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Monday, May 7, 2012 – The Revolution in Greece and France

DOW – 29 = 13,008SPX +.48 = 1369NAS + 1 = 295710 YR YLD unch = 1.88% OIL +.07 = 98.01GOLD – 3.60 = 1639.50SILV -.25 = 30.19PLAT + 2.00 = 1535.00 The results pretty much followed expectations: An anti-austerity backlash by voters in Greece an France. First attempt at forming Greek coalition fails. Hollande seeks to augment fiscal pact with growth plan. Merkel tells French president-elect “no renegotiation”. Greece, where Europe’s sovereign debt crisis began in 2009, was slightly discombobulated after the election boosted left and right-wing fringe parties, stripping the two mainstream parties that backed a the EU/IMF bailout of their parliamentary majority. Uncertainty over whether the country could avert bankruptcy and stay in the euro deepened on Monday when the leader of the conservative New Democracy party which won the biggest share of the vote, failed within hours to cobble together a government. The leaders of the New Democracy party had been given 3 days to form a government but this morning they said it was impossible. Next in line to try to form a government will be Left Coalition leaders, whose party came second on a platform of rejecting the austerity conditions of Greece’s latest bailout program. So, that might be interesting. The Left Coalition is considered a splinter group of the communist party, and now they are in the spotlight because the socialists were too centrist. The far right Golden Dawn party, essentially neo-nazis, achieved a parliamentary breakthrough. In hard times, voters are receptive to …

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Friday, April 20, 2012 – Burning Down Spanish Debt, AMR and Unions

DOW + 65 = 13,029SPX + 1 = 1378NAS – 7 = 300010 YR YLD +.02 = 1.97%OIL + 1.05 = 103.32GOLD – .20 = 1643.40SILV – .10 = 31.80PLAT unch = 1586.00 Italian and Spanish bond yields rose after a draft statement released by G-20 finance chiefs who are meeting in Washington said that Europe’s debt crisis still poses a threat to global growth. Spanish bonds briefly pushed above 6%. That helped push the cost of credit-default swaps to insure Spanish government debt up to a record high 503 bp and increased the cost of insuring Italian debt up to 474 bp, a 3-month high. Credit default swaps pay the buyer face value if the borrower – in this instance Spain – fails to meet its obligations, less the value of the defaulted debt. They’re priced in basis points. A basis point equals $1,000 on each $10 million in debt. Credit default swaps, or CDS, are generally considered insurance against default, but it’s not really insurance because anybody can write CDS against anybody else; there is no requirement for “insurable interest”. For example, if insurance worked like CDS, I could write a fire insurance policy on your house and if your house burned down, I would collect the payment. You might think that would give me an incentive to burn down your house. Yep, that might be what you would think. Now the bankers in New York and London might also have a little incentive to burn down Spanish …

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Wednesday, April 18, 2012 – Euro Debt, Iceland, the IMF, and Forgiveness

DOW – 82 = 13,032SPX – 5 = 1385NAS – 11 = 303110 YR YLD -.03 = 1.98% OIL – 1.43 = 102.77GOLD – 8.00 = 1643.00SILV – .08 = 31.73PLAT – 5.00 = 1581.00 Spain’s non-performing loans as a proportion of total lending jumped to 8.16% in February, up from 7.91% in January and the highest level in 18 years. Data from the Bank of Spain show that Spanish banks are burdened with about 176 billion euros of “troubled” real estate assets and that 21% of the 298 billion euros of loans linked to property developers are non-performing. Despite the increase in the country’s bad loans, the yield on Spain’s 10-year bond fell to a 1-1/2 week low of 5.72% on optimism over tomorrows auctions of 2-year and 10-year Spanish securities. Will Europe and its increasingly ugly currency, the euro, get out of the crisis in one piece? This is probably the biggest question for the global economy right now. There is increasing concern that Spain and Italy will eventually default. Maybe the euro will survive but nobody seems confident of that right now. And it appears Europe is facing an economic depression which will diminish living standards and create social unrest and take years to work though. A best case scenario is years of stagnation. Actually there is another solution and we’ll get to that in a few moments. The fate of the euro has global consequences. Europe is the largest marketplace in the world. When Euro-countries and …

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