Thursday, July 8, 2010

Conditions in Europe are improving

The financial fundamentals in Europe are improving on the margin. 2-yr German government yields are up almost 30 bps from their all-time lows of last month, which was a time when the world thought the euro was going to collapse. Euro swap spreads have dropped almost 20 bps from their highs of late May, in a sign that the market is much less concerned now about a Greek default spreading contagious death and destruction throughout the European banking community. The euro is up 6% from its low one month ago, as the likelihood of a European economic collapse and the dissolution of the euro itself begin to fade. German stocks are now up 1.3% on the year, while the S&P 500 is still down 4.8%.

U.S. swap spreads, meanwhile are back to normal.


brodero said...

The 2 year euro swap is trading at 71 right now.... down 4 further

Benjamin Cole said...

The Bush administration boosted the federal government from 18.2 percent of GDP in 2001 to 24.7 percent of GDP in 2009. Obama is guilty of following similar policies and maintaining a bloated budget, but it was Bush (with Rove’s guidance) that drove the economy into a fiscal ditch.

This is from Cato Institute.

Paul said...

Oh, Benji,

Bush was bad on spending on failed liberal programs, but he was nowhere near as bad as your beloved Democrats and your boyfriend Barack. Republican rule from 2001-2006 boosted annual fed spending about 700 billion per annum over the course of those years. Democrats took over Congress in 2006 and hiked spending by around a trillion in just 3 years. A rather rapid increase, and no end in sight.

Further, the FY 2009 budget was mostly funded by continuing resolutions by the Democrat Congress in order to avoid negotiations with the outgoing Bush. Obama, in fact, signed into law that bloated $400 + billion spending bill in March of last year that covered some of the spending in '09.

Your boyfriend is the messiah who promised to go "line-by-line" through the budget and deliver a "net spending cut." He lied. Perhaps you believed him, but anyone paying attention should have been able to see what disaster awaited us if he was elected.

Public Library said...
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Public Library said...

Rumors about more Fed intervention. They simply cannot come to grips with the idea they are part of the problem and so Helicopter Ben gets set for another flight of fancy.

Benjamin Cole said...


Your argument is with Cato Institute, not me.

I am only quoting them.

They say Bush jr. paved the way to a federal government one-quarter the size of GDP.

Maybe we can bring Clinton back--the only President since Eisenhower to even propose a balanced budget. Actually, Clinton ran surpluses, and the economy thrived. That was leadership.

Paul said...

"Your argument is with Cato Institute, not me."

No, this is your argument or you wouldn't be using them as a source. If they say Bush is just as bad as Obama, which I doubt, they they are wrong. Your boyfriend is probably the most irresponsbile, anti-business President in history.
Said one-time Obama backer and zillionaire Mort Zuckerman yesterday:

“The real problem we have,” Mort Zuckerman said, “are some of the worst economic policies in place today that, in my judgment, go directly against the long-term interests of this country.”

"Maybe we can bring Clinton back--the only President since Eisenhower to even propose a balanced budget."

You repeatedly say this and it isn't true. Bush's first budget proposed a surplus, and projected $5.6 trillion surplus over 10 years. It didn't happen, but that doesn't make your statement true.

"Actually, Clinton ran surpluses, and the economy thrived."

Yeah, good thing Hillarycare was defeated or that wouldn't have happened. Good thing the "extremist" Gingrich GOP held Clinton's feet to the fire on spending. Good thing Al Gore invented the internet and it took off in the '90's. Good thing Y2K created an artificial boom that
predictably cratered on Jan1,2000. Also, good thing Clinton left office in 2001 just as the roof was caving in.

Public Library said...


You are a wingnut. I bet you voted for Bush Jr both times. That would put your ability to asses a candidate somewhere at the reading comprehension level of the average American.

I think that comp level is around 3rd grade or so now...

John said...

There are wingnuts in both parties.. and among independents.

Name calling does no one any credit.

Anonymous said...
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Paul said...


Absolutely, I did vote for Bush both times. Yeah, he spent too much on failed liberal programs, but not as much as Gore or Kerry would have. He also killed alot of terrorists.

What's the matter, Public? Did you vote for Obama too? Or perhaps you threw your vote away on some fringe candidate nutjob.

Scott Grannis said...

Bush's expansion of government spending was a one-time thing, related to the financial crisis and the bailout. Obama, however, has proposed and budgeted for a permanent expansion of government that will (if unchecked) give us federal spending of 25-30% of GDP if not more (e.g., Obamacare). Let's get this straight.

Mr. Kowalski said...

Hi Scott (and everyone).. just found this on Krastings blog.. apparently in Q1 2010, the balance sheets of Freddie and Fannie have expanded by $4.4 trillion..

Thoughts ?

As for Europe, what you say is correct in that CDS spreads have come down some. But recent Spanish and Portugese debt sales, while selling all of the bonds, were sold at roughly a point higher than a month ago. Between sovereign debt and wildly overleveraged banks, Europe is a catastrophe waiting to happen:

Bob said...

"Actually, Clinton ran surpluses, and the economy thrived. That was leadership."

At the cost of economic growth. GDP growth rate was slightly below zero in 2001 when Bush assumed office. The issue of the Iraq War asside, the Bush tax cuts, inspite of his other liberal economic policies and his refusal to use the veto, had GDP rise from just over $10T to $14T during his 8 years. The deficit, which was forecast to reach an outreageous $800B by 2007 or 8 never exceeded $400B and was set to be virtually non existent by the time of his leaving office. But of course the housing bubble/financial crisis, which was caused by horrible government policy set back in the Clinton administration, reared it's ugly head and well the rest is history.


Benjamin Cole said...


The housing bubble was caused by Clinton?

By now, I have heard 17 reasons why we had a housing bubble, from Greenspan to the CRA to Fannie and Freddie, to a rapidly ramping up RMBS market, to a global savings glut, though no one ever mentions the home mortgage interest tax deduction.

Redlead/Vigilante (right-wingers who wrote the book "Panic" that Grannis likes) say the housing bubble was caused by lowered underwriting standards extended to well-off borrowers. See page 140.

The bubble did happen six years deep into the Bush jr. era--and when the R-Party controlled all branches of government.

I would call that extremely feeble leadership if, after six years of controlling everything, the Bushies could not change rules that happened in Clinton administration. "Feeble" is a euphemism.

Anyway, I am no fan of the Dems or Obama.

I do wish the political right-wing would clean up its act. The Borrow & Spend (BS) wing of the party is ascendant, and has been since Reagan.

The Tax & Spend (TS) Democrats are little better.

I fear most "right-wing" voters will get take in again in 2012--some guy will wave a flag, drop hints about disliking gay marriage, talk about cutting the deficit, blab about "strict constructionism" and the Constitution--and then run huge deficits, fund a rural welfare empire (the Red Bloc of 42 farm state Senators) and maintain a bloated, ossified military, the latter now a trillion-dollar a year collossus of lard.

Or, we may return to the mantra that "deficit don't matter," a fave of the Reagan-Gilder wing of the party, and reintroduced in the Bush jr. Administration.

I happen to prefer balanced budgets. Is it too much to ask the R-Party embrace that ideal?

Public Library said...

John I agree about name calling. Sorry. I am just a little weary of hearing Paul talk about boyfriends.

His eloquence takes these postings down to a lower level of discussion more apt for a high school chat room.

Public Library said...


The fact is you voted for a loser with a below average IQ. He ran up the deficit, engaged in two frivolous wars costing not only a $T, but the lives of Americans.

So for you to run around here bashing people and referring to Obama as someones boyfriend is pathetic.

Clean it up or join a right-wing Facebook group where your childishness gets applauded.

Paul said...

"I happen to prefer balanced budgets. Is it too much to ask the R-Party embrace that ideal?"

Yes, by all means they should be more like your boyfriend(*Public Library gently weeps*) and the Pelosi Democrats.

Paul said...


"The fact is you voted for a loser with a below average IQ. He ran up the deficit, engaged in two frivolous wars costing not only a $T, but the lives of Americans."

What a tired, sad, and empty summation. I guess you did vote for Obama too, eh, Public?

Benji's one-note, inaccurate rants that completely ignore the sins of his beloved Democrats are tiresome. If my responses bug you, too bad.

John said...


There are a lot of very good posters here. Every one of us is different. Lets celebrate that...what a boring world it would be if we were all exactly alike.

Instead of roasting someone because he/she has a different opinion or political preference, lets respect everyone's right to be unique, discuss the issues, and keep insults out of our comments. Is that too much to ask of reasonable adults? I am pointing this at no one and everyone..including myself. I have been guilty too.

Benjamin Cole said...

I agree with John--bring your opinions, but let's not attack each other.

Paul said...


Ok, I'll keep that in mind next time you blather on about "Red State Socialists," or denigrate the entire GOP as a bunch of "feckless poltroons."

However, out of respect for John and Scott I'll stop calling Obama your boyfriend(though we know he is) on this blog.

Benjamin Cole said...


Glad to hear it.

I think bashing political parties is a time-honored tradition--I can recall reading texts from the Civil War Era in which Democrats characterized Abraham Lincoln (a towering Republican) as the "vile excretum of the Republican Party."

Lincoln was also a "tall monkey" and "an ape."

So bashing political figures and parties is national sport, and has been for centuries.

What may offend some if when you start personally bashing other posters who have different points of view than yours. I think at that point you cross a line, and unnecessarily.

I will look forward to your incisive ripping apart of all things Obama.

Benjamin Cole said...

OT, but fascinating:

Adjusted for inflation, the price of gold today is 41.5% below the January 1980 peak of more than $2,000 per ounce (in 2010 dollars).

This is from Carpe Diem.

I suppose this could mean gold has a great run ahead.

I suggest that it means gold can be a very dull investment. You could end up earning no yield for decades, waiting for the next price spike.

McKibbinUSA said...

With all the good news in the markets, it's clear that prosperity is just around the corner -- more at:

I can't wait to see some fat dividend checks. Thank you for the opportunity to comment...

Bob said...


I did not say that the Clinton administration caused the housing bubble. I said it was governmental polilcy during his administration. It actually goes back to the creation of the CRA. I am surprised. You are a better debater than that response.

Cause and effect can have unintended consequences and manifest themselves at a much later time than at causation. The fact is that it was the Democratic party's desire to have more people enjoy homeownership that lies at the root of the housing bubble. Then you can point to all the different people and organizations that did this or did that to help it along. Banks did not voluntarily lower their lending standards. The were coerced into doing so by a regulatory body that was manipulated by liberals in Congress.

Your arguments force me and others to argue in defense of Bush. You create strawman arguments to hide your liberal bias. For the record, Bush does not rank that high with me as a president, but because of the uniqueness of the times in which he was in office it is necessary to break apart his tenure. One arguement is the war in Iraq and its prosecution, and the other is his domestic and economic policies. I don't have a whole lot of regard for his economic and domestic policies, except for the tax cuts, which did spur growth. The Republican party did blow it while they had the majority, remember they did loose that majority and the Democrats controlled Congress for the later part of Bush's presidency. You can call it feeble leadership if he could not get anything changed, but we do not have an autocracy, even if we are moving dangerously close to it. Bush, in fact warned in several speeches about the nature of the abuses at Fannie and Freddie.

Bush was far from perfect as a president, and his biggest sin, IMO, was not being conservative enough in his leadership, but pinning todays economic problems on him just does not fit the facts. Those facts that I stated in the earlier post which you do not acknowledge in your post.



McKibbinUSA said...

The recovery in jobs seems better in Europe as well, and especially Germany and Hungary. More at:

Thank you for the opportunity to comment...

Benjamin Cole said...


I agree that all housing programs should be scrapped, federally and locally.

I also urge the abolition of the home mortgage interest tax deduction (they have none in Canada, and their housing bust was smaller, and their economy is back to employment highs).

My guess is that the home mortgage tax deduction causes more allocation of capital to housing than any other factor, by far.

Listen, once you enter the upper middle-class in America, you are all but forced to buy a house.

You can leverage 10-to-1, yet deduct interest payments. You can sit in the house for 1 to 30 years, waiting for appreciation--yet never face a margin call. Even if the house value dips for a while, you don't face margin calls.
If the house appreciates, your return on equity are enormous. If the house double in value, you get 10-to-1 returns. Try to get 10-to-1 returns on Wall Street. (Or any returns, ever since the Bush era).

I can tell you why America over-invests in housing: It is home mortgage interest tax deduction.

The Dems will never do anything about that, and neither will the Repubs.

As for the recent housing bust, Redleaf/Vigilante say the CRA, Fannie and Freddie were not the big factors--lowered underwriting standards for better-off borrowers and flippers were. These are hard-core right-wingers, and that is what they write (page 140, "Panic.")

Fact is, Clinton was a brilliant economic administrator, and we prospered on his watch. Clinton also lacks personal virtue. The best boxer may not be the best person, but he is still the best boxer, and Clinton was the best president in recent times. By far.

He ran federal surpluses, negotiated free trade agreements, limited welfare. The Dow quadrupled on his watch, He did not spend $3 trillion in Iraqistan, for wars that still are not over.

The last great R-Party president was Eisenhower, another giant. BTW, Eisenhower wisely counseled avoiding land wars in Asia, and withdrew from Korea ASAP. We would have avoided Vietnam, Iraq and Afghanistan if we had followed his wise counsel.

Anonymous said...
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Scott Grannis said...

Benjamin: re your last comment I am in complete agreement with you.

Btw departing shortly for Cairo.

Benjamin Cole said...

Best of fun in Cairo. And thanks for your comment-if SG agrees with me, I am in good company!

Paul said...

"Fact is, Clinton was a brilliant economic administrator, and we prospered on his watch."

We prospered, and we would have prospered pretty much the same under Presiden Dole for reasons I've pointed out a million times. It's simplistic to say the surplus was completely squandered by Bush, it would have disappeared under a President Gore as well. The economy was already cratering in 2000 from the unsustainable boom Clinton had next to nothing to do with.

And I'm with Bob in that I give Bush mostly low marks for his domestic policies, but he was several standard deviations better than Obama and the '06-'10 Democrat Congress.

Paul said...

In 1994, Republicans had won control of both houses. Wielding enormous influence, House Speaker Newt Gingrich had forged the Republicans' "Contract with America," a conservative legislative agenda. During intense budget battles between the president and Congress, the federal government was shut down twice. Clinton blamed this on the Republicans, which enabled him to position himself in the center and portray the Republicans as extremists. The Clinton campaign repeatedly linked his opponent Bob Dole to Gingrich, while championing mainstream causes such as the Family Leave Act, college tuition credits, and a ratings system for television.

Frozen in the North said...

Conditions in Germany have been "poor" for a number of years, wealth is not accumulating, house prices (as a barometer of perceived wealth) have been stagnant or falling (FYI half my family lives in Hamburg).

The reason that southern Europe looks better, is because the news is not getting out. The journalists are also on strike.

Finally, the pain of cutting government deficits will soon begin to hurt their economies -- just ask the Irish how much fun they've been having over the past two years. Because little news transpires about Europe to our shores is not an indication of improvement. In fact, although the CDS spreads have tightened, they are by no means low.

Last week the Economist had an article stating that Spanish house prices are about 50% too high. That's gona hurt!

The market is confusing the summer months with a recovery. Nothing has yet happened in Europe, all the failure and lack of action are still in place.

Finally, and more worrying the "European Bailout" as agreed by the European nations is right now in the German courts -- and could well be struck down as anti-constitutional, since the EU laws specific disallow this kind of action.

The current market recovery is an opportunity to off-load positions, if you can, volume is weak (NYSE Friday volume was the lowest of the year).

Good luck and good trading

Frozen in the North said...

Retail sales in Italy plunge!

Benjamin Cole said...

I am sensing deflation out there--and even lower interest rates. If Europe goes to austerity, lenders will find themselves sitting on cash with no borrowers. The USA?
Too much capital chasing too few homes.
Look for negative real interest rates on all safe investments.

John said...

First indication on earnings: Its looking good. Alcoa (AA), CSX Corp (CSX) and Novellus (NVLS) are all reporting numbers in ahead of expectations. NVLS, a semiconductor equipment mfg. reported EPS 10% ahead of expectations.

This song is strangly different from the ones we were hearing in May. There will be some disappointments..there always are. But I am expecting the executives and managers of these highly efficient companies to tell a different story from the gloom we have constantly been subjected to over the last several weeks. Stay tuned.

John said...


Sorry for the dupe.

Benjamin Cole said...


Your message of optimism is so welcome, you can dupe it whenever you want.

Frozen in the North said...

is this what ju吳phe宇te佳ns said

Writing need to feel you once again ~ ~ looking forward to a good article.

I love Google translate

John said...

It appears the market is beginning to sense that things are not as dire as most people think. We have been up five days in a row and today, the sixth, we have gapped up over 1%. People that keep statistics like this are saying that this has occured three times in recent history: Sept 2006, March 2003, and Sept 1996. All three times marked the beginning of impressive market moves (some call these bull markets but out of respect for those who would deride me for saying such, I will simply call them 'impressive moves').

Now I don't always pay much attention to these 'patterns' in stock price behavior. But with all the recent hoopla over the "DEATH CROSS" I just thought I'd mention it since its highly unlikely anyone else will. Fearsome news sells. Good news does not.

John said...

I have been suggesting that once the muzzle was removed from corporate executives and they are allowed to speak that they would be singing a 'different song' than the gloom we have been subjected to over the last several weeks.

CNBC had an interview with Michael Ward, chairman of CSX (railroad) and is quoted: "I know some of those concerns are out there with our customer base and the markets we serve, we don't see that. We see continued growth and strength here. We expect to have a very good year in 2010."

These people see the data. They are moving the goods (CSX), making the aluminum (AA), and selling the capital equipment to semiconductor manufacturers (NVLS). They see NO 'double dip'. I say AGAIN. There is far too much pessimism in our markets.