11/02/11 Paris, France – The Dow dropped 297 points yesterday. October may have been the best month for stocks in 37 years. But November could be the worst.
Gold fell a little yesterday, too, down $13. Oil is still over $90.
The newspapers tell us that investors are disappointed over the European deal. They thought they had that problem wrapped up with a bow. Apparently not…
First, Italian bond yields rose. All of a sudden the problem wasn’t solved at all. It was bigger than ever.
And then the Greeks said that they were going to have to vote on any further austerity measures. And you know what that means. They’re going to vote no. No sensible people would agree to give up their ill-gotten goods so that they could be given to investors, speculators and the banks.
Ambrose Bierce described an election as an “advance auction of stolen goods.” But today’s elections auction off goods that haven’t even been created yet…and probably never will be. A government bond is really a promise that the government will steal enough money to pay the interest and principle. Investors don’t doubt its willingness. They doubt its ability.
So do we. Every government in the developed world is deeply in debt. Most countries have little margin to increase taxes, without hurting economic growth. You can only squeeze so much blood out of a population of turnips. When you get to the pulp…you have to find a new source of revenue. And few voters are willing to accept austerity just so rich, greedy capitalist bond buyers get what they’ve been promised.
The betting is that Greece will run out of juice sometime in the next few months. Greek bond prices have fallen so low that you can now buy Greek 1-year notes with a 200% yield. If all goes well, you will double your money in a year. If it doesn’t go well…
…well, you take your chances!
It’s precisely because investors don’t want to take chances that the yield on America’s 10-year note has fallen to under 2% again. The Greeks may not be good for the money. The Italians may be untrustworthy. And who knows what the French are up to! But you can count on good ol’ Uncle Sam. He may be a rascal and a scalawag…but he’s got a printing press.
Besides, the way things are going, it looks like the dollar…and US government debt…may be the only things you can count on. That is, until they blow up.
But we’re beginning to think it could be long time before this show is over. The world’s financial system lurches from one crisis to the next. Risk assets go down. People seek the safety of the US government bond market. And the feds get to finance their deficits at low rates. What’s not to like?
Besides the fact that everyone gets poorer and poorer…
Bill Bonner
for The Daily Reckoning
Bill Bonner
Since founding Agora Inc. in 1979, Bill Bonner has found success and garnered camaraderie in numerous communities and industries. A man of many talents, his entrepreneurial savvy, unique writings, philanthropic undertakings, and preservationist activities have all been recognized and awarded by some of America's most respected authorities. Along with Addison Wiggin, his friend and colleague, Bill has written two New York Times best-selling books, Financial Reckoning Day and Empire of Debt. Both works have been critically acclaimed internationally. With political journalist Lila Rajiva, he wrote his third New York Times best-selling book, Mobs, Messiahs and Markets, which offers concrete advice on how to avoid the public spectacle of modern finance. Since 1999, Bill has been a daily contributor and the driving force behind The Daily Reckoning. Dice Have No Memory: Big Bets & Bad Economics from Paris to the Pampas, the newest book from Bill Bonner, is the definitive compendium of Bill’s daily reckonings from more than a decade: 1999-2010.
The Daily Reckoning is your premier source for making sense of the news Washington and Wall Street generate. Each business day, The Daily Reckoning calls on its stable of world-class writers and thinkers to show you how to get ahead.
Start your 100% FREE subscription to The Daily Reckoning today and you’ll get a free research report, “How to Survive the Fall of Social Security.” Simply enter your email address below to get your free report and join over 495,000 worldwide Daily Reckoning subscribers!
We Respect Your Privacy and We will
Never Share or Sell Your Email Address
Where can I buy these high-yield sovereign bonds? Are they available on Etrade?
I’m interested to know that as well, I’m thinking Greece will stagger along for at least another year.
“No sensible people would agree to give up their ill-gotten goods so that they could be given to investors, speculators and the banks.”
They don’t make “investors” like they used to. Now days it is hard to tell a speculator from a bank, much less an investor (whatever that means).
I wouldn’t give any of them the time of the day either.
Bill said:
Every government in the DEVELOPED world is deeply in debt.
In debt to whom, I ask?
If the governments are in debt then someone is owed a lot of money. How about we just tax that money a bit rougher?
Gee Bill. You mean the taxpayers shouldn’t be voting on this bail out? I say let the taxpayers decide.
Shawn, can you advise me of high-yield sovereign bonds?
I expect Greece to withdraw from the Euro and revert back to the Drachma within the next 9 months. It will seem disasterous at first for many of the Greecian parasites, but once the tourist boom of 2014 gets into full swing, many of the other Euro countries will be looking at Greece as an example of what to expect post Euro.
The bottom line is this, –and it has little to do with Greece aside from the symptoms being most acute there– the Euro is grossly overvalued. The Euro needs to fall at least 50% to get to a point where anyone aside from the rich will, or can afford to, travel to Europe.
In the early 1990s, anyone in the middle classes in the US who really wanted to see Europe could go, provided they made it a financial priority in their life. Today, unless you’re a millionaire, the idea of traveling to Europe resembles financial suicide. $350 a night hotel rooms, $7 cups of coffee etc etc. –and this for very modest accomodations.
The Greeks will be the first to drop out, the aftermath won’t be nearly as bad as many predict, and the subsequent upswing in their economy will convince the rest of Europe to bail-out of the Euro as well.
The whole Euro experiment was doomed from the outset in my opinion, for the very reasons we are witnessing today on a daily basis.