Most Popular
1. It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- Gary_Tanashian
2.Stock Market Presidential Election Cycle Seasonal Trend Analysis - Nadeem_Walayat
3. Bitcoin S&P Pattern - Nadeem_Walayat
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
4.U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - Raymond_Matison
5. How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - Nadeem_Walayat
7.Bitcoin Gravy Train Trend Forecast 2024 - - Nadeem_Walayat
8.The Bond Trade and Interest Rates - Nadeem_Walayat
9.It’s Easy to Scream Stocks Bubble! - Stephen_McBride
10.Fed’s Next Intertest Rate Move might not align with popular consensus - Richard_Mills
Last 7 days
Stocks, Bitcoin and Crypto Markets Breaking Bad on Donald Trump Pump - 21st Nov 24
Gold Price To Re-Test $2,700 - 21st Nov 24
Stock Market Sentiment Speaks: This Is My Strong Warning To You - 21st Nov 24
Financial Crisis 2025 - This is Going to Shock People! - 21st Nov 24
Dubai Deluge - AI Tech Stocks Earnings Correction Opportunities - 18th Nov 24
Why President Trump Has NO Real Power - Deep State Military Industrial Complex - 8th Nov 24
Social Grant Increases and Serge Belamant Amid South Africa's New Political Landscape - 8th Nov 24
Is Forex Worth It? - 8th Nov 24
Nvidia Numero Uno in Count Down to President Donald Pump Election Victory - 5th Nov 24
Trump or Harris - Who Wins US Presidential Election 2024 Forecast Prediction - 5th Nov 24
Stock Market Brief in Count Down to US Election Result 2024 - 3rd Nov 24
Gold Stocks’ Winter Rally 2024 - 3rd Nov 24
Why Countdown to U.S. Recession is Underway - 3rd Nov 24
Stock Market Trend Forecast to Jan 2025 - 2nd Nov 24
President Donald PUMP Forecast to Win US Presidential Election 2024 - 1st Nov 24
At These Levels, Buying Silver Is Like Getting It At $5 In 2003 - 28th Oct 24
Nvidia Numero Uno Selling Shovels in the AI Gold Rush - 28th Oct 24
The Future of Online Casinos - 28th Oct 24
Panic in the Air As Stock Market Correction Delivers Deep Opps in AI Tech Stocks - 27th Oct 24
Stocks, Bitcoin, Crypto's Counting Down to President Donald Pump! - 27th Oct 24
UK Budget 2024 - What to do Before 30th Oct - Pensions and ISA's - 27th Oct 24
7 Days of Crypto Opportunities Starts NOW - 27th Oct 24
The Power Law in Venture Capital: How Visionary Investors Like Yuri Milner Have Shaped the Future - 27th Oct 24
This Points To Significantly Higher Silver Prices - 27th Oct 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Clear Signals That Market Risk Is Elevating

Stock-Markets / Financial Markets 2010 Aug 21, 2010 - 12:49 PM GMT

By: Bryan_Rich

Stock-Markets

Best Financial Markets Analysis ArticleIt’s no secret the economic data in the U.S. and other major economies have rolled over. That’s why bond yields have taken another nose dive — hitting record lows in Germany and nearing record lows in the U.K., the U.S. and Japan, as shown in the chart below.


The bond market is telling you directly …

“Forget the thoughts of recovery and hunker down for more economic pain and crisis.”

chart Clear Signals That Market Risk Is Elevating

While most of the banter through the latter part of 2009 was about an imminent run-in with inflation, the reality is, without demand, there’s no inflation!

Deleveraging is keeping demand depressed, making deflation the big threat. Indeed, especially given the world’s bloated debt problem.

The last thing you want when you’re saddled with debt is deflation. In a deflationary environment, money increases in value, but it’s much harder to come by. So those with debt tend to have a more difficult time servicing that debt.

That doesn’t bode well for economies that have recently been exposed as “at risk” of default.

When you put the pieces of the puzzle together, it seems clear that the sovereign debt problems that served as a warning signal in the first half of this year will end in government bond defaults and currency devaluations.

That’s why, even as the global financial market’s attention to those threats has calmed in recent months, it’s particularly important to keep a close eye on the developments that will re-elevate the status of the sovereign debt crisis. And Europe remains the home to the most vulnerable.

So now, let’s take a look at five, recent key developments that translate into elevated risk for all investors …

Elevated Risk #1: Hungary

Hungary isn’t part of the euro. But European banks own a lot of Hungarian debt, and much of it is denominated in euros and Swiss francs. Therefore, when the Hungarian forint weakens against the euro and Swiss franc, the debt gets harder for Hungarian borrowers to pay.

With that in mind the outlook for stability in the country’s finances has deteriorated.

PM Orban said the Hungarian public has had enough of belt-tightening.
PM Orban said the Hungarian public has had enough of belt-tightening.

Hungary was an early recipient of an IMF/European bailout, taking EUR20 billion in 2008 to help avert a default. Now, the Hungarian government has pushed back on the fiscal tightening requirements for IMF funding …

In fact, Hungary hasn’t met the criteria that came with the funding, and has made it clear that it isn’t willing to try. With that in mind, just two months ago the spokesman for the prime minister warned that Hungary was another Greece — in danger of default.

Elevated Risk #2: Ireland

Last week Irish government bond yields returned to a near extreme spread against German yields. The reason: Anglo Irish Bank, which is already nationalized, needs another EUR 20+ billion from the Irish government.

The market is again bidding up the credit default swaps on Irish banks and yields on Irish government debt. Recently the government had to pay-up for a short term debt offering, to the tune of 76 percent more than it did for a similar offering just three weeks prior — nearly double the yield!

Elevated Risk #3: Greece

Greece reported Q2 GDP — down 3.5 percent annualized. The goal in Greece has been to reduce its grossly bloated deficit-to-GDP ratio. And they’ve taken tough austerity measures to address the numerator in that ratio. But consider how much more challenging it becomes when the denominator in the ratio (GDP) keeps declining — one feeds the other.

Moreover, the civil unrest in Greece seems on a path to explode. The reports from the streets read like something out of the Great Depression.

Elevated Risk #4: Slovakia

Slovakia’s parliament decided they didn’t want to provide their share of aid for Greece, an early sign of how the euro zone’s attempt at solidarity will likely play out — a failure.

Elevated Risk #5: Uneven Euro-Zone Economic Performance

The German central bank this week raised its estimates for 2010 growth from 1.9 percent to 3 percent. I wonder how that sits with its austerity-laden neighbors to the south. As time passes expect the political fallout to build.

Germany is in much better shape than other euro-zone members.
Germany is in much better shape than other euro-zone members.

Sure, it may seem like these threats have already been handled. The European Financial Stability Facility and the ECB’s involvement in the euro zone government bond markets have given a reason to conclude that the problems in Europe have been solved …

But when push comes to shove, we’ll likely find that all of the $1 trillion worth of promises made to stabilize confidence in Europe won’t materialize. And we’ll see the weak countries that are living with tough austerity and the strong countries that have committed to transfer tax payer monies to the fiscally less responsible saying “no more.”

In sum, any one of these rising risks could become the catalyst for another round of sovereign debt fears — which could easily turn into debt defaults and contagion, making safety and preservation of capital the priority.

Regards,

Bryan

P.S. For more news on what’s going on in the currency markets, be sure to check out my blog, Currencies Corner. You can follow me on Twitter, too, and get notified the moment I post a new message. 

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.


© 2005-2022 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