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Friday, March 5, 2010

Brainstorming Friday - part 1

1. Retail investors were sucked in the Greece game as they were they buyers of the 5 bil new bond issuance. I do not think they were acting wise as the measures Greece takes to heal are appropriate as it are typical IMF strategies who never have worked like raising taxes and cutting pays and pensions. Taking buying power away from Mainstreet has been one of the major frauds of the EU since the Euro was introduced as prices even in Germany doubled but salaries stayed put. They came up with phony far too low inflation which effected salaries dramatically on the negative side ( the real buying power was shrinking throughout the decade) plus Europe had negative interest rates for a decade now. Looking at the new issuance of bonds schedule in Europe the pressure will be increasing rather and push rates even higher plus the collapse of more sovereigns is just a matter of time (within the next 2 years) so even if you are short term happy over the illusion of a nice interest rate deal you think you may have made - the troubles have just started. So far the net new issuance stands at 422 bil Euro but as Germany has yesterday just agreed to make new borrowings of 80 bil ( the highest ever yet) which are not included the number will rise and that goes parallel to the record net borrowing of the USA. We are talking a few tril. net new borrowing besides the rollovers ( replacing old by new debt which is also substantial this year). This looks good for borrowers ( also corporates are lending at record rates with such low interest rates )as they can do it a almost record low interest rates but its definitely bad for investors as their unwise and corrupt money managers will invest them through mutual funds heavily with negative interest rates plus they will likely have capital losses as well going forward (defaults). Do not get sucked into this insanity - inflation (rather hyperinflation is mandatory with all this debt).


Europe 2010 Paper Supply: €5 Billion Down, €1 Trillion To Go

Today Greece priced €5 billion in 10 year bonds, and much was said about the resulting imminent renormalization of European debt capital markets. That's excellent, because as the following chart (which is a summary of bond issuance compilations demonstrated previously on Zero Hedge) demonstrates, Europe will need it- the continent is facing the highest net ($422 billion) and gross (€1 trillion) issuance in the past decade (and that excludes Greece). We wish Europe all the best.

A detailed view of the redemption schedules in Europe (contrasted with the US) in absolute and relative terms yields the following charts. Italy, Spain, France, Germany, Portugal, Belgium and the Netherlands all have about 20%, and in some cases more, of their total debt maturing this year. That's some serious rolling. Yet nobody in Europe has as precarious an average maturity schedule as the US, which at 4.4 years is nearly 1 year shorter than the next closest, the Netherlands.

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