The Return of the Sovereign Debt Crisis

04/07/11 Laguna Beach, California – The US stock market continued whistling past the graveyard yesterday, as the Dow Jones Industrial Average added 33 points to 12,427 – its highest closing level in nearly three years.

Sure, the US economy is showing signs of life, but these signs seem like mere weeds atop a mass grave of government stimulus efforts. Even from a distance – say, from wherever you may be to Washington, DC – you can almost smell the rotting of government finances.

The stench is unavoidable. The smell of dying welfare states fills the air, whether you be in Athens, Sacramento, Tokyo or Lisbon. As the weakest of welfare states drifts off toward that “dark night,” the world’s equity markets seem not to care.

The looming threats of a government shutdown here at home and/or a Portuguese default over in Europe are mere footnotes alongside an “upside earnings surprise” at Bed, Bath and Beyond…at least for now.

But investors do well to remember that dying enterprises – and the fatally flawed securities they issue – do not degrade in an instant. Decomposition takes time…sometimes much longer than most folks would imagine.

A little over one year ago, your California editor speculated that the Greek debt crisis of early 2010 would become a much larger phenomenon that would play out very much like the subprime-cum-Lehman-Bros.-cum-national crisis of 2007 and 2008.

In a speech early last year, he remarked, “Everyone thinks Greece will pull out of its mess with austerity measures and German bailouts. I’m not so sure about either assumption…

“Greece’s finances are not unique; they are emblematic. Sovereign borrowers are out of control. Greece is just an icon for all of Europe, and also the US.

“So I view Greece as the Bear Stearns of the upcoming sovereign debt crisis. You may recall that in June, 2007, Bear Stearns stepped in to bail out two of its own hedge funds by pledging collateral for a $3.2 billion loan.

“Nine months later, in March, 2008, JP Morgan Chase took over a functionally bankrupt Bear. And at that point most of the official Wall Street elite believed that the crisis had been averted.

“But six months later, on September 15, 2008, Lehman Bros. filed for bankruptcy. And the rest is history. It is amazing to remember that 15 months elapsed between the first [overt] signs of difficulty in the US financial sector and Lehman’s bankruptcy. So mark your calendars; the Sovereign debt crisis should unfurl by May 2011 – that would be about 15 months after the initial headlines about Greece.”

Thus far, your editor’s prediction seems largely misguided. After roughly 14 months into this potential crisis, there isn’t one. Most European equity markets are buoyant and the euro hovers near a 15-month high against the dollar.

“Portugal’s request for a bailout could mark the moment that Europe finally contained its debt crisis,” the Associated Press triumphantly proclaimed this morning. “Unlike previous bailout requests, Portugal’s has not been greeted by a chorus of concern in financial markets over which country will be next.”

Despite this seeming calm, your editor is not prepared to abandon his “crisis timeline” just yet. Some intriguing parallels are developing between the current troubles in Europe and the US crisis of 2008.

For starters, note the strikingly similar trajectory of the Portuguese 5-year credit default swaps during the last 14 months compared to the Goldman Sachs 5-year credit default swaps from early 2007 through September 2008. [Simply stated, credit default swaps are “default insurance.” Hence, their prices rise as the prospect of a default rises].

Both the Portuguese and Goldman CDS prices trended jaggedly upwards, reflecting increased anxiety, but no panic. Then, in the case of Goldman Sachs, anxiety became panic overnight, on the days following the Lehman bankruptcy.

Perhaps a similar fate is in store for the sovereign debt markets of Europe…and for the euro itself.

“Given how the crisis has unfolded over the course of the last few years, we struggle to see that the activation of help for Portugal will mark the end of contagion,” says Nick Matthews, senior European economist at the Royal Bank of Scotland. “We therefore remain of the view that countries with high private and sovereign debt will remain at the mercy of further loss in market confidence.”

Amen.

Despite the so-called containment of the Portuguese government’s insolvency, Portuguese banks publicly refused yesterday to purchase any additional government bonds. Meanwhile, no one anywhere on the European continent can say what size or structure of bailout Portugal may or may not receive.

And even after receiving a lifeline, Portugal would still face capital markets that will demand usurious rates of interest to provide any capital whatsoever. This story is not over, folks.

Widespread sovereign insolvency, combined with the stench of decaying government finances, may not be immediately bearish for the financial markets, but we doubt they are bullish.

Eric Fry
for The Daily Reckoning

Eric J. Fry, Agora Financial’s Editorial Director, has been a specialist in international equities for nearly two decades. He was a professional portfolio manager for more than 10 years, specializing in international investment strategies and short-selling.  Following his successes in professional money management, Mr. Fry joined the Wall Street-based publishing operations of James Grant, editor of the prestigious Grant's Interest Rate Observer. Working alongside Grant, Mr. Fry produced Grant's International and Apogee Research —  institutional research products dedicated to international investment opportunities and short selling. 

Mr. Fry subsequently joined Agora Inc., as Editorial Director. In this role, Mr. Fry  supervises the editorial and research processes of numerous investment letters and services. Mr. Fry also publishes investment insights and commentary under his own byline as Editor of The Daily Reckoning. Mr. Fry authored the first comprehensive guide to investing internationally with American Depository Receipts.  His views and investment insights have appeared in numerous publications including Time, Barron's, Wall Street Journal, International Herald Tribune, Business Week, USA Today, Los Angeles Times and Money.

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Japan Earthquake, Tsunami and Nuclear Crisis Facts and Figures

It has now been three weeks since the devastating earthquake and tsunami in Japan. Here are the latest facts and figures on the crisis, culled from official sources via Relief Web.

Casualties:

According the government of Japan: The number of deaths is 12,087, the number of the injured is 2,876, and the number of missing is 15,552.  The number of those evacuated is approximately 206,400.

International Response

From the government of Japan:

So far, rescue and medical support teams from 20 countries and regions (Australia, China, France, Germany, India, Indonesia, Israel, Italy, Mexico, Mongolia, New Zealand, the ROK, Russia, Singapore, South Africa, Switzerland, Taiwan, Turkey, the U.K., the U.S.) as well as and the UNOCHA, an IAEA expert team, and the WFP have arrived Japan and have been operating in disaster-stricken areas. (The list includes countries and regions which have already left the site.) Surveys have been conducted by UN organizations and other institutions related to disaster relief. As of March 31, Japan has received relief goods from 29 countries/regions and international organizations.

Nuclear Crisis:

From the World Health Organization:

Is there a risk of radioactive food contamination?

-Yes, there is a risk of exposure as a result of contamination in food.
-However, contaminated food would have to be consumed over prolonged periods to represent a risk to human health.
-The presence of radioactivity in some vegetables and milk has been confirmed and some of the initial food monitoring results show radioactive iodine detected in concentrations above Japanese regulatory limits. Radioactive caesium has also been detected.
-Local government authorities have advised residents to avoid these food and have implemented measures to prevent their sale and distribution.

From the International Atomic Energy Agency:

Overall at the Fukushima Daiichi plant, the situation remains very serious.

On 2 April, transferring of water from the Unit 1 condenser storage tank to the surge tank of the suppression pool was completed in preparation for transferring water in the basement of the Unit 1 turbine building to the condenser. Also, on 2 April transferring of water from the Unit 2 condenser storage tank to the surge tank of the suppression pool was started in preparation for transferring water in the basement of the Unit 1 turbine building to the condenser…

Radiation Monitoring

On 2 April, deposition of iodine-131 was detected in 7 prefectures ranging from 4 to 95 becquerel per square metre. Deposition of cesium-137 in 6 prefectures was reported on 2 April ranging from 15 to 47 becquerel per square metre. Reported gamma dose rates in the 45 prefectures showed no significant changes compared to yesterday.

Most of the previously imposed recommendations for restrictions on drinking water have been lifted. As of 2 April, one recommendation for the restriction based on iodine-131 concentration was in place in one village in the Fukushima prefecture, which applied for infants only. Meanwhile, also in this village, the iodine-131 level in drinking water has dropped below 100 becquerel per litre, which is the recommended restriction level for intake by infants. The restriction is still in place as a precautionary measure of the local authority.

Currently, one IAEA monitoring team is working in the Fukushima region. On 2 April, measurements were made at 7 locations at distances of 32 to 62 km, North and Northwest to the Fukushima nuclear power plant. The dose rates ranged from 0.6 to 4.5 microsievert per hour. At the same locations, results of beta-gamma contamination measurements ranged from 0.09 to 0.46 megabecquerel per square metre.

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Cote d’Ivoire: From Protracted Crisis to Fast-Moving Conflict

Over the last few months, Côte d’Ivoire has been stuck in a seemingly intractable conflict pitting two contenders to power and their supporters. Observers have been looking on with nervous anticipation as Laurent Gbagbo, the incumbent president who refuses to cede power, schemed and pulled every string to hang on to the presidency. The past week has seen the conflict escalate, as the situation is rapidly deteriorating.

Between December 2010 and March 2011, there had been about 500 (confirmed) casualties of violence in Côte d’Ivoire. Late last week, though, the International Committee of the Red Cross is reporting that 800 people were killed in “intercommunal violence” in the western town of Duekoue, very near the border with Liberia. Allegedly, this massacre – referred to by Africa analyst Prof. Laura Seay  as “Côte d’Ivoire’s Srebrenica” -  was carried out by pro-Ouattara forces, who have been steadily advancing, and taking over key parts of the country. Alassanne Ouattara, however, denied his forces were involved and has called for an investigation into what happened at Duekoue.

This terrible massacre, and the gains made by pro-Ouattara forces – who are now in Abidjan, trying to get Gbagbo to surrender – have suddenly caused mainstream, international media to turn their attention to the conflict. Many – including UN Dispatch managing editor Mark Goldberg – believe that this is Ggabgo’s “end game.” While pro-Ouattara forces swiftly took over key positions in the country, they are now encountering resistance from security forces loyal to Gbagbo. He retains control of the official TV station and radio, which continue to send the message that all is well and that Gbagbo has no intention of leaving his post. The presidential palaces are also under Gbagbo’s forces control.

Last week, France approved 300 additional troops to reinforce Operation Licorne, bringing total troops to about 1,400. Currently, the airport in Abidjan is controlled by UN and French forces, while the UN is evacuating all of its “essential” personnel — “non-essential” personnel has already been evacuated months ago.

A key battle for Abidjan has begun, and it’s very difficult to predict how exactly this will end. If history is any guide, we can look at how the second Liberian civil war came to an end in 2003: a protracted siege of Monrovia by rebel forces, ongoing peace negotiations in Ghana and support (both military and political, by the end) of the U.S. and the physical removal of Charles Taylor were responsible for ending the conflict.

The siege of Abidjan, the country’s seat of power (even though Abidjan is not the official capital of Côte d’Ivoire, it is the political and economic heart of the nation) by pro-Ouattara forces moves this crisis from conflict to civil war. The longer the siege lasts, the more the population will suffer and the worst the humanitarian consequences. As we noted here recently, the human rights situation in Abidjan is perilous.

What is happening now in Côte d’Ivoire is the result of unsuccessful diplomacy efforts and negotiations led by regional organizations ECOWAS and the African Union, which, after the other, failed to find solutions. It’s also a failure of the broader international community. The United Nations Security Council, France, the U.S, the European Union have all been “condemning” the violence, and repeatedly asked Ggabgo to step down. International organizations – including the West African Central Bank – cut funding. In spite of all these efforts, the conflict has escalated out of control. Tens of thousands of lives are at risk, and we really have no idea just how bad this conflict will get before it gets better.

If you’re on Twitter, you can follow updates and news about the conflict with the hashtag #civ2010 and through our feed, @undispatch. @dickinsonbeth (Foreign Policy), @hardingbbc (BBC), @texasinafrica, @baldaufji (Christian Science Monitor) are also excellent resources and have been aggregating links and information through their Twitter streams.

***

Photo credit: UK Department of International Development’s Flickr Stream

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Ireland Banking Crisis Cost Grows: Another $ 34 Billion from Irish Taxpayers Required

According to the Central Bank of Ireland, the cost of bailing out the Irish banks from the cost of their reckless business  decisions has increased by another $34 billion, on top of approximately $65 billion already spent. This news coincided with Fitch announcing another downgrade on Irish government debt. The current bill Irish taxpayers are being forced to swallow for covering the cost of the follies of the bankers is now a staggering seventy billion euros, or more than $100 billion dollars.

Hank Calenti, responsible for bank credit research at Societe Generale, said it will take another twenty years for the Irish people to pay off the money borrowed by Dublin to cover the cost of the decision by the Irish government to guarantee all the financial obligations of the private banks in the country. This means that every man, woman and child currently living in the Irish Republic is responsible for more than $20,000 in loan repayments to save their banking elite from the cost of their mistakes. Instead, it is the Irish people who will cover the losses, without any vote or input on the matter. Thus, in the wake of the global financial and economic crisis of 2008, this is what passes for Western democracy.

 

global economic crisis Hank Calenti, ireland bailout, irish banking crisis, Societe Generale

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Japan Earthquake, Tsunami And Nuclear Crisis Facts and Figures

The latest update from the UN Office for the Coordination of Humanitarian Affairs:

Casualties: 27,600 dead or missing

As of the 30 March, the official death toll from the 11 March  earthquake and tsunami that devastated the northeast  coast of Japan now stands at 11,257. Another 16,344  people remain missing.

Displacement

There are now 173,200 people  living in more than 2,000 evacuation centres  in 17  prefectures mostly in the north of Japan.  In the three worst  affected prefectures, Miyagi, Iwate and  Fukushima,  146,628 evacuees are living in some 1,245 evacuation centres.

Transportation Infrastructure:

The Ministry of Land, Infrastructure and Transport reports that more than 90 per cent of the Tohoku region’s main land, sea and air routes  are  open.  More than 37,200 vehicles are now passing through the Tohoku  Expressway per day, which is 1.3 times more traffic than before the disaster struck. All 15 ports and most  airports are now open. Railway lines are still under repair. Express buses are carrying 4,400 people per day  into and out of the region which is more than twice as many passengers than before the disaster. However,  roads in the affected cities and towns  are  still damaged or blocked with debris and this is  hampering the  delivery of aid  to  the many  smaller evacuation centres. Relief items are  being  delivered on foot in some  places.

Electricity:

An estimated 190,000 households (492,000 people) remain without electricity. Another 330,000 households  (936,000 people) are without gas supplies. Water availability has improved by about 25 per cent in the last  few days. Currently, 372,000 households (913,000 people) are still without water in nine prefecture.

Nuclear Crisis:

Radioactive water found in and outside reactor buildings is delaying work to restore cooling functions of the  Fukushima Daiichi nuclear power plant. Seawater near the Fukushima Daiichi nuclear plant has reached a  much higher level of radiation than previously reported. New readings from a sample of sea water found  radioactive iodine at 3,355 times the legal limit. Japan’s Nuclear Safety Agency says this does not pose a  health risk. The Government says it is  expected to take a considerable amount of time before the  temperatures of fuel rods in the reactor cores at the power station are lowered to a stable state. The International Atomic Energy Agency says the situation at the Fukushima Daiichi plant remains very  serious. A Joint FAO/IAEA Food Safety Assessment Team met with local government authorities in Ibaraki  Prefecture on Monday who  briefed the  team  on the extent of contamination in Ibaraki, the principle  agricultural products affected, the main production areas and production methods and levels of  contamination found. The FAO/IAEA  team also meet with the local authorities in Tochigi  Prefecture  yesterday, and will meet with local government officials in Gunma today.

U.S. Military Response:

Since Operation Tomodachi started US Military forces have delivered more than 185 tons of food, 3,638,184 gallons of water and 17,836 gallons of fuel, in support of Japan Self Defense Force efforts.  Currently, 19 ships, 133 aircraft and 18,165 personnel of the 7th Fleet are operating in support of the Operation to assist Japan.  Since Operation Tomodachi started, U.S. 7th Fleet forces have delivered more than 240 tons of  humanitarian assistance supplies to tsunami and earthquake areas.

View the original article here

Japan Earthquake, Tsunami And Nuclear Crisis Facts and Figures

The latest update from the UN Office for the Coordination of Humanitarian Affairs:

Casualties: 27,600 dead or missing

As of the 30 March, the official death toll from the 11 March  earthquake and tsunami that devastated the northeast  coast of Japan now stands at 11,257. Another 16,344  people remain missing.

Displacement

There are now 173,200 people  living in more than 2,000 evacuation centres  in 17  prefectures mostly in the north of Japan.  In the three worst  affected prefectures, Miyagi, Iwate and  Fukushima,  146,628 evacuees are living in some 1,245 evacuation centres.

Transportation Infrastructure:

The Ministry of Land, Infrastructure and Transport reports that more than 90 per cent of the Tohoku region’s main land, sea and air routes  are  open.  More than 37,200 vehicles are now passing through the Tohoku  Expressway per day, which is 1.3 times more traffic than before the disaster struck. All 15 ports and most  airports are now open. Railway lines are still under repair. Express buses are carrying 4,400 people per day  into and out of the region which is more than twice as many passengers than before the disaster. However,  roads in the affected cities and towns  are  still damaged or blocked with debris and this is  hampering the  delivery of aid  to  the many  smaller evacuation centres. Relief items are  being  delivered on foot in some  places.

Electricity:

An estimated 190,000 households (492,000 people) remain without electricity. Another 330,000 households  (936,000 people) are without gas supplies. Water availability has improved by about 25 per cent in the last  few days. Currently, 372,000 households (913,000 people) are still without water in nine prefecture.

Nuclear Crisis:

Radioactive water found in and outside reactor buildings is delaying work to restore cooling functions of the  Fukushima Daiichi nuclear power plant. Seawater near the Fukushima Daiichi nuclear plant has reached a  much higher level of radiation than previously reported. New readings from a sample of sea water found  radioactive iodine at 3,355 times the legal limit. Japan’s Nuclear Safety Agency says this does not pose a  health risk. The Government says it is  expected to take a considerable amount of time before the  temperatures of fuel rods in the reactor cores at the power station are lowered to a stable state. The International Atomic Energy Agency says the situation at the Fukushima Daiichi plant remains very  serious. A Joint FAO/IAEA Food Safety Assessment Team met with local government authorities in Ibaraki  Prefecture on Monday who  briefed the  team  on the extent of contamination in Ibaraki, the principle  agricultural products affected, the main production areas and production methods and levels of  contamination found. The FAO/IAEA  team also meet with the local authorities in Tochigi  Prefecture  yesterday, and will meet with local government officials in Gunma today.

U.S. Military Response:

Since Operation Tomodachi started US Military forces have delivered more than 185 tons of food, 3,638,184 gallons of water and 17,836 gallons of fuel, in support of Japan Self Defense Force efforts.  Currently, 19 ships, 133 aircraft and 18,165 personnel of the 7th Fleet are operating in support of the Operation to assist Japan.  Since Operation Tomodachi started, U.S. 7th Fleet forces have delivered more than 240 tons of  humanitarian assistance supplies to tsunami and earthquake areas.

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Japan... ‘Maximum Alert’!... Over Fukushima Nuke Crisis... Head of TEPCO Vanishes!

Workers at the Fukushima nuclear power plant are working in overdrive, attempting to stop the spread of radioactive materials into the ocean as well as avoid a full scale meltdown. ~ Alex Thomas

In a startling development, Crews found traces of plutonium in the soil outside of the Fukushima Dai-ichi nuclear complex on Monday, but officials continued to insist there was no threat to public health. Plutonium is highly dangerous and has raised the level of fear tenfold.

Worried? Apparently at least one person now believes that Plutonium is actually good for human health!

Plutonium, one of the most feared radioactive substances on earth, may in fact enhance human health, according to unexpected new findings published in the journal, Health Physics, wrote Lawrence Solomon in the Financial Post.

Japanese Prime Minister Naoto Kan rttnews.com has stated that Japan is on Maximum Alert and the situation remains unpredictable and ever changing.

Multiple embassies in Japan have started to pass out potassium iodide tablets as a precautionary measure. These tablets are being distributed in a 250km radius yet Japanese officials continue to claim that potassium iodide is only needed within the 20km evacuation zone.

The difference in opinion between the Japanese government and Foreign embassies is so huge that it seems impossible that Japan is not covering up the extent of this disaster.

“The recommendation by the Swedish Radiation Safety Authority that all Swedes who are staying within a radius of 250 km from the Fukushima No. 1 power plant to take iodide tablets every three days is still valid,” the embassy’s website, last updated Saturday, says. “Best protection against radioactive iodine is to take iodide tablets before the exposure, as doing so afterward will prove too late,” reported The Japan Times.

Officials with TEPCO are also facing a major dilemma. They need to cool the reactors with water but at the same time keep the water from contaminating the ocean with toxic radioactive materials.

“TEPCO is in an awful dilemma right now,” said Jim Walsh, an international security expert at the Massachusetts Institute of Technology. “One the one hand, they want to cool the reactor and keep the reactor cool, so they have to pour water in. If there is a leak in one of the containment vessels, that water keeps leaking out. So they have a problem where the more they try to cool it down, the greater the radiation hazard as that water leaks out from the plant,” reported the CNN Wire Staff.

Fox News is reporting that TEPCO officials have LOST the battle to save one of the damaged reactors at the Fukushima nuclear power plant.

“The indications we have, from the reactor to radiation readings and the materials they are seeing, suggest that the core has melted through the bottom of the pressure vessel in unit two, and at least some of it is down on the floor of the drywell,” Lahey told the Guardian.

Meanwhile the Head of TEPCO has all but vanished since a 9.0 earthquake and tsunami devastated Japan on March 11th. He was last seen on the 13th which has led many to speculate that he has left the country.

Amid rumors that Shimizu had fled the country, checked into a hospital or committed suicide, company officials said Monday that their boss had suffered an unspecified “small illness” because of overwork after a 9.0-magnitude earthquake sent a tsunami crashing onto his company’s Fukushima Daiichi nuclear power plant, reported the Washington Post.

There is no way to tell if Shimizu is actually in Tokyo due to the fact that no one has actually seen him.

Officials in the United States have continued to claim that the levels found in the U.S. are no worse then background radiation, ignoring the simple fact that most of these radioactive particles do not normally occur in the atmosphere at all.

Radiation from Japan N-plant reaches Britain

Alex Thomas - March 29, 2011 - IntelHub

Submitted by SadInAmerica on Tue, 03/29/2011 - 7:01pm.

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White House Economists Predict Crisis to “DWARF” 2008!

I have great confidence in mankind’s ability to ultimately overcome even the most extreme of challenges. But at this juncture, America has yet to begin that arduous process. We live an unrealistic lifestyle on borrowed money and borrowed time.

That’s why, we have long been warning you about a looming crisis with the power to crush the U.S. economy. Unless Washington makes a 180-degree turn, we face a catastrophe that could end our way of life as we know it.

Now, just as we predicted, America’s massive debt crisis is exploding into the headlines. Our warnings — the same ones for which we were scoffed at earlier — are now being echoed by many among the political elite.

And on Thursday, no fewer than TEN former members of the White House Council of Economic Advisers — including President Obama’s former top economic adviser Christina Romer — added their voices to those warning of a looming economic catastrophe.

In an editorial published by Politico, the bipartisan group warned that unless the White House and Congress slash the federal deficit, bond investors are likely to turn on the United States, triggering an economic crisis that could — again, I quote — “DWARF 2008.”

Consider that for a moment: In 2008, Wall Street came within a whisker of a financial meltdown. Financial monoliths like Citigroup and Bank of America nearly went bust. And Lehman — one of the giants of Wall Street — simply ceased to exist.

Now, these top economists and Congressmen are saying, in effect, “That was NOTHING. Just wait until you see what happens NEXT!”

For the last week, I’ve been renewing my warnings to you nearly every day. I’ve told you that unlike the credit crisis that triggered the last major stock market collapse …

The “Fiscal Armageddon” that could “dwarf 2008? will be intensely personal. Millions of Americans will face the specter of lost incomes … lost savings … lost buying power … lost homes … lost liberty.

I detail the three massive crises — all converging in this time frame — that are capable of changing history: What you must do to protect your family and your finances before it’s too late.

I reveal the infuriating reason why you could find yourself paying more than $11 for a gallon of gasoline and over $10 for a gallon of milk. And I show you how to protect your family’s financial security with investments designed to nearly quintuple your money as this crisis unfolds.

I document why you could soon see interest rates exploding into double digits … your Social Security and Medicare benefits slashed … even riots in the streets. PLUS I tell you about the self-defense investments that could triple, quadruple and more.

I drop a huge bombshell on America’s banks — why more than 2,000 of them are now vulnerable to this crisis. And I describe the $51 investment with the power to nearly quintuple your money when the dominoes fall.

And I give you the details on why thousands of U.S. stocks are now as vulnerable as toy balloons in a room full of RAZOR BLADES. Plus I tell you about the investments that could make you 134.4% richer if a decline happens in the next 12 months … and 155.4% richer if it comes sooner.

Good luck and God bless!

Martin

Dr. Weiss began his career in 1971 when he founded Weiss Research, dedicated to evaluating the safety of financial institutions and investments for consulting clients.  He is the publisher and contributing editor of the financial newsletter, Safe Money, known for its track record in picking major turns in interest rates, and serves as co-editor for a number of Premium Services. He is also the author of The Ultimate Safe Money Guide and The Ultimate Depression Survival Guide.

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Portugal Faces Severe Fiscal and Economic Crisis as Eurozone Sovereign Debt Fears Grow

The weakest links in the Eurozone chain are known as the PIIGS. This acronym represents five fiscally vulnerable members of the European monetary union: Portugal, Ireland, Italy, Greece and Spain. Already, two of the five members of this august club have capitulated to the dismal reality of their public finances and are receiving a Eurozone bailout, which comes from a fund consisting of borrowed money, borrowed that is by slightly less indebted Eurozone partners. Now, it would appear, Portugal is likely to be the third affiliate of the PIIGS to get a bailout.  Portugal’s Prime Minister Jose Socrates has resigned after Lisbon’s parliament rejected his proposed austerity package. Socrates claimed that Portugal did not need financial aid, and could resolve its fiscal problems through its own austerity measures. That hope appears now to have been abandoned, and the expectation is that Lisbon will soon come crawling for a bailout, as the spread on its bonds gets ever wider.

Standard & Poor’s, S & P and Fitch have all severely downgraded their ratings on Portuguese government debt. In the meantime, a new government in Ireland is stating that it wants to negotiate a less severe austerity package than the one accepted by the previous Dublin government in exchange for a Eurozone and IMF bailout. As Portugal wobbles, Ireland confounds while continuing to bankrupt its citizens as the price for bailing out its reckless banks. In the meantime, the Greek economy is deflating, making it ever more likely that Athens will eventually default on its public debt. That still leaves the two biggest PIIGS without a bailout.

After Portugal, Spain is the next likely candidate for the bond vigilantes. The most significant problem with Spain is that it is so much larger an economy than the previous candidates for a bailout, it is unlikely that the Eurozone and its already indebted taxpayers could sustain the massive public borrowing required to rescue Madrid from its own fiscal follies.

The sovereign debt crisis in the Eurozone is spinning out of control. And not far behind in entering  this vortex of doom is the United Kingdom, which despite massive public spending cuts retains an unsustainable deficit as its economy contracts. And then there is the United States, with a national debt now virtually at parity with its annual GDP, and projected  to have a record deficit in the current fiscal year, exceeding ten percent of its annual GDP.

In my book, “Global Economic Forecast 2010-2015: Recession Into Depression,” I predict that by 2012 a massive sovereign debt crisis in the major advanced economies will plunge the world into a global economic depression. All the recent developments regarding fiscal issues in the Eurozone, UK and U.S. do not give me any reason to alter my forecast.

 

global economic crisis euozone debt crisis, portugal debt crisis, Prime Minister Jose Socrates, sovereign debt crisis

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Will Financial Problems In Portugal Cause The European Debt Crisis To Spiral Out Of Control?

Most Americans have no idea just how bad the financial problems over in Europe are right now.  The truth is that the entire European financial system is teetering on the brink of disaster.  Ireland and Greece have already received bailouts and Portugal, Spain, Italy, France and Belgium are all drowning in an ocean of unsustainable debt.  Sovereign credit ratings all over Europe have being slashed in recent months.  For example, a while back Moody’s Investors Service cut Ireland's bond rating by five levels.  Up until now Europe has weathered all of this financial instability fairly well, but now huge new financial problems in Portugal threaten to send the European debt crisis spinning out of control.

The Prime Minister of Portugal, Jose Socrates, resigned on Wednesday after the major opposition parties banded together to vote down the austerity measures that he was requesting.  The package of budget cuts and tax increases was intended to get Portugal's horrible debt crisis under control.  Prior to the vote, the prime minister warned that  he would no longer be able to run the country if the austerity package was not passed.

Now there are all kinds of questions about what is going to happen to Portugal.  At this point most financial authorities in Europe seem to be assuming that Portugal is going to need a bailout.

Today, Standard & Poor's reduced the credit rating of long-term Portuguese government debt from "A-" to "BBB".  Standard & Poor's is also warning that the credit rating may be cut further if negotiations for a bailout do not go well.

Without a bailout, it seems almost certain that Portugal will default.

Interest rates on Portuguese government debt have risen to unsustainable levels.  The yield on 10-year Portuguese bonds hit 7.78% on Friday.  That was the highest it has been since Portugal joined the euro.

Authorities in Portugal are publicly saying that they simply cannot afford to pay that kind of interest.  Unfortunately for them, it appears that Portugal is going to be forced to issue more bonds by June at the very latest.

So how much would a bailout of Portugal cost?

Well, according to one estimate, it would probably be in the neighborhood of 70 billion euros.

That isn't going to sink Europe.

However, the concern is that the crisis in Portugal could have a domino effect.

There is increasing worry in Europe that Portugal's neighbor, Spain, could also need a bailout.  But a bailout of Spain would potentially be so large that it would cause a financial nightmare for Europe.

The following is how a recent article in the Wall Street Journal sized up the problem....

Portugal's admission that it will probably need a financial bailout raises a question that will shape the outcome of the euro zone's debt crisis: Is Spain next?

The cost of saving Spain, a €1.1 trillion ($1.56 trillion) economy, would dwarf previous bailouts and could test the financial strength of Europe as a whole.

The truth is that the rest of Europe simply does not have the kind of financial muscle necessary to continue putting together huge bailouts indefinitely.  If Spain does go down, it is going to put a massive amount of strain on the rest of the continent.

There are other financial problems simmering in Europe right now as well.

According to a recent Business Insider article, the financial problems in Ireland are also creating a lot of concern at the moment....

Ireland's banks are likely to need another $39 billion in support, which would use up 80% of its current bailout funds.

Ireland is a financial basket case right about now.  Confidence in Irish debt is rapidly evaporating.  In fact, the yield on 10-year Irish bonds recently hit 10.12%.

Ouch!

But that is nothing compared to what Greece is being forced to pay.

The yield on 10-year Greek bonds recently reached an astounding 12.58%.

There are persistent rumors that Greece is going to need yet another bailout.  The truth is that Germany and the other European nations that are coming up with the cash for these bailouts are just pouring their money into financial black holes.

Nations like Greece and Ireland are just money pits at this point.

As I have written about previously, the financial collapse of Europe has basically become inevitable.  The EU can keep coming up with bailout plan after bailout plan, but they are only putting off the crash for a while.

Eventually a point will come when all of the balls simply cannot be kept up in the air anymore.

So what is going to happen once that point is reached?

Well, many believe that we could actually see the end of the euro and potentially even the break up of the European Union.

Of course top politicians in Europe will fight tooth and nail to keep that from happening, but the truth is that at some point we are going to see some incredibly challenging financial problems in Europe.  How the EU responds to the crisis is going to be extremely interesting to watch.

So many people talk about the death of the U.S. dollar, but the truth is that we could very easily see a financial collapse and a major currency crisis in Europe prior to the collapse of the dollar.  Europe is in really, really bad shape right now.

Of course it doesn't help that the entire world is so incredibly unstable right now.  The disaster in Japan, the war in Libya, the revolutions across the Middle East and the surging price of oil all threaten to throw the global economy into turmoil.

As I discussed in a previous article, people need to start preparing for economic disaster.  The entire global financial system is coming apart.  The U.S. economy is crumbling, Europe is dealing with an unprecedented debt crisis and Japan has just been struck with the worst economic disaster that it has seen since World War 2.

Most Americans don't pay much attention to what is going on in Portugal (or in the rest of Europe for that matter), but they should.  The world is more interconnected than ever, and if Europe experiences a financial meltdown it will have dramatic consequences for the United States as well.

The financial crash of 2008 swept the entire globe and virtually every nation on earth was deeply affected.  The next wave of the financial crisis is also going to be felt globally.

We live in one of the most interesting times in the history of the world.

Are you prepared for what is about to happen?

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Why Markets are Rebounding Despite Continued Crisis

03/17/11 Laguna Beach, California – During the last 24 hours, fear evaporated from the global financial markets as completely as water from a Fukushima reactor. The Nikkei recovered from a 5% plunge to end the day down about 1.4%. Most European markets have rebounded about 2% and the Dow Jones Industrial Average is busy attempting a similar feat.

Today’s gains probably have more to do with mere “selling fatigue” than they do with a genuine conviction that stocks are a “buy.” But, selectively, folks are trying to capitalize on what they perceive to be “oversold” situations. One group of astute investors known to your editor reached the following conclusions yesterday:

1) Japanese stocks may well represent a solid contrarian opportunity after the recent panic-driven selling. The problem is that any gains for American investors will likely be offset by an appreciation in the yen versus the dollar over the short term.

2) It’s too early to tell, but uranium-linked stocks may also be a “buy” following their recent rout. Nuclear power produces about 13% of the world’s energy. That’s not easy to replace. Depending on the outcome at Fukushima Daiichi, uranium producers could recover to their pre-Japan quake highs.

3) The world faces an energy crunch as nuclear and oil become problems. Natural gas will be a big winner. It is a relatively clean way of producing electricity.

4) Gold should do well when the margin selling ends. Japan’s rebuilding efforts will increase its already yawning deficits, pile on more public debt and lead to a new flood of paper money from the Bank of Japan.

“Rare earths” are also back in vogue. But the hottest “rare earth” investment of the moment has nothing to do with iridium, scandium, yttrium or any of the other “-ium” metals. The hottest rare earth investment today is element #53: Iodine.

Iodine is not particularly rare from a geological standpoint. But that doesn’t mean it’s easy to find on a pharmacy shelf. Geologically, iodine represents 450 parts per billion of the earth’s crust, which means its about ten times more abundant than gold. Based on parts per billion, therefore, Iodine is not so rare. But based on pills per pharmacy, good luck.

Never mind that Japan’s nuclear crisis is more than 5,000 miles away from California, the crisis is close enough to trigger an “iodine rush” in the Golden State.

Yesterday morning, your editor strolled into the Laguna Beach CVS store and asked to buy iodine tablets. The pharmacist laughed, “Can’t get it.”

“Really?”

“Yep,” the pharmacist replied. “It’s impossible to get.”

This anecdote provides context for a little game we’ll call, “Who’s holding the bag?”

Eric Fry
for The Daily Reckoning

Eric J. Fry, Agora Financial’s Editorial Director, has been a specialist in international equities for nearly two decades. He was a professional portfolio manager for more than 10 years, specializing in international investment strategies and short-selling.  Following his successes in professional money management, Mr. Fry joined the Wall Street-based publishing operations of James Grant, editor of the prestigious Grant's Interest Rate Observer. Working alongside Grant, Mr. Fry produced Grant's International and Apogee Research —  institutional research products dedicated to international investment opportunities and short selling. 

Mr. Fry subsequently joined Agora Inc., as Editorial Director. In this role, Mr. Fry  supervises the editorial and research processes of numerous investment letters and services. Mr. Fry also publishes investment insights and commentary under his own byline as Editor of The Daily Reckoning. Mr. Fry authored the first comprehensive guide to investing internationally with American Depository Receipts.  His views and investment insights have appeared in numerous publications including Time, Barron's, Wall Street Journal, International Herald Tribune, Business Week, USA Today, Los Angeles Times and Money.

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U.S. Dollar Crisis: Only Way to Protect Yourself

The big news story this morning is the intervention in the foreign exchange markets by the Group of Seven (G7) industrialized countries to push down the price of the Japanese yen…something smart currency traders were expecting.

The European Central Bank, Bank of England, Bank of France, Germany’s Bundesbank, and the central Bank of Italy started selling yen this morning. The Bank of Canada and the U.S. Fed are reported to be doing the same sometime today. This is the first time the G7 have intervened in the foreign exchange markets in a decade.

How convenient for the U.S.

Let’s face the facts here: the U.S. is awash in debt. Our politicians are not decreasing the amount the government spends; they are increasing our debt daily. The U.S. cannot manufacture goods at the cheap rate China can. We cannot compete against China.

So how does a country deal with a national debt crisis while trying to revitalize its economy at the same time? It devalues its currency.

Back in the early 2000s, I started writing about the government’s “secret plan” to devalue the greenback so that we are paying back our creditors with ever cheaper dollars. The U.S. has done a masterful job at “quietly” devaluing the U.S. dollar.

Corporate America loves a cheaper greenback, because their overseas profits translate into more American dollars. The more U.S. companies earn, the higher their stock prices go. Hence, the stock market loves a cheap greenback.

But there is a fine line. If the greenback goes too low, as I have written before, foreigners will be less receptive to buying the U.S. Treasuries we so desperately need to sell to finance our ever increasing debt. The situation can best be referred to as “too much of a good thing killing you.”

The chart below shows the uncharted territory we are about to enter with the U.S. dollar. In the next few weeks, the U.S. dollar will fall to a record low against other world currencies. Get ready for the fireworks—could get really interesting here—and the only way to protect yourself from it: make sure you own gold-related investments.

                                                   Chart courtesy of StockCharts.com

Michael’s Personal Notes:

The more time goes by, the more I’m convinced that inflation will be a huge problem for the U.S. over the next few years.

On Wednesday of this week, the U.S. Labor Department reported that the Producer Price Index (a measure of wholesale costs) jump 1.9% in February from the previous month—the highest level since June 2009.

The government tends to focus on inflation without food and energy costs (what they call “core inflation”). I do not take out food and energy costs when I look at the inflation rate, because: (1) eating is an everyday part of life (we all have to eat); and (2) driving is an everyday part of life—we all have to drive to/from work, take the kids here and there, etc.

As the National Inflation Association recently pointed out, the cost to print one U.S. dollar bill has increased 50% since 2008. Inflation is right under the government’s nose.

Years ago, people were saying that there was no relation between inflation and the price of gold. Back then, I said that was rubbish, and I still say that today. There is a direct link between inflation and gold bullion. And, as a leading indicator, gold is warning of serious inflationary times ahead.

Where the Market Stands; Where it’s Headed:

The Dow Jones Industrial Average opens this morning up 1.7% for 2011. The selling in the markets, at least temporarily, has subsided. The Dow Jones was up a big 161 points yesterday and this morning Dow Jones futures are up another 80 points. Hence, you can see why I kept my cool through the week and stuck fast to my belief that the bear market rally in stocks is not over.

As I wrote earlier this week, my view is that the markets overreacted to the crisis in Japan…and I was a buyer in the market this past Tuesday.

Bear market rally in stocks…born on March 9, 2009…and alive and well today.

What He Said:

“The U.S. reduced interest rates in 2004 to their lowest level in 46 years. And what did Americans do with their access to easy money? They borrowed and borrowed some more, investing the borrowed money into real estate. Looking ahead, perhaps the Fed’s actions (of reducing interest rates so low as to entice consumers to borrow more than they can afford) will one day be regarded as one of the most costly errors committed by it or any other banking system in the last 75 years.” Michael Lombardi in PROFIT CONFIDENTIAL, July 21, 2005. Long before anyone was thinking of a banking crisis, Michael was warning that the coming real estate bust would create havoc with the banking system.

Michael bought his first stock when he was 17 years old. He quickly saw $2,000 of savings from summer jobs turn into $1,000. Determined not to lose money again on a stock, Michael started researching the market intensely, reading every book he could find on the topic and taking every course he could afford. It didn’t take long for Michael to start making money with stocks, and that led Michael to launch a newsletter on the stock market. Today, Michael only employs the top market analysts and editors. Some of our recommendations have posted gains in excess of 500%! Michael has authored and published over one thousand articles on investment and money management. Along the way to building Lombardi Publishing Corporation, now with over one million customers in 141 countries, Michael became an active investor in real estate, art, precious metals and various businesses. Readers of the daily Profit Confidential e-letter are offered the benefit of the expertise Michael has gained in these sectors. Michael believes in successful stock picking as an important wealth accumulation tool. Married with two children, Michael received his Chartered Financial Planner designation from the Financial Planners Standards Council of Canada and his MBA from the Graduate Business School, Heriot-Watt University, Edinburgh, Scotland. Follow Michael and the latest from Profit Confidential on Twitter

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Japan Nuclear Crisis Over

Japanese workers have restored electricity and cooling to 3 of the damaged nuclear reactors.

The risk of total meltdown has fallen dramatically. Japan Defense Force officials supplied exposed workers with extreme doses of EX-RAD, a US Military anti-radiation drug that can protect people in emergency nuclear situations.

Tags: crisis, Japan, meltdown, nuclear, over, solution
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Japan Nuclear Crisis Over

Japanese workers have restored electricity and cooling to 3 of the damaged nuclear reactors.

The risk of total meltdown has fallen dramatically. Japan Defense Force officials supplied exposed workers with extreme doses of EX-RAD, a US Military anti-radiation drug that can protect people in emergency nuclear situations.

Tags: crisis, Japan, meltdown, nuclear, over, solution
Posted in New, News | No Comments »

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Don’t Let Crisis of Japanese Earthquake Go To Waste! Natural Disaster or Local Agenda 21 Eugenics Programme Acceleration?

By Neil Foster – The Sovereign Independent -

As if the Japanese people haven’t suffered enough from the effects of radiation contamination going back to the two criminal bombings of WW II, they’re now having to contend with a nuclear disaster on their own terms which is looming on their Eastern seaboard and which it is reported could even contaminate the West coast of America.

This is of course blamed on that well know natural phenomenon of the earthquake which is a recurring feature in this region. However, when we consider the scale of this earthquake and the consequential fallout, if you’ll pardon the pun, we perhaps need to take a closer look at exactly what’s happening here.

The earthquake in itself, for the moment, we’ll take as a natural occurrence. The reasons for questioning this will be look at later. Suffice to say that the insanity of man has the capability to cause such disasters unnaturally and has done for decades. The 35 page report below is clear evidence from many sources, including the military, that weapons are available to cause such ‘natural’ disasters as volcanoes, earthquakes, tsunamis, floods and severe storms. This is not science fiction and the fact that it is stated in these documents that they can cause such devastation should be taken as proof that they must have tested these weapons somewhere on this planet, conceivably more than once to determine their operational effectiveness. This being the case, where and when did they test them and are they still doing so?

[more...]

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27 Signs That The Nuclear Crisis In Japan Is Much Worse Than Either The Mainstream Media Or The Japanese Government Have Been Telling Us

Foreign bankers flee Tokyo as nuclear crisis deepens

By Nachum Kaplan and Denny Thomas

(Reuters) – Foreign bankers are fleeing Tokyo as Japan’s nuclear crisis worsens, scrambling for commercial and charter flights out of the country and into other major cities in the region.

BNP Paribas , Standard Chartered and Morgan Stanley were among the banks whose staff have left since Friday’s earthquake and tsunami, and now a nuclear plant disaster, according to industry sources with direct knowledge of the matter.

Expatriate staff at most foreign banks in Tokyo make up a small portion of the total, by some estimates less than 10 percent. But many are often in senior positions so their departure can have a significant impact.

And while Japan’s investment banking market is famously tough, it’s an essential place for large banks to be and can produce hefty fees.

“The foreign banker presence on the ground in Tokyo now is very thin and depending on how long it takes them to return there could be lasting implications of that,” said one banker. “Every time there’s a washout of foreigners in Japan they never quite return in the same numbers.”

[more...]

Rats leaving a sinking ship.

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On the Stimulus-Induced Rally and the European Debt Crisis

Last Wednesday, BNN’s Howard Green spoke to Rob Cox of Reuters and me about two issues: the monster rally from March 2009 and the ongoing European debt crisis.

On the markets, yes, I foresaw a rally two years ago because stock prices were depressed. Back in March 2009, I felt we were in an overshoot to the downside. But, it wasn’t clear whether the bear market rally that was sure to come as a result would have legs. It was only when rules on mark-to-market accounting were implemented and Wells Fargo had a breakout quarterly report in April 2009 that I became a true believer. And the upswing since has been longer and better than I thought likely two years ago.

Remember, it was conceivable in March 2009 that we could have a short rally and then overshoot even more to 450 on the S&P for example. Depression with a capital D was at the door. In the end, I felt the stimulus was going to power us higher. Both Rob and I see the rally as very much a stimulus-driven event. In my view the pre-QE2 swoon followed by another sizable rally post-QE2 announcement makes this case best. The question is whether the rally is sustainable without monetary and fiscal stimulus. We will see in the second half of 2011.

At a minimum, the election cycle is bullish for the economy, because the President wants the recovery to stick and will do whatever he can to ensure this outcome.

On Europe, you have three problems.

The ECB’s hawkishness is causing problems for the periphery. As usual a one-size-fits-all interest rate policy is challenging since Europe’s economies are not harmonised. An ECB rate rise will be a big problem in Ireland and Spain where they still have mortgage problems.Meanwhile Portugal is getting no relief in the market. It has a fairly low average interest rate on outstanding debts. But as it rolls over debts issued at 3 percent for paper at 7 percent, it will not be able to cut its deficits or debt. A bailout is likely as Portugal’s 10-year rate has been above 7 percent for at least four consecutive weeks.Spain is the crucial issue because Spain is such a large economy. Many of Spain’s cajas are insolvent. Solving that issue will be paramount for getting the debt crisis behind us. The stress tests will help us get there but right now they are not particularly stressful and I don’t see them being of any value.

Video below. [Click on image for video]

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Japan nuclear crisis indepth

With more states of emergency being declared at nuclear facilities in Japan, nuclear scientist Imad Khadduri says the risk of damage from meltdown is less than in disasters such as Chernoyl and Three Mile Island.

[[ This is a content summary only. Visit my website for the full story www.Trends2012.co.cc ]]

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Guest Post: 2008 Financial Crisis The European Sequel

Submitted by MacroStory.com

2008 Financial Crisis The European Sequel

The European Union is facing a similar set of events as those leading up to the 2008 US financial crisis.  In 2007/08 the US economy was teetering on the brink of recession and the talk among many was that of a goldilocks soft landing. Economic data was still somewhat positive including job growth while equity markets were still holding up. The housing market was beginning to show signs of exhaustion.  Manufacturers were confronting rising input costs while consumers were paying more at the pump. The Federal Reserve introduced a new chairman who tried to calm markets with his infamous quote on March 28, 2007, "the impact on the broader economy and financial markets of the problems in the subprime markets seems likely to be contained."

Today Europe is faced with a subprime crisis of their own in terms of sovereign debt.  Greece and Ireland have been bailed out and Portugal is only weeks from joining the esteemed list.  Spain and Italy are a shock event away from joining as well.  The EU also has their overconfident leadership as witnessed by the ECB Chief Economist Jurgen Stark on July 9, 2010 "The worst is over” (for Europe’s sovereign debt crisis). 

According to a 2009 BIS report EU creditors had over 1.5 trillion euros in exposure to Spain, Ireland, Portugal and Greece.  Of that amount, Germany and France accounted for 493 billion euros and 465 euros respectively. This is not a PIIGS "problem."  In reality the debtors have equal or greater negotiating power over the creditors.  TARP bailed out the insolvent banks at the expense of the taxpayer while the EFSF is bailing out the German and French banks at the expense of the PIIGS taxpayer.  The similarities don't stop though.

The EU produced positive economic data in the latter part of 2010 while the euro was trading on average 1.28 (eur/usd).  Over the past six months the euro has traded 6% higher at 1.36 which will reverse that positive trend.  The impact of a rising euro on export driven economies like Germany which have been the only real source of growth in the EU will be negative.  Rising input costs have been a worldwide phenomenon of late and the EU is not immune.  Watch for shrinking corporate profits in the near future.  The consumer is not immune either as record gas prices are now hitting the pumps across the EU.  What will the shock event be though?  In 2008 it was Lehman. 

The US was able to delay the inevitable after Bear Stearns and so did the EU with Greece.  Will Ireland be the Lehman failure that forces a massive hit to creditor and not taxpayer balance sheets?  If so it will force a similar credit contraction among various credit facilities from commercial paper, interbank lending and more as witnessed in the US in 2008.  In July 2008 oil was moving up very quickly until topping at 147 on July 14 (Bastille day, another similarity), just months before Lehman failed.  Today as the global economy faces rising oil prices, the impact on the EU are far greater with Ireland and Italy alone importing over 20% of oil from Libya.  With Libyan oil production all but shutdown, it is arguable that $147 oil has already arrived.

The US economy will not be immune to a sovereign debt crisis as the EU was not immune to the subprime crisis.  It is not a "Greek debt problem" nor is it a "Middle East problem."  The world is more connected today than ever before in history.  We have seen this movie before and as we all know the sequel is usually far worse than the original. 

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