PIIGS Unemployment: Investors Seek Refuge In Switzerland And Germany

Includes: DIA, SPY
by: Katchum

Since the crisis of 2008, the unemployment rate for the PIIGS has been increasing rapidly.

For the PIIGS (Portugal, Italy, Ireland, Greece, Spain), the unemployment rate more than doubled from 2008 up till now (Chart 1).

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Chart 1: Unemployment Rate PIIGS 25+

The situation for the younger people (younger than 25) has always been much worse historically. Typically, the unemployment rate of younger people is 10% higher than the overall unemployment rate.

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Chart 2: Unemployment Rate PIIGS 25-

The three countries that are worrisome are Greece, Spain and Italy. The disparity between youth unemployment and overall unemployment is the biggest in those three countries (Chart 3).

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Chart 3: Disparity between Youth and overall Unemployment Rate

Today, the focus on the bond markets lies on Greece and Spain. Spain's 10 year government bond yield touched 6% on 10 April 2012. I predict that Portugal will be the next victim, considering its quickly rising unemployment rate.

Meanwhile, Europeans are seeking refuge in the more healthy countries in Europe like Germany and Switzerland. 1 Year German government bond yields are inching lower to 0.12 percent (Chart 5). At the same time, on 10 April 2012, Switzerland sold 6-month bonds at an average yield of minus 0.251 percent. This has happened before in August 2011 and November 2011.

As a reactive measure, Switzerland pegged the Swiss franc to the euro at an exchange rate of 1.2 (EUR/CHF) in September 2011. It seems that this peg is soon to be breached to the downside (Chart 4). The Swiss National Bank said it would be able to keep the peg at that level despite increasing demand for the Swiss franc.

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Chart 4: Euro/Swiss Franc exchange rate

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Chart 5: 1 Year German Government Bond Yields

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.