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2010-04-28 Europe
Greece Cut to Junk at S&P as Contagion Spreads (Update2)
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Posted by JohnQC 2010-04-28 00:00|| || Front Page|| [11134 views ]  Top

#1 How long before America's cut to junk?

We're now borrowing at 4%. If rates spike to 6%, our children will be paying off our debts, and significantly poorer for it, for the rest of their lives. If rates spike to 7% or higher, our children will grow up in the northern equivalent of Argentina.

Who will rid us of this troublesome debt? Not Tweedledum or Tweedledee.
Posted by lex 2010-04-28 00:34||   2010-04-28 00:34|| Front Page Top

#2 The US is in no better shape.
Gross Federal Debt
2008: $9,986 billion
2009: $12,311 billion
------------------------
Diff: $2,325 billion

That's 16.3% of GDP. Of which only $1,410 billion is the official Fed FY2009 budget deficit. I guess most of the missing $900B was TARP money and not part of the "official" budget deficit. It doesn't include state and local governments.

For comparison, the Greek budget deficit for 2009 is 13.6% of GDP.

GAO Simulation assuming current spending levels continue.
Posted by ed 2010-04-28 01:51||   2010-04-28 01:51|| Front Page Top

#3 Question for Rantburg market experts. How much time do we have left with the DOW?
Posted by Besoeker 2010-04-28 08:10||   2010-04-28 08:10|| Front Page Top

#4 I don't know the answer to your question Besoeker but the following companies make up the DOW: link
The health of these companies? The economy is still very uncertain in my opinion despite rosy reports by the administration. Market seems like it is propped up. Unemployment is high. If people are unemployed, they can't buy much. Can't invest much. I realize unemployment is a lagging indicator. We have such a national debt and the interest to service that debt is staggering. BO has increased that debt. The current administration is not business friendly. They have created much uncertainty about the economy. Individual tax burden can't do anything but increase. That's not good.
Posted by JohnQC 2010-04-28 10:21||   2010-04-28 10:21|| Front Page Top

#5 Thanks John.
Posted by Besoeker 2010-04-28 11:26||   2010-04-28 11:26|| Front Page Top

#6 Karl Denninger has this to say about the connection of Greece to the bond market: The insolvency itself happened long before, but by allowing people to lie investors were severely damaged instead of being properly concerned and acting to protect themselves.

So it is occurring again, this time in the sovereign debt realm. Greece is not a €30 billion problem it is more like €200 billion.

Worse is the fact that if Greece is bailed out with some sort of rescue package of new loans they will have simply made the situation worse by loading up more debt on an overlevered nation.

And finally, Greece is just the first of many - Spain, Portugal, Italy and even Great Britain anyone?

How's that all going to work out?

Here's the truth - it's not.

Extreme caution is mandatory here folks. You're not going to be told the truth - not by our government or anyone else's. If a dislocation and "disorderly" bond market collapse gets going you will not be told in advance, but large players will be, and be position to profit significantly - at your expense.

There are no promises here, other than one absolute - you will be lied to by the governments of the world.

Trade and invest accordingly.
Posted by Anguper Hupomosing9418 2010-04-28 11:41||   2010-04-28 11:41|| Front Page Top

#7 Some government employees are worth following closely, Neil Barofsky, the Special Inspector General for the Troubled Asset Relief Plan, for one.
A Democrat named by a Republican president, Barofsky says missteps by both the George W. Bush and Barack Obama administrations are to blame for TARP’s failures.

“There’s a reason there are Tea Partiers out there, and when you look at it, anger at the bailout is one of the first things they talk about,” says Barofsky, referring to the anti- Obama political movement. “This Treasury Department and the previous Treasury Department bear some of the responsibility for not being straightforward with the American people.”
AND
“If the goal of TARP was to make sure we don’t have another financial collapse, well, obviously it’s made the likelihood of that much, much greater.”
Posted by Anguper Hupomosing9418 2010-04-28 12:45||   2010-04-28 12:45|| Front Page Top

#8 Anguper Hupomosing9418; are you trying to cause cognitive dissonance in my mind?

Barofsky is a Democrat. He sounds like a straight-up honest guy trying to do a good job. I didn't know such an animal existed. All I can say is that it is too bad there aren't more like him. Now if someone like him would go after Dodd, Frank, Fannie and Freddie and some of the other corrupt members of our government. But that is a lot of hoping and changing that would have to take place.
Posted by JohnQC 2010-04-28 13:59||   2010-04-28 13:59|| Front Page Top

#9 Barcepundit says Spain's rating was just dropped from AAA to AA by S&P. It has started.
Posted by trailing wife at the Toyota shop 2010-04-28 15:35||   2010-04-28 15:35|| Front Page Top

#10 The analogies are getting more gruesome.
According to Bloomberg:
“’It’s not a question of the danger of contagion. Contagion has already happened,’ Angel Gurria, secretary general for the Organization for Economic Cooperation and Development [OECD], said in a Bloomberg television interview today in Berlin. ‘This is like Ebola. When you realize you have it you have to cut your leg off in order to survive.’”
Posted by tipper 2010-04-28 19:30||   2010-04-28 19:30|| Front Page Top

#11 I heard on NPR this afternoon that some German official or other suggested Greece ought to pull out of the euro, then devalue the new drachma as the only hope Greece has for getting out from under this.
Posted by trailing wife 2010-04-28 19:34||   2010-04-28 19:34|| Front Page Top

#12  Question for Rantburg market experts. How much time do we have left with the DOW?

Stocks are up from their low in March due to better corporate earnings. Companies have cut their staff to the bone, so expenses are lower (hence better earnings). We are in the midst of an inventory restocking cycle now. Retailers who had stopped acquiring inventory due to very low sales have started running out of things and are restocking anticipating more demand. That demand will come IF unemployment goes down and the consumers and businesses see less uncertainty (read no new onerous government laws regulations) in the future. So, prediction - the economy takes another dip (i.e. crash) by end of summer.
Posted by DMFD 2010-04-28 19:44||   2010-04-28 19:44|| Front Page Top

#13 Thanks DMFD.
Posted by Besoeker 2010-04-28 19:45||   2010-04-28 19:45|| Front Page Top

#14 What DMFD said. Valuations are back up to where they were before the crash. Most companies are beating estimates only by slashing payrolls; the jobs have gone overseas in some cases and in other cases are gone for good. Such hiring as is taking place is occurring at significantly reduced salary levels.

Bottom line, the economy was top-heavy with consumer spending, most of fueled by excess consumer debt. That debt is being washed out of the economy as incomes recede. The result is that, absent a huge surge in exports, the US economy is re-setting at a lower level. For stocks to appreciate again, they will have to decline significantly, ie crash.

Any number of catalysts will precipitate this crash - just to take a few off the top of my head, they could be any combination of: bad earnings for the banks, declining consumer confidence, badly-crafted legislation and/or new taxes that hurt investors, a wave of sovereign defaults overseas, a new war in the middle east + a spike in oil prices etc etc.

Bottom line, time to load up on commodities. Oil futures are probably a good investment now.
Posted by lex 2010-04-28 20:52||   2010-04-28 20:52|| Front Page Top

#15 I talked to my financial guy and he says his company thinks the Dow is shaking out about where it should be around 10-11K. That was maybe a month or so ago. I don't necessarily trust the investment companies much. That was before this roll of countries getting downgraded.
Posted by JohnQC 2010-04-28 22:13||   2010-04-28 22:13|| Front Page Top

#16 I heard on NPR this afternoon that some German official or other suggested Greece ought to pull out of the euro, then devalue the new drachma as the only hope Greece has for getting out from under this.

Which is the right answer (inflate the debt away) and what will almost certainly happen, when politicians realize bluffing the market doesn't work.

Mind you, they will have to rename the Euro to the Frankmark when they have finished kicking countries out of the Euro zone.
Posted by phil_b 2010-04-28 23:14||   2010-04-28 23:14|| Front Page Top

23:52 ed
23:48 ed
23:47 phil_b
23:43 ed
23:40 ed
23:36 OldSpook
23:35 Atomic Conspiracy
23:33 JosephMendiola
23:31 logi_cal
23:15 DMFD
23:14 phil_b
23:10 trailing wife
22:59 phil_b
22:58 JosephMendiola
22:47 logi_cal
22:39 gorb
22:36 gorb
22:33 gorb
22:30 gorb
22:26 gorb
22:18 JohnQC
22:13 JohnQC
22:11 James
22:06 JohnQC









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