Day: November 7, 2011

Monday, 7 November 2011

08:03 – The Netflix Fairy, AKA our friends Mary and Paul, showed up this morning and left Sons of Anarchy S3D4 at our door.

For the last three months, the ECB has been buying worthless eurozone sovereign bonds, nearly all Italian but some Spanish, at a rate of $40 billion to $50 billion a month. Despite that, bond yields have continued to climb. This morning, Italian bond yields touched 6.7%, just short of the 7% level that toppled Greece, Ireland, and Portugal into receivership. On the current trajectory, Italian bond yields should pass 7% in the next week or two.

There’s nothing magical about that 7% number other than its effect on market sentiment. If history is any guide, once Italian yields hit 7% we’ll enter a vicious circle, with higher yields causing panic and panic causing still higher yields. If (when) Italian yields hit 7%, don’t be surprised if they rapidly begin skyrocketing into the 10% and even 15% range. At that point, Italy quickly loses all access to the markets, because no one considers yields in that range to be sustainable. And the ECB is dropping loud hints that its patience is about exhausted and it will soon stop buying Italian bonds. Without that prop, yields will skyrocket even faster. Once it becomes obvious that Italy cannot survive without being bailed out, it really is game over for the euro.

09:56 – I’m investing in tinned food, a shotgun and a farmhouse on a remote Scottish island. We’re all doomed. This guy may be exaggerating, but not by much.

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