ECB
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Banks and Investors Both Rattled by European Debt Concerns
European debt concerns continued to weigh on investor sentiment today (Thursday) as rumors circulated that the European Central Bank (ECB) was planning an intervention into the continent's banking sector.
The ECB is buying government bonds and increased its lending to banks, but that has done little to alleviate concern that the nearly-$1 trillion (750 billion euros) Eurozone bailout package announced last month won't be enough to prevent a collapse in the banking industry.
The ECB said on Monday that European banks will have to write off more loans this year than they did in 2009. The region's banks are expected to write off some $237 billion (195 billion euros) in bad debt by 2011.
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Global Recovery Gaining Momentum, but Obstacles Remain
The Organization for Economic Cooperation and Development (OECD) announced yesterday (Wednesday) that it has lifted its economic growth outlook, but warned that governments must enforce strict fiscal policies to sustain the global recovery and balance global expansion.
The OECD reported that the combined economy of its 31 members would grow 2.7% this year and 2.8% in 2011. Troubles of debt-plagued developed economies will be offset by the rapid economic growth of emerging markets. The numbers have been revised upward from November predictions of 1.9% growth in 2010 and 2.5% growth in 2011.
The OECD estimated global gross domestic product (GDP) would rise 4.6% this year and 4.5% in 2011, up from the previous expectation of 3.4% and 3.7%, respectively.
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Is Europe on the Verge of a Liquidity Crisis?
The euro's recent struggles have done more than bring the currency's viability into question. They've put the European Central Bank (ECB) on a collision course with a liquidity crisis.
The ECB is running low on dollars, and that problem could escalate when the U.S. Federal Reserve closes swap lines that were temporarily reinstated as the Greek debt crisis escalated. Additionally, more deposits are being yanked from the central bank as holders question whether or not the ECB has enough juice to stop a classic bank panic.
The euro yesterday (Wednesday) remained at a near four-year low against the dollar, tumbling 0.5% to $1.2306. The beleaguered currency dropped against the yen and British pound, as well.
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Gold Prices Surge and Will Keep Climbing as Investors Protect Against European Debt Crisis
Gold prices yesterday (Wednesday) broke through to a record high, as investors feared the Eurozone bailout plan would debase the euro and escalate inflation.
Gold for June delivery continued its record-breaking Tuesday climb to hit $1,243.10 an ounce Wednesday. The contract reached an intraday high of $1,249.20 an ounce. Spot gold prices hit $1,244.45 an ounce, up almost 20% in the past three months.
Gold's reputation as a "safe haven" investment causes the metal's price to move inversely to investor confidence, which has been rattled by the Greece debt crisis and last week's 1000-point plunge in the Dow Jones Industrial Average.
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Taipan Daily: Trillion Shmillion – Europe's "Common Currency" Is Still Doomed
As far as the euro goes, the trillion-dollar "shock and awe" program was a shocking disappointment. Here's why.
"... while Europeans no longer fear foreign armies, they are starting to fear foreign bondholders. Europe's existence as a "lifestyle superpower' has depended on an ample supply of credit... "
- Gideon Rachman, Financial Times
"...this is just another example of a short-term, leveraged solution, that merely adds to the burden of future problems..."
- Marc Ostwald, Monument Securities
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Odds of IMF Bailout Increase as Greek Bond Prices Plummet
Prices for Greek 10-year bonds plummeted to record lows today (Thursday) on speculation Europe's most troubled economy is about to unravel.
Economists expressed new doubts over the country's banks and short term funding plans and warned that recent developments now threaten to create a vicious cycle of bad news.
"The fear factor is beginning to creep in. In fact, it's galloping in," Neil Mellor, a senior currencies analyst at Bank of New York Mellon Corp. (NYSE: BK) in London told The Wall Street Journal.
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Irish Banks Get Bailout as Ireland Continues Drastic Moves to Leave PIGS Behind
Ireland's government will extend more aid to the nation's banks in an effort to salvage the economy and avoid going down the same path as struggling Greece.
The Irish government has set up a "bad bank" to help the banking sector rebound from massive losses on loans to property developers. The National Asset Management Agency (NAMA) will apply an average discount of 47% to $21.5 billion (16 billion euros) of loans in the first tranche. The bank will take over a total of $107 billion ($80 billion euros) of loans, transferring the debt from the balance sheets of Ireland's biggest banks - Allied Irish Banks, PLC (NYSE ADR: AIB) and Bank of Ireland (NYSE ADR: IRE).
"It looks like they are going to try and take all the pain now," said Stephen Taylor, strategist at Dolmen Securities. "It looks likely that at this stage the state is going to have to increase its ownership of the banks."
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Beware of Eurozone Plans for Greek Debt Bailout
An old proverb dating back to the Trojan War tells us to "beware of Greeks bearing gifts."
Today, with the fate of the European euro and perhaps even the entire Eurozone region hanging in the balance - and Greece needing a bailout to avoid default on its massive public debt - a more-appropriate warning might be: "Beware of Greeks seeking gifts."
Unfortunately, European finance ministers are looking at a bailout proposal that would amount to little more than an outright gift.
And it's a gift that - in my opinion - should never be given.
To understand the risks posed by a bailout-plan for Greece, please read on. -
Germany: The "Must-Invest" Economy
If you're a U.S. investor, you can't be happy about the prospects for your portfolio. After all, you're mostly trapped in an economy with a gigantic and dangerous financial-services sector, a central bank that can't stop itself from printing money and a government that overspends wildly.
But there is an answer: You should consider allocating some of that "at-risk" capital to a country that has none of those problems - Germany.
Germany has a banking system, of course, but that banking system is not the overgrown financial-services monster that we have here in the United States (or, for that matter, in Great Britain). It's impossible to get a subprime mortgage in Germany: Even now - and even after mortgage levels have crept up in recent years - the average down payment for the purchase of a new home in this key Eurozone nation is 50%. As a result, the homeownership rate in Germany is only 43%, the lowest rate in the European Union.
That's actually healthy; far less of Germany's capital is tied up in unproductive housing and the savings rate is correspondingly higher. (Let's face it, most Americans don't accumulate 50% of the cost of a house in savings over their lifetimes - unless forced to do so in a company pension scheme).
To find out how to profit from Germany's promise, read on... -
ECB Holds Steady in Fight Against Inflation, Despite Contracting Economy
By Jennifer YousfiManaging Editor Despite economic contraction in the second quarter, the European Central Bank (ECB) yesterday (Thursday) maintained its hawkish stance on inflation. Led by President Jean-Claude Trichet, the ECB’s monetary policy committee voted to hold interest rates steady at 4.25%. “Upside risks to price stability prevail,” Trichet said at a press conference in [...]
