Observation of the day: Greeks are not Germans

It may appear an obvious observation but to the euro and (for a while at least) the bonds markets Greeks and Germans were the almost exactly the same. Twins.

Two recent pieces on public radio highlight how very different from the Germans the Greeks can really be.

The first radio spot describes the failed efforts of a Greek computer scientist to make the revenue system (the tax man) more efficient in Greece. All he thought they needed was a little technological help to point them in the right direction.  Heh, not quite.
http://www.npr.org/blogs/money/2012/01/05/144747663/how-a-computer-scientist-tried-to-save-greece?ft=1&f=100

This longer piece (nearly an hour) aired this weekend and I caught it on Saturday.  It goes into the desire to create the euro and how Greece basically lied to get into the eurozone and the epic borrowing binge Greeks went on after 'easy money' appeared after the Euro was introduced.  While its long it is a good overview of how Europe got into this mess.
http://www.thisamericanlife.org/radio-archives/episode/455/continental-breakup

Greece's credit history is not the best.  Since their independence in the early 1800's they have spent more than 50% of their time in default. (This time is different, 2008, Reinhart & Rogoff, page 99) Do you really think they would adopt the fiscal discipline of Germany after being handed their unlimited gold card?

ht @BarbarianCap

Italian and Spanish yields keep climbing

I recently highlighted the rise in Spanish and Italian government bonds yields. Today they are shooting higher yet again and I'm certain this is a contributing factor to the equity market's weakness, US budgetary problems notwithstanding.

I usually don't mention my trading activity but I sold off an equity ETF position Friday due to this European contagion situation.

Club Med Hangover -- Bond yields climbing in Spain and Italy

Nearly a month ago I mentioned rising yields in Spain possibly causing problems.  I underestimated the number of countries. Both Italy and Spain's treasury yields have spiked higher.

Italy 10 year

Spain 10 year

Spain 10 year versus German 10 year

 

None of the charts are pretty.  While Italy was getting most of the headlines for the rate of yield increase please note how Spain's yields are higher.  Any EU country bordering the Mediterranean is having serious problems right now.

Rising Risks Roundup

This weekend has been an eventful one for the world geopolitically and this week will see further events which shape the stage.  The riots in Libya and continued unrest throughout the Middle East had a dramatic affect on futures markets today as the regular markets were closed.

Libya News - NYTimes

Middle East news - Al Jazeera

The events in Libya are obviously in flux and getting hard news out of the country is difficult so the rumors and actual news will be mixed together and hard to clarify.

The affect on the markets today (Monday) was dramatic:

Crude oil up 6+% to 91

Silver up 7+% to 33.86

SP 500 down -0.64% to 1329.25 (Futures price)

While the rioting is getting the headlines the trouble in the Eurozone continues its slow burn. Ireland is holding elections this week and the party currently in power is predicted to be handily spanked in the polls.  The mood in Ireland is not good and there is some talk of repudiating the guarantee of the government honoring all senior bank. 

Meanwhile Portugal debt continues to drop in price. The 10 year is at 7.45% tonight  

This cannot go on forever.  The recent German elections sent a clear message that Germans are tired of paying for other people's problems.  

Tomorrows markets will be very interesting to watch. Oil prices are getting to a point where they are seriously hitting the consumer's pocketbook and another spike in oil (like the one in 2008) could seriously stress the already weak US consumer.  I'm not evening mentioning China and their continued raising of interest rates / reserve ratios.  That's for another time.

Further reading:

High oil prices hit US consumer:

http://bonddad.blogspot.com/2011/02/gas-prices-are-beginning-to-choke-off.html

Loan sharking Greece, I see someone in Germany is reading my blog

I doubt I have that much influence on German M.P's as the idea of posting collateral for a loan is not that exotic. . .

"The Greek state must sell stakes in companies and also assets such as, for example, unpopulated islands," Frank Schäffler, a member of parliament for the pro-business Free Democrats, told the Bild daily.

Getting the Greeks to hand over title after they default could be another matter.  For those of you who think that unlikely; Greece has spent the majority of time since 1800 in default.  (This Time Is Different, 2009, page 98 & 99)