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Europe hits session lows, the Stoxx 50 -1% as Spanish government debt goes bidless, the 2-year...

Europe hits session lows, the Stoxx 50 -1% as Spanish government debt goes bidless, the 2-year note +46 bps to 5.46%, the 10-year +32 bps to 7.19%. Madrid and Milan equity indexes lead the decline, each down more than 2%. S&P futures -0.5%. Remember JPMorgan's call for a 2% gain in the S&P upon a New Democracy victory? Well, there's still a chance.
Comments (49)
  • torahislife
    , contributor
    Comments (400) | Send Message
     
    and there's a chance Obama will endorse Romney
    18 Jun 2012, 08:57 AM Reply Like
  • Trader Monk
    , contributor
    Comments (130) | Send Message
     
    Very funny..
    18 Jun 2012, 08:59 AM Reply Like
  • fidelcastro
    , contributor
    Comments (25) | Send Message
     
    Doesn't bidless mean no one wants to buy? Did they sell any debt? If they sold some then it is not bidless
    18 Jun 2012, 10:16 AM Reply Like
  • SanDiegoNonSurfer
    , contributor
    Comments (2642) | Send Message
     
    Yeah I didn't find anything to substantiate this claim. And I notice there's no link to a story. You'd think something that significant would show up on Bloomberg.
    18 Jun 2012, 10:26 AM Reply Like
  • Rupert Nicholson
    , contributor
    Comments (340) | Send Message
     
    Its not bidless the title is completely fabricated. However, Spanish debt is spiraling out of control, and that's what should be focused on
    18 Jun 2012, 01:47 PM Reply Like
  • Dana Blankenhorn
    , contributor
    Comments (5692) | Send Message
     
    No, it's not. The current government is doing all it can to reduce the rate of debt formation.
    18 Jun 2012, 02:49 PM Reply Like
  • Rupert Nicholson
    , contributor
    Comments (340) | Send Message
     
    That doesn't mean its not spiraling out of control. This month's average rate is almost double last month's. Personally, I would say that's spiraling out of control.
    19 Jun 2012, 09:19 AM Reply Like
  • bearfund
    , contributor
    Comments (1534) | Send Message
     
    In December of 1976, the 2-year Treasury yield dropped slightly below 5.46%. That was the last time it would see that level for the next 15 years. In 1977, it rose, then rose some more, topping out well over 16% in 1981. After a brief drop in 1991, it spent most of the next 10 years at or above 5.46%, a level that was considered fairly low by most after the previous 20+ years and is not particularly high even when viewed against a much longer historical backdrop.

     

    It is true that the 2-year spread against overnight and deposit rates is very high. But then, most of the focus here seems not to be on the relative rates (reflecting well-founded credit fears) but on the absolute rates. That's a catch-22: if Spain can't afford to pay such a modest rate of interest, that's a pretty paltry reward for taking on its credit risk. Because these rates are not particularly high by any reasonable historical standard; anyone who can't afford to borrow at 5.46% probably shouldn't be allowed to borrow at all. Politically-negotiated so-called austerity measures are anything but; the market is clearly stating that it is unwilling to lend, which means the state has to come up with a way to stop borrowing, or at least to limit its spending so that it can reduce the amount of paper it needs to roll over. A market-driven budgetary regime would by definition restore confidence: if Spain were to limit the supply of notes such that they yield 5% or less (or whatever level the budgetary authorities determine is affordable), they could never find themselves in a situation in which they cannot afford the interest. Of course, politicians throw temper tantrums worse than the most obnoxious 2-year-old's at the mere suggestion of any regime that limits their ability to buy votes, and so it goes. By far the most amazing thing about the entire situation is that the Spaniards haven't overthrown their government, but then I would say the same for almost anywhere else. Maybe they really think the politicians can find a way to get them a free lunch, in which case it'll really hit the fan when they're eventually disappointed.
    18 Jun 2012, 10:16 AM Reply Like
  • Dana Blankenhorn
    , contributor
    Comments (5692) | Send Message
     
    Give Xavi to Germany and we'll call it even, OK? <g>
    18 Jun 2012, 10:34 AM Reply Like
  • Jeremy Johnson, CFA
    , contributor
    Comments (779) | Send Message
     
    Spain did not sell nor try to sell debt today. There are auctions scheduled for Tuesday and Thursday.

     

    http://reut.rs/MlMi1T
    18 Jun 2012, 11:33 AM Reply Like
  • winningtrader
    , contributor
    Comments (2476) | Send Message
     
    Well, if Spain cannot sell debt, maybe they should cut spending. That way they will need less debt. What's wrong with that?
    18 Jun 2012, 12:43 PM Reply Like
  • Dana Blankenhorn
    , contributor
    Comments (5692) | Send Message
     
    They have cut spending. They have cut it several times. It has caused a recession, one that gets worse by the day.

     

    Same thing with Greece. They cut and cut and cut, and get further and further away from breaking even. Because governments aren't families. And there is no magical austerity fairy.
    18 Jun 2012, 01:03 PM Reply Like
  • American in Paris
    , contributor
    Comments (5504) | Send Message
     
    Because every time they cut government spending, Spain's economy contracts.

     

    Most European States have big governments - that is not distinguishes good performers from bad performers. The difference lies in other areas such as labor market flexibility.

     

    In the case of Spain, I am not impressed by their structural reforms. Each Spanish worker on a permanent labor contracts still gets 33 weeks of severance pay for every worked.
    18 Jun 2012, 01:11 PM Reply Like
  • fidelcastro
    , contributor
    Comments (25) | Send Message
     
    Not may people get permanent contracts, most of the new hires are temporary.
    18 Jun 2012, 01:30 PM Reply Like
  • American in Paris
    , contributor
    Comments (5504) | Send Message
     
    Probably the majority of the work is permanent contract. And the permanent contract should not exist period.

     

    In some Northern European countries like Denmark, it doesn't exist. Fire and hire at will. That is how you run an economy.
    18 Jun 2012, 02:41 PM Reply Like
  • American in Paris
    , contributor
    Comments (5504) | Send Message
     
    No one should get a permanent contract. We Americans have done quite well without them.

     

    It appalls to see how weak European society has become. My parents did not have 1/10th of the European social advantages and still able to climb the social economic ladder.
    18 Jun 2012, 02:42 PM Reply Like
  • Dana Blankenhorn
    , contributor
    Comments (5692) | Send Message
     
    This business of screw the workers on behalf of the creditors hasn't worked. Where is the austerity fairy? Ask the Greeks where it is. Ask the Spaniards.

     

    She doesn't exist.
    18 Jun 2012, 02:50 PM Reply Like
  • fidelcastro
    , contributor
    Comments (25) | Send Message
     
    "probably the majority of the work is permanent contract." Based on your reply I believe you are clueless. You do not know anything about the Spanish labor market and you should keep your thoughts to yourself since you are ignorant.
    18 Jun 2012, 03:19 PM Reply Like
  • blueice
    , contributor
    Comments (3138) | Send Message
     
    What spending cuts, Senor Blankenhorn?

     

    http://bit.ly/MmD4CG
    18 Jun 2012, 04:10 PM Reply Like
  • SanDiegoNonSurfer
    , contributor
    Comments (2642) | Send Message
     
    Austerity doesn't just mean spending cuts. It also means tax increases. Spain has done both: http://bbc.in/qdW6R9
    18 Jun 2012, 10:06 PM Reply Like
  • bearfund
    , contributor
    Comments (1534) | Send Message
     
    They need to cut more. Much, much more. So much more that they will have a large primary surplus even if every government employee they let go never finds a job in the private sector. If that means doing away with more redistributive policies, or canceling pensions, they need to do those things too. Eventually they can cut all the stuff that got them into this mess in the first place and rebuild around a productive core of private enterprises that can stand on their own without redistribution. If Spain has no such private enterprises, then no amount of funny money and redistribution can save it anyway.
    19 Jun 2012, 12:18 AM Reply Like
  • SanDiegoNonSurfer
    , contributor
    Comments (2642) | Send Message
     
    bearfund, what got Spain "into this mess in the first place" was a real estate bubble. Spain was running a primary surplus until the bubble crashed. It had nothing to do with any pensions or gov't employees. On the contrary, if Spain had been diligently regulating its banks (a gov't function), their pain would be much less now.
    19 Jun 2012, 08:37 AM Reply Like
  • blueice
    , contributor
    Comments (3138) | Send Message
     
    SDNS, never have I seen the link between tax increases and the word austerity. Moreover, it is my understanding that not a single federal employee has been pink sheeted...

     

    If you examine my link, there has been little cutting to Greek's budget; and this is why Senor Blankenhorn has not dispensed any numbers...
    19 Jun 2012, 08:51 AM Reply Like
  • SanDiegoNonSurfer
    , contributor
    Comments (2642) | Send Message
     
    "never have I seen the link between tax increases and the word austerity"

     

    In that case, you might want to try reading the news now and then. You could start with the BBC link I posted.
    19 Jun 2012, 09:01 AM Reply Like
  • Dana Blankenhorn
    , contributor
    Comments (5692) | Send Message
     
    Destroy the middle class and you not only destroy your market, but you destroy social stability. A society based on a very, very few at the top and a bunch of peasants is headed for open revolt.

     

    What really needs to happen is that the bankers have to take a bigger hit than they have been willing to take. These are bad debts. They won't be collected. Deal with it.
    19 Jun 2012, 09:07 AM Reply Like
  • blueice
    , contributor
    Comments (3138) | Send Message
     
    SDNS, I did read the paragraph regarding Grease..Here is the extent of their sacrifice:

     

    " But in order to receive the new bailout, the Papademos government committed Greece to far-reaching spending cuts, equal to 1.5% of its output. Greece has now been in recession for five years."

     

    ?Far reaching cuts? of 1.5% of GNP...LOL There is no austerity, as it only happened in the 1920's and 1930's...This is leftwing propaganda..
    19 Jun 2012, 09:21 AM Reply Like
  • bearfund
    , contributor
    Comments (1534) | Send Message
     
    What middle class does any developed country have left to destroy? Decades of taxation, regulation, redistribution, and unrealistic pension and health care promises have destroyed it the world over. The only exception seems to be Norway, whose economy looks much more like Saudi Arabia's than Spain's and is not a useful data point.

     

    Of course the bankers need to take a hit. Many of their assets are worthless. Their common and preferred shares should all be canceled, junior and subordinated debt converted into equity, managers and directors fired and barred from the industry. Many banks probably need to just be wound down and their assets auctioned off over time. The government should never provide, and should make clear now that it is not and will not provide, any kind of guarantee of bank debt.

     

    All of that would certainly go a long way toward starting them down the right path forward, but none of it does anything about the enormous existing public debt or the fact that the government was running a deficit even during the housing bubble. If they couldn't live within their means under the best imaginable circumstances, it's clear that very large, extremely deep cuts are needed, and immediately. Others have touched on the competitiveness problems; those need to be addressed immediately as well and doing so consists primarily of doing away with regulations and restrictions on private enterprise. The short answer is that Spain (and a number of others who have the same problems) needs to take an all of the above bazooka approach. A couple of small, timid "budget cuts" and more banking can-kicking measures are absolutely nothing like what I am saying needs to be done. That was the whole point: politically-negotiated "austerity" is a complete joke. It consists of promising to do the minimum the can-kicking lenders will agree to, then doing even less. Market-negotiated austerity cannot be faked and is guaranteed to shrink the public debt to a manageable level. That's not sufficient by itself, but it is a sufficient component of a larger plan that could work, unlike what we're seeing today. If that plan "destroys the middle class" because the supposed middle class is completely dependent on government handouts, then it's not a middle class at all. That describes an underclass of peasants prostrating themselves before the lord in the hope of receiving charity. A middle class sustains itself with its own productive output and needs nothing more from the government than honest rule of law.
    19 Jun 2012, 10:01 AM Reply Like
  • SanDiegoNonSurfer
    , contributor
    Comments (2642) | Send Message
     
    blueice, you're being disingenuous again. Here's the text I pointed out to you: "Spain had already passed an austerity budget in 2011 which included tax rises for the rich, a 28% increase in the tax on tobacco and 8% spending cuts." Now you can no longer claim that no one has ever linked austerity to tax increases.
    19 Jun 2012, 10:17 AM Reply Like
  • blueice
    , contributor
    Comments (3138) | Send Message
     
    SDNS, please note that I was addressing Grease and not Spain...

     

    But will we are at it, does budget cuts of 8% sound like austerity?
    19 Jun 2012, 10:23 AM Reply Like
  • Dana Blankenhorn
    , contributor
    Comments (5692) | Send Message
     
    Austerity just leads to more austerity. This is proven. Cut hard, revenue goes down, cut harder, revenue goes down. You're circling in to societal destruction.

     

    Instead, make the bankers take the hit. There is no debt crisis. There is a panic among creditors who need to take the kind of hit the people of Greece and Spain are being told they must take.

     

    I mean a big hit.If the pain isn't equal on both sides it doesn't count.
    19 Jun 2012, 10:28 AM Reply Like
  • SanDiegoNonSurfer
    , contributor
    Comments (2642) | Send Message
     
    The rest of us are talking about Spain. As you well know.
    19 Jun 2012, 10:43 AM Reply Like
  • blueice
    , contributor
    Comments (3138) | Send Message
     
    Well, in that case I will wait until you switch to the Gyro...
    19 Jun 2012, 11:06 AM Reply Like
  • bearfund
    , contributor
    Comments (1534) | Send Message
     
    When someone cuts government spending by 90% and still can't make its interest payments because revenue keeps contracting, I'll agree that austerity doesn't work. Until then, it hasn't been tried.
    19 Jun 2012, 10:12 PM Reply Like
  • SanDiegoNonSurfer
    , contributor
    Comments (2642) | Send Message
     
    Greece, Spain, and Italy are obligated to implement military policies while in the EU. I'm fairly sure these use more than 10% of the national budgets. Military and other elements of national security are usually the biggest national expense.
    19 Jun 2012, 10:19 PM Reply Like
  • bearfund
    , contributor
    Comments (1534) | Send Message
     
    Good try, but wrong. According to SIPRI, Spain spent 1.1% of GDP on military matters last year, and government spending accounted for 47.3% of GDP (a figure which is defined to include that government spending itself, meaning that the government took away virtually the entirety of Spain's private sector productivity -- small wonder they've got problems). That means military spending was just 2.3% of the government's budget. There's plenty of scope for cuts without materially altering Spain's ability to defend itself and its allies.
    20 Jun 2012, 12:53 AM Reply Like
  • Dana Blankenhorn
    , contributor
    Comments (5692) | Send Message
     
    Greece has been down this road longer, and gone down further, than Spain has. Yet Spain continues down the same road. And the UK is going down that road too -- their economy is also contracting. When the US went down that road in the 1930s we contracted.

     

    Austerity always fails. Always. There is no austerity fairy. Calls for austerity are made by creditors who don't want to write off bad loans.
    20 Jun 2012, 08:16 AM Reply Like
  • SanDiegoNonSurfer
    , contributor
    Comments (2642) | Send Message
     
    Not sure what you mean by "try". Doesn't SIPRI only look at weapons purchases? That's just a fraction of total costs for national security -- as I'm sure you already knew. About the only example we have of a government being totally defunded (because it ceased to exist) is Somalia. Twenty years later, that still that hasn't worked out so great for Somalians....
    20 Jun 2012, 08:34 AM Reply Like
  • blueice
    , contributor
    Comments (3138) | Send Message
     
    SDNS, you need to research facts before making claims...

     

    Bearfund, is correct regarding the small sums of money that the EUzone spends on military defense spending...

     

    Why do you think they welcome American troops?
    24 Jun 2012, 10:49 AM Reply Like
  • SanDiegoNonSurfer
    , contributor
    Comments (2642) | Send Message
     
    Actually blue, I didn't make a claim about anything other than myself, namely that I don't know but am fairly sure it's over 10%. I haven't seen anything that would be a reason to think that's incorrect. It may or may not be incorrect but so far no one's stepped forward with concrete data for overall defense spending.

     

    As to why they (you mean Greece, I suppose) like American troops, the reason is that the American troops spend American dollars.
    24 Jun 2012, 06:18 PM Reply Like
  • bearfund
    , contributor
    Comments (1534) | Send Message
     
    Here's a chart based on World Bank data: http://bit.ly/Nq1nPw

     

    Here's a comprehensive report on Spanish military spending and investment with full breakdown by area of spending, which concludes that total 2010 spending was less than 19B euros: http://bit.ly/NAzffT. That represents about 1.7% using the CIA's (http://1.usa.gov/NAzho5) figures for GDP. The report also makes clear that SIPRI/NATO criteria actually include far more spending than many other sources including the government's own.

     

    Here's Jane's stating that Spain spent 8.15B euros in 2008 on military matters: http://bit.ly/Nq1quG. That's very comparable to the more restricted spending figures in the previous report, and represents less than 1% of GDP for that year.

     

    Here's the Spanish government's own 2012 budget covering that same portion of military spending: http://bit.ly/Nq1qKU. It shows about 7.4B euros, consistent with the fact that the military budget and actual spending have declined slightly over the last few years.

     

    Get over yourself. Military spending certainly doesn't help, but it's such a miniscule portion of the problem as to be almost completely irrelevant. I've already presented sourced concrete data, and now I've given you another pile of consistent data showing the same thing. You personally don't like the military or military spending and have chosen, foolishly, to assert that it's a major source of Spain's fiscal problems. You are wrong. If we were talking about the US or even Russia or China, you might have a point. We weren't, we aren't, and you're wrong. And it wouldn't have taken you more than 5 minutes to figure that out before spewing nonsense.
    24 Jun 2012, 08:35 PM Reply Like
  • SanDiegoNonSurfer
    , contributor
    Comments (2642) | Send Message
     
    My you're certainly aggressive and belligerent. Hope you don't have a stroke while you're typing. Military spending is a portion of national security. It's only a portion though. Just to give a few examples, border security (which is significant for Greece) is a component of national security. So is cybersecurity, to take another example. In the U.S., the Center for Disease Control monitors potential epidemics. I don't know how that's handled in Europe but it's clearly part of national security. And so on.

     

    "You personally don't like the military or military spending"

     

    Huh? You were the one saying gov't spending cuts should start at 90%. What I pointed out is that your defunding at those levels would be similar to what happened in Somalia, which has not worked out well at all. Additionally, there's a requirement on these nations to maintain national security. How did you came up with that as a personal dislike of military spending??? And even if that were the case, it would be completely irrelevant. Sounds like you have some sort of need to be angry and hateful because you're just making up stuff to be angry and spiteful about.
    24 Jun 2012, 08:54 PM Reply Like
  • blueice
    , contributor
    Comments (3138) | Send Message
     
    Come on, SDNS, how hard is it to find that data for pete sake!

     

    Hear are ten Euro states, with only two spending above 2% of GNP...

     

    http://bit.ly/LtqfsC
    25 Jun 2012, 01:39 AM Reply Like
  • SanDiegoNonSurfer
    , contributor
    Comments (2642) | Send Message
     
    What search terms are you using, blueice? Looks like a useful site but they don't seem to have broken out national security. How did you extract that?
    25 Jun 2012, 11:00 PM Reply Like
  • blueice
    , contributor
    Comments (3138) | Send Message
     
    SDNS, I am sorry as my link for you was empty...I used Bearfund's (thank you Mr Bear) link; of which, you can select nations on the left side and it will be added to the chart....It is very neat....

     

    BTW, it is always great to hear from you!
    26 Jun 2012, 09:10 AM Reply Like
  • winningtrader
    , contributor
    Comments (2476) | Send Message
     
    I really don't see what has changed with the Greek elections - they were, are and will continue to be totally insolvent even if they had elected Alexander The Great as their leader. Did you see that a Nazi party got quite a few votes there.
    18 Jun 2012, 12:47 PM Reply Like
  • Dana Blankenhorn
    , contributor
    Comments (5692) | Send Message
     
    Golden Dawn came in at about 6%. Given the depth of the Greek economic crisis, I'd say that's pretty small.
    18 Jun 2012, 01:03 PM Reply Like
  • sportsguy
    , contributor
    Comments (141) | Send Message
     
    If south european economies are agrian, service and tourism, there are just so many commercial jobs to go around, so how does one of these countries keep the population employed to get a paycheck and retirement, albeit enough to eat and pay the mortgage?

     

    US will be in this same situation by the end of this decade. . .
    18 Jun 2012, 02:10 PM Reply Like
  • SanDiegoNonSurfer
    , contributor
    Comments (2642) | Send Message
     
    "so how does one of these countries keep the population employed"

     

    Historically, Greece got revenue from several sources -- all of which are currently not viable:
    - Shipping. The Greek shipping industry used to be significant but global recession and competition from China have cut deeply into shipping profits
    - Bauxite. This is the ore used to make aluminium. But there's a worldwide glut of aluminium at present and this resource is essentially worthless until that changes
    - Geography. Thanks to its strategic position, Greece has historically hosted foreign (mostly U.S.) military bases quite profitably. However, the U.S. now prefers to station these bases in Turkey and the EU expects Greece to develop and pay for its own military bases. In other words, what was once an asset is now a liability for as long as Greece is an EU member state.
    18 Jun 2012, 10:14 PM Reply Like
  • sportsguy
    , contributor
    Comments (141) | Send Message
     
    shipping is a service, bauxite = living off the land, is similar to agrain, though I didn't state as such, and geography is offering a service of the geography. . .

     

    service economies are very competitive and usually price sensitive, as the service value is often times hard to value or distinguish.

     

    Shipping does not employ many people at 30 per ship, mining is not a growth industry with limited land, there is only so many mines and smelters, and geography is subject to competitive rents, but still is not a growth industry due to limited resources. Meaning in the service world, growth is very limited due to size and efficiencies.

     

    Therefore, the issue is a cost issue of supporting a limited employable society to prevent anarchial forces taking hold and destroying what is left, though that accomplishes nothing but the realization that anger doesn't solve any problems.

     

    So, as the industrial age competitiveness moves west from the beginnings in europe, what is left of nations with limited service opportunities? and limited natural resources?
    25 Jun 2012, 10:59 AM Reply Like
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