Greek Crisis Over? No

For links and explanations on the current economic scene, go here.

A few weeks back, Greek bond rates soared and the EU rushed in with a bailout.  Crisis averted, story over, right? Not exactly.

Before rates started to skyrocket they were on a steady upward march.  After the panic, however, government bond rates returned to that upward trend.  This crisis can not be considered over until Greek government bond rates stop going up.  They are now north of 8% and are on trend to cross 10% by the end of the year. 

Furthermore, I captured CMA Datavision's estimate of the cumulative probability of default back on May 12th.  At the time it was 33.92%.  That number has now risen to 45.31% a month later.

I see no sign yet that Greece is going to recover without a default or leaving the Euro and printing money.

California is a Worse Credit Risk than Iraq

According to CMA Datavision today:


California's Cumulative Probability of Default now surpasses Iraq's.  You know, that country with questionable elections and frequent mass fatality bombings.

Following the Greek Crisis

Here are a few links to help you follow the Greek Crisis:

To see what the market thinks of Greece's ability to pay back it's loans, you can use the change in interest rates on Greek governments bonds.  If you look at the chart, it's bad news.  All from Bloomberg:

Two-year bonds
Five-year bonds
Ten-year bonds

To check on "contagion", the only free site that I have found that follows government bonds worldwide is CMA Datavision.  At this link there are three lists.  The 1st list is comprised of countries with the highest probability of default.  The 2nd group is comprised of countries whose CDS spread (a measure of the probability of default and bankruptcy) are shrinking.  This is good for those countries.  The 3rd group is comporised of countries whose CDS spreads are increasing.  This is bad.  Unfortunately, it doesn't give history or list every country every time it is updated (I think twice a day).

CMA Datavision, Sovereign Debt Credit Spreads

Bloomberg lists the rates for a few major countries around the world, but it leaves much to be desired.  That link is here:

Gilts, Bunds, and other Government Bond rates

To see the effects in the United States, you can check out a few links as well.  The market price of risk is the VIX.  Traditionally, the VIX runs about 15-20 in a calm market.  On Friday, May 7th, the VIX hit 40, which is not good.  It hit 80 back in the 2008 panic.  It will soar during a market panic, and is a good indicator as to the nervousness of professional traders.

VIX

To see if American banks might be in trouble you can check out the TED spread.  This is a measure of the credit risk seen within American banks.  If banks are going to melt down this measure will spike.  It was running in the teens and has now jumped to 30 bps.  During the last market panic this number his 300, I think, so don't sweat this little jump too much just yet.

TED Spread

For the economy as a whole, I love Consumer Metrics Institute.  They measure internet purchases, which seem to have an uncanny ability to predict future GDP reports.  Right now, their data suggests a double dip recession.  The 2Q GDP report (out August ~25th) may show negative growth.

Consumer Metrics Institute

That's all for now.  If anyone has any good links or a request for a link, let me know.  I have a few more, but I suspect that none of you would want to get that deep into the data.

I'm Psychic

Back in March of 2009 I said:

U.S. Govt Crowding Out International Borrowing


A while back I brought up the idea that the U.S. government was borrowing so much money that some other governments might begin to have trouble borrowing for their own purposes. The world has a finite amount of cheap capital, and with the amount of money that our government and several others are...borrowing to prop up financial firms and wager on Keynesian stimulus that the supply of those funds might dry up.
 
Now, the credit spreads for numerous European countries are widening.  The world is running out of money.

Is the U.S. Slowly Going Bankrupt?

At bloomberg today:

The bond market is saying that it’s safer to lend to Warren Buffett than Barack Obama.


Two-year notes sold by the billionaire’s Berkshire Hathaway Inc. in February yield 3.5 basis points less than Treasuries of similar maturity, according to data compiled by Bloomberg. Procter & Gamble Co., Johnson & Johnson and Lowe’s Cos. debt also traded at lower yields in recent weeks, a situation former Lehman Brothers Holdings Inc. chief fixed-income strategist Jack Malvey calls an “exceedingly rare” event in the history of the bond market.

If you know anything about financial mathematics, this really screw things up.  Many calculations are based on the underlying premise that the risk free rate is the U.S. Treasury rate.  By definition corporate bond rates are higher than Treasuries.

What is actually happening is that people no longer believe that the default risk for U.S. bonds is zero.  We are seen by the market increasingly as a credit risk.

If/when the "Obamacare" Health Bill becomes law, tack on another $500B in deficits over the next ten years.  The Medicare cuts alleged in the bill are politically unfeasible and will never happen.  One more heap of straw on the camel's back.

Obama Defines Audacity

Audacity - Propose and pass a "stimulus" spending bill over $700 Billion. Propose a budget that will push the deficit to over $1.8 Trillion next year, with years of deficits over the $1 Trillion mark. Then after you have single-handedly muscled through this incomprehensibly huge spending bonanza you have the gall to say this:

From Bloomberg:

President Barack Obama, calling current deficit spending “unsustainable,” warned of skyrocketing interest rates for consumers if the U.S. continues to finance government by borrowing from other countries.

“We can’t keep on just borrowing from China,” Obama said at a town-hall meeting in Rio Rancho, New Mexico, outside Albuquerque. “We have to pay interest on that debt, and that means we are mortgaging our children’s future with more and more debt.”

Are you kidding me? How can you stand up there and claim that "WE" can't keep borrowing when it is "YOU" who are using every possible avenue to spend TRILLIONS of dollars and drive us into these wretched levels of debt.

This is like a man beating his wife to a pulp and then lecturing her that "WE" need to stop fighting like this.

I Need a Balanced Budget, Stat!

Dr. Alan Parks, MD, is the founder of Americans for a Balanced Budget Amendment. He sent me an e-mail notifying me of his new website. I perused for a bit, and found it worth mentioning. He's already gathered an endorsement from noted personal finance guru Dave Ramsey.

Dr. Parks ran across this post of mine in support of a balanced budget amendment. I tend to channel William Buckley when I'm emotional, as my vocabulary soars above my standard typo ridden fare. Looking back at it, I'm still pleased with it.

At any rate, check out Americans for a Balanced Budget Amendment, and lend your support.

Another Day, Another Trillion

The U.S. government debt continues to skyrocket as the Obama Administration burns through cash. The probability of eventual U.S. default increases by they day. Now, Treasury Secretary Tim Geithner throws a potential $1 Trillion of gasoline on the fire.

Paul Krugman writes:

The likely cost to taxpayers aside, there’s something strange going on here. By my count, this is the third time Obama administration officials have floated a scheme that is essentially a rehash of the Paulson plan, each time adding a new set of bells and whistles and claiming that they’re doing something completely different. This is starting to look obsessive.

But the real problem with this plan is that it won’t work. Yes, troubled assets may be somewhat undervalued. But the fact is that financial executives literally bet their banks on the belief that there was no housing bubble, and the related belief that unprecedented levels of household debt were no problem. They lost that bet. And no amount of financial hocus-pocus — for that is what the Geithner plan amounts to — will change that fact.

I repeat my suggestion to the President: Ask Geithner to resign.
Furthermore: Get some conservative economic advisors for balance. Your people are taking us towards the brink.