternoon of May 10, Arcangelo Arpino, a 63-year-old entrepreneur from the suburbs of Naples, walked into the mosaic-laden Sanctuary of the Blessed Virgin of the Rosary in Pompeii and knelt to pray in front of a painting of a crowned Madonna and child. Then he walked out to the parking lot, sat on a short stone wall, and shot himself in the head with a 7.65 caliber pistol. In his pocket were three sealed envelopes. One was addressed to the Madonna, asking her to look over his wife and children. Another was a memo explaining the complicated economic state of his Euro Costruzioni construction business. The last was to Equitalia, Italy’s national tax-collection agency, blaming them for pushing him over the edge with repeated threats and relentless tax assessments. “This is a difficult moment for so many people,” said Claudio D’Alessio, the mayor of Pompeii. “The mark of blood on the grass is symbolic of the pain this community and country feel. But there are those responsible for killing him—the national government and the regional government helped kill this man. The citizens are at their limit.”
Guest post by Doug Short.
Earlier this week the Wall Street Journal posted the results of its June Survey of economists (xls file). In the past my main interest in these forecasts has been the GDP estimates. But today my attention is fixed on the estimates for 10-year yields. The various Federal Reserve strategies in recent years (ZIRP, QE1, QE2 and Operation Twist) have focused on lowering interest rates, for which the 10-year note yield is an interesting “tell”.
The 53 economists solicited for the latest survey were asked for their estimates for 10-year yields at six month intervals from June 2012 to December 2014. Not all of them participated, and responses dwindled a bit for the further out dates. The second chart below captures the ranges of responses for each of the six timeframes. But before we look at that chart, let’s refresh our memory on the recent history of the 10-Year Treasury Constant Maturity Rate, weekly data, through last week’s close.
Eurozone members of the Group of 20 leading economies have committed to driving down borrowing costs across the single currency area, according to the communiqué from the summit in Mexico. On the day that Spain was forced to pay more than 5 per cent to borrow money for one year, the need for action to stem the spiral of rising government bond yields was accepted on Tuesday by Germany, France and Italy, the G20’s three eurozone members. http://www.ft.com/intl/cms/s/0/44c211c0-ba34-11e1-84dc-00144feabdc0.html#axzz1yIzGTwQi
Leading hedge fund managers are betting on a significant sell-off in German government bonds in the coming months after a sharp fall in yields on the debt paper driven by a flight to safety in the eurozone. More than 50 per cent of managers polled at an industry conference in Monaco on Tuesday said they expect Bund yields to double within a year. http://www.ft.com/intl/cms/s/0/fcde12c6-ba35-11e1-aa8d-00144feabdc0.html#axzz1yIzGTwQi
Faltering global growth has pushed UK inflation to its lowest since 2009, raising expectations that the Bank of England will restart quantitative easing to stimulate the economy. Falling commodity prices helped to lower the UK’s annual consumer prices index inflation rate from 3 per cent in April to 2.8 per cent in May as food price inflation slowed and fuel prices dropped.http://www.ft.com/intl/cms/s/0/6d0d7e3a-b9ee-11e1-aa8d-00144feabdc0.html#axzz1yIzGTwQi
Blink and you’ll miss it. As this month’s brief rallies in the wake of Spain’s bank bailout news and Sunday’s Greek elections show, wait too long to tap public bond markets and you might miss your opportunity altogether. Six months after the European Central Bank first offered hundreds of banks across the eurozone access to cheap loans, and with the Europe’s debt crisis far from resolved, bank funding markets are dysfunctional. According to Dealogic, European banks have issued just $40bn of senior unsecured debt since the start of April, well below the same period in previous years. Covered bond issuance for the quarter so far stands at just $27bn. http://www.ft.com/intl/cms/s/0/30221076-b921-11e1-9bfd-00144feabdc0.html?ftcamp=published_links%2Frss%2Fmarkets%2Ffeed%2F%2Fproduct#axzz1yIzGTwQi