Friday, 5 August 2011

08:29 – Black Friday. I suspect that when we look back upon this day, we’ll see it as the day the Euro died. And probably the EU itself. Even Barroso, the chief EU cheerleader, now concedes that the “contagion” has spread beyond the periphery. After denying, as late as Wednesday afternoon, that it would even consider doing so, Spain has now withdrawn a bond auction scheduled for later this month, in hopes that people won’t notice that its bonds are nearly worthless.

With the stock market crashes across the world yesterday and US employment numbers that are likely to be worse than everyone fears due later today, the stage is set for a real Black Friday on the markets today. And most of the EU country leaders have caught the last train for the coast, unwilling to interrupt their planned vacations. Geez.

Incidentally, for weeks news reports have been using the word “unsustainable” with regard to bond yields. I read an article this morning that reported that benchmark 10-year Spanish and Italian yields were “approaching 7%, a level that most economists consider unsustainable”. Just to be clear, there is no single rate that marks the “unsustainable” boundary. It varies from country to country, according to its own economic situation. For countries in horrible economic shape, like Spain and Italy, that rate doesn’t have to get to 7% to be unsustainable. For them, 6% is just as unsustainable, as is 5%, as is 4%. Looking at the numbers, I think 3% or even 2% is unsustainable for Spain and Italy. In fact, they’re both in such bad shape that anything much over 0% is unsustainable.


Barbara is taking the day off work today to help me build more chemistry kits. Just in time, too, because we’re down to less than half a dozen in inventory.


21:37 – Oh, my. The United States of America, which has had a AAA credit rating since before my mother was born and before my father’s father was fighting in the trenches in France, has now been downgraded by S&P to AA+. It’s ridiculous, really, and unlikely to have any real effect on US debt yields. After all, where else will investors put their money? Britain, despite its AAA rating, and Japan have higher debt loads than the US, and less dynamic economies. Switzerland is solid, but much too small to matter. The Euro is a joke. No one in his right mind would buy Asian debt. And does anyone really believe that bonds issued by Belgium, which hasn’t even had a government for the past year or so, are of the same risk level as US bonds?