George Wannabe's  Instablog

I know the collpase of Europe is a highly attractive investment case for many but at the risk of getting insulted...here are a couple of Charts illustrating why Mario Draghi is right. From a sovereign perspective, the Worse is behind us in Europe. The ONLY caveat is SPAIN on which we have extensively written. The worries are justified but it is a BANKING crisis and could be solved Irish style. Regarding GREXIT, if it does happen, I very much doubt it will be disorderly. The contagion fears in my opinion are unfounded.

• Italy's 10 year yield

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• Ireland 10 year yield

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• France 10 year yield

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• Portugal 10 year yield

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• Spain 10 year yield

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

Just a quick follow up on Andy Xie's article about the Yen's day of reckonning. It is an interesting read but some facts are not quite right.

Japan's real interest rates are not similar to those of other countries. They are much higher, especaillly when compared to the US and Europe as dicussed here. And this is to me the primary reason for the Yen's strength and not the strong current account as mentioned by Andy Xie.

While I agree that the Yen has probably topped I am not sure it is about to collapse right now. The deficit was largely earthquake related and Japan will probably return to a surplus as believed by GS econmists.

Japan, as a country is also extremely wealthy as explained by Christian Carrillo at Societe Generale via FTAlphaville. He says that anyone shorting JGBs is going to have a difficult time, at least this year. The reason, he explains, is that Japan's net wealth actually rose in the last quarter of 2011, to ¥425tn or 90.1 per cent of GDP and will proabably keep doing so. There was also an increase in foreign indebtedness to Japan.

So the collapse of the Yen I think is more likely to be self orchestrated via debt monetization. I will citeDylan Grice who in a paper compares Japan's characteristic to those of Israel during its massive inflationary period (1972-1987).

During that period, Israeli spending was too high and the government chose to print money to deal with the problem. Inflation averaged approximately 84%. Grice says that Japan already spends 1/3 of its tax revenues on interest payments (imagine if yields currently at 1% were to double) and that the BOJ will have to buy any JGB the market cannot absorb.

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

I would like to come back on Spain while the 10y Spanish yield is about to break 5.5% at pixel time.

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I said in an earlier post that to me Spain is much worse that Italy because of its private sector debt, the aftermath of its housing bubble and an extremely high youth unemployment.

It is no secret the Spanish banking system is under stress and with good reason. While Spanish government debt is around 50%, which is much less than many others, private sector debt is over 300% of GDP! Obviously, looking at recent history there is a strong chance the Government will have to endorse that debt.

But the scariest part of all of this is the unknown. I will expand on the topic later but anecdotal evidence from locals suggests that the leaders of those highly indebted regions and municipalities are corrupt, that a large part of the economy is cash and non taxed and that the relationship between the banking and housing sector is unethical at best.

Banks are not marking down house prices, they are inflating their values and still offering 100% financing etc..etc...one can apparently get offered an extra yield on a saving account in return for purchasing shares in a CAJA...that smell PONZI. Meanwhile, local Governments are turning blind eye and the show can go on courtesy of the LTRO. How long?

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