Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
Investing in the METAVERSE Stocks Universe - 8th Dec 21
Stock Market Sentiment Speaks: I Expect 15-20% Returns For 2022 - 8th Dec 21
US Dollar Still Has the Green Light - 8th Dec 21
Stock Market Topping Process Roadmap - 8th Dec 21
The Lithium Breakthrough That Could Transform The Mining Industry - 8th Dec 21
VR and Gaming Becomes the Metaverse - 7th Dec 21
How to Read Your Smart Meter - Economy 7, Day and Night Rate Readings SMETS2 EDF - 7th Dec 21
For Profit or for Loss: 4 Tips for Selling ASX Shares - 7th Dec 21
INTEL Bargain Teck Stocks Trading at 15.5% Discount Sale - 7th Dec 21
US Bonds Yield Curve is not currently an inflationist’s friend - 7th Dec 21
Omicron COVID Variant-Possible Strong Stock Market INDU & TRAN Rally - 7th Dec 21
The New Tech That Could Take Tesla To $2 Trillion - 7th Dec 21
S&P 500 – Is a 5% Correction Enough? - 6th Dec 21
Global Stock Markets It’s Do-Or-Die Time - 6th Dec 21
Hawks Triumph, Doves Lose, Gold Bulls Cry! - 6th Dec 21
How Stock Investors Can Cash in on President Biden’s new Climate Plan - 6th Dec 21
The Lithium Tech That Could Send The EV Boom Into Overdrive - 6th Dec 21
How Stagflation Effects Stocks - 5th Dec 21
Bitcoin FLASH CRASH! Cryptos Blood Bath as Exchanges Run Stops, An Early Christmas Present for Some? - 5th Dec 21
TESCO Pre Omicron Panic Christmas Decorations Festive Shop 2021 - 5th Dec 21
Dow Stock Market Trend Forecast Into Mid 2022 - 4th Dec 21
INVESTING LESSON - Give your Portfolio Some Breathing Space - 4th Dec 21
Don’t Get Yourself Into a Bull Trap With Gold - 4th Dec 21
GOLD HAS LOTS OF POTENTIAL DOWNSIDE - 4th Dec 21
4 Tips To Help You Take Better Care Of Your Personal Finances- 4th Dec 21
What Is A Golden Cross Pattern In Trading? - 4th Dec 21
Bitcoin Price TRIGGER for Accumulating Into Alt Coins for 2022 Price Explosion - Part 2 - 3rd Dec 21
Stock Market Major Turning Point Taking Place - 3rd Dec 21
The Masters of the Universe and Gold - 3rd Dec 21
This simple Stock Market mindset shift could help you make millions - 3rd Dec 21
Will the Glasgow Summit (COP26) Affect Energy Prices? - 3rd Dec 21
Peloton 35% CRASH a Lesson of What Happens When One Over Pays for a Loss Making Growth Stock - 1st Dec 21
Stock Market Sentiment Speaks: I Fear For Retirees For The Next 20 Years - 1st Dec 21 t
Will the Anointed Finanical Experts Get It Wrong Again? - 1st Dec 21
Main Differences Between the UK and Canadian Gaming Markets - 1st Dec 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

European Debt Dominoes Continue Top Tip! Immediate Steps to Avoid Losses …

Interest-Rates / Global Debt Crisis Jan 14, 2011 - 07:59 AM GMT

By: Mike_Larson

Interest-Rates

Best Financial Markets Analysis ArticleDo you remember Baghdad Bob from Gulf War II? He was the Iraqi minister of information who kept pledging that the U.S. was being routed and our troops were nowhere near Baghdad … even as they were marching through the streets. The colorful denials made for great entertainment.

Now the same theatre of the absurd process is playing out in many of Europe’s major capitals.


First Athens — and then Dublin — pledged they didn’t need a penny of aid from the European Union or European Central Bank. They said they could pay back their debt, no problem, even as their bond prices were plunging and interest rates were soaring. The bailout denials kept coming and coming … right until the fateful day when they threw in the towel and begged for the money!

Soon, the next domino in the chain is going to fall. Then the next after that. If you’re an investor exposed to the risk, you need to get out of the way.

I’ll tell you how in a minute. But first, let’s lay out the daisy chain of events to come …

Portugal Next; Then Belgium? Spain? Italy?

The focus this week has been on Portugal. The country’s deficit hit 9.3 percent of GDP in 2009, putting it just a few small steps behind bailout nations Ireland and Greece.

Meanwhile, its overall debt outstanding is closing in on 90 percent of GDP. Standard & Poor’s will likely soon cut its A- rating on Portuguese bonds, while Moody’s Investors Service could lower its rating a couple of levels.

In response, global bond investors are dumping the country’s bonds, driving borrowing costs higher. The government just auctioned off 650 million euros in three-year notes at a yield of 5.4 percent, up from 4.04 percent just last October. Its ten-year borrowing costs? Even higher — recently breaching the 7 percent mark.

Government officials have responded by trotting in front of cameras and microphones to deny they need any help. José Socrates, Portugal’s prime minister, said a few days ago:

“The country is doing its job and doing it well. Portugal will not request financial aid for the simple reason that it’s not necessary.”

Yet, at the same time, EU officials have continued to lay the groundwork for more bailouts. They’re openly talking about boosting the size of the 440 billion euro bailout fund to as large as one TRILLION euros!

Why so much? Because officials know that Portugal would NOT be the last domino to tumble!

Based purely on our analysis of the market’s own signals, the next likely candidates are countries like Belgium and Spain, or even Italy.

Indeed, Spanish bonds now trade at yields that are almost three full percentage points higher than benchmark German bonds, a clear signal that investors view them as much riskier.

European Debt Crisis Has Major Significance For Investors Like You!

Europe's troubles could punish investors worldwide.
Europe’s troubles could punish investors worldwide.

So how does this crisis impact you? What does it signal about OUR future and OUR markets?

First, if you own the debt of troubled European countries — directly or indirectly — you’re caught in a house of pain. One example: The benchmark 10-year note Portugal sold in early 2010 has lost almost 18 percent of its value from its April high.

My advice: Scrub your bond mutual funds and ETFs to make sure they do NOT own this lousy paper. Just look at the most recent quarterly report for details on their holdings.

Example: The iShares S&P/Citigroup International Treasury Bond Fund (IGOV) holds debt issued by Italy, Belgium, Spain, and Portugal, for instance.

Second, the euro itself is getting dragged down by the European debt crisis. So funds loaded down with any euro-denominated bonds — including those issued by Germany, France and others — are affected.

Example: American Century International Bond Fund (AIBRX) is one of the worst-performing international bond funds so far in 2011, losing more than 2.5 percent year-to-date. The culprit? Large holdings of German, Irish, Dutch, and Belgian bonds.

Third, the progression of the European bond crisis is similar to what we’re seeing in the U.S. municipal bond market. Just substitute overburdened, overindebted state names like Illinois, California, or New Jersey for the countries of Greece, Ireland, or Portugal.

If you own municipal debt issued by weaker U.S. states, you’re probably going to lose money as prices fall and yields rise. Get out while there’s still time!

One final note: The sovereign debt crisis has not YET risen to the level of a market-wide, systemic, crash-inducing event. But we have to keep our antennae up. If things spiral out of control, the equity markets could be in for a rough ride.

Fourth, while the debt crises are profit killers in Europe and the U.S., the massive money printing to offset these threats is generating huge profit opportunities elsewhere — in alternative investments like gold, emerging markets, and select currencies.

Until next time,

Mike

This investment news is brought to you by Money and Markets. Money and Markets is a free daily investment newsletter from Martin D. Weiss and Weiss Research analysts offering the latest investing news and financial insights for the stock market, including tips and advice on investing in gold, energy and oil. Dr. Weiss is a leader in the fields of investing, interest rates, financial safety and economic forecasting. To view archives or subscribe, visit http://www.moneyandmarkets.com.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in