Friday, April 15, 2011

Fast Friday- Greece, Ireland, Portugal Are PIIGS; Two Tier Justice System Give Bankers Carte Blanche; Silver Shines, To The Moon Alice!; Morgan Stanely Fund Fails To Make Debt Payment; Japan "Leaks" News On Situation

Back in early March, before the catastrophe in Japan broke loose the gates of hell, back when there was other financial news, I wrote an article entitled "Greece Can't Seem To Catch a Break" in which I stated the inevitable outcome of all the PIIGS - the dreaded D word - Default. Basing the probability of restructuring (read: default) on CDS swaps spreads and bond yields at that time, I calculated there was a greater than 50% chance for a default. Looking at the most recent data yields us now with a greater than 60% chance on some back of the envelope math I like to run in my head. For example, the Greek 10yr bond is now yielding 13.31% and the 2yr bond, perhaps even more telling, is yielding 17.00%, making Greece the most risky nation in the world, more so than even Venezuela, Argentina, Kazakhstan and gasp! - Egypt. That deserves an ouzo! Or five.

While there is little to no chance the US will ever "default" per se (thanks in part to a wonderful invention called the printing press) that doesn't mean the whole scheme can't disintegrate overnight, especially when social unrest is sparked by grave injustices as this excellent article again by ZeroHedge so aptly highlights (Caution: Your blood may boil after reading this). Speaking of disintegration, if Spain is the next domino to fall, the whole EU experiment will fail, forcing the other members such as Germany and France to use another currency, which they do not want. In fact, Germany and France are enjoying the ride the PIIGS are providing; the PIIGS have bought them a little reprieve (and you haven't heard one word from Sarkozy about the Euro being too high). If Germany was using the Deutsch Mark, it would no doubt be trading at 2.50 DMUSD, killing off their exports. So despite all the theatrics in Germany about not giving another red cent to the PIIGS, we all know that it is in their best interests to keep the casino Euro going. Therefore, the ECB will simply continue to buy up all the bad debt to infinium, and pull a Dr. Deficit. Then again, Spain is Too Big To Save and if they "save" Greece, they create a moral hazard by obligating themselves to save Spain, and Portugal and Ireland and Italy. What a conundrum! To save, or not to save. That is the question.

As we all know by now, any and all catastrophes from henceforth will be solved with the printing of fiat money - Euros, Dollars, Yen et al. Something that can't simply be printed (and devalued), silver (and gold) continues to make new highs and traded above $42 for the first time in a very long time. It's now only $7 (and change) away from that infamous high. "To the moon, Alice!"

Of course, as we expected would happen, Japan doesn't want to release all of the news at once for fear of mass panic so everyday we get a little more of the reality of this situation. Today, we learn three important facts we already deduced - the melted fuel is sitting at the bottom of reactors, plutonium is being detected in soil samples and the fuel rods in reactors 1 and 2 were indeed exposed to air. Just think, all of this from just one article, more than a month later. Better late than never, as they say.

In other news, Morgan Stanley has failed to make a $3.3 Billion debt payment on some real estate and has handed the keys over to investors. Brings a whole new meaning to "jingle mail." Is Morgan Stanley the canary in the coal mine?

Interesting. Now, one month later, we start to get news from manufactures that have been radioactively impacted by the supply chain disruptions. Wait. We're confused. Isn't a catastrophe of epic proportions supposed to be bullish for the global economy, Warren et al? Can't wait to see the quarterly reports when they roll in.

Update 1: Keep your eyes this Sunday on Finland. If they vote against support of the PIIGS, the EU experiment is done. Gold and silver could make new highs. 

Update 2: We all know surging food prices will bring out the worst in people. The New York Times is reporting vegetable bandits are getting serious. Only a matter of time before food prices here in the US lead to unrest and trafficking.

1 comment:

  1. didnt know about morgan stanley... wow that is bad news... i gotta say your calls have been spot on from japan breaking the back of their economy to greece and the piggy greece... nice... keep up the good work... peace out