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Generational Dynamics Web Log for 12-Jan-2011
12-Jan-11 News -- Euro crisis grows in Portugal and Belgium

Web Log - January, 2011

12-Jan-11 News -- Euro crisis grows in Portugal and Belgium

Bangladesh stock market rallies 15% in 78 minutes

Euro crisis grows in Portugal and Belgium

On Tuesday, Prime Minister José Socrates of Portugal defended his country's economy, according to Bloomberg:

"The budget deficit will clearly be below forecast. The country is doing its job and doing it well. Portugal will not request financial aid for the simple reason that it’s not necessary."

According to on WSJ blogger, this denial is a sure sign that a bailout is coming soon, based on what happened last year:

"A look at what happened when Ireland and Greece officials made similar statements last year shows that when those two European sovereigns declared they were fine on their own, it took less than a week for them to start sounding a different tune. Within a month of their statements, both had done full about-faces and sought financial aid from the European Union and International Monetary Fund."

Indeed, there's plenty of reason not to believe Socrates. Portugal is going to go to the bond market on Wednesday to borrow 1.25 billion euros. The yields (interest rates) on Portuguese bonds has been steadily rising into crisis levels.

And not only Portugal: Belgium's bond yields have been surging as well. Higher bond yields mean that investors are increasingly betting that the country is going to default.

10-year bond yields for Portugal and Belgium -- year preceding January 11, 2011 (Bloomberg)

10-year bond yields for Portugal and Belgium -- year preceding January 11, 2011 (Bloomberg)

As you can see from this graph, bond yields for Portugal are now at 7%. This was roughly the point where Greece and Ireland turned into crises last year.

Even more important, you can see the trend. Portugal's bond yields have been going up steadily for a year, and because of Portugal's budget deficit, there's absolutely nothing on the horizon that's going to improve the situation, other than hoping for a miracle.

As for Belgium, bondy yields have been exploding in the last few days, causing great alarm among the analysts. Belgium's bond yields appear to be where Portugal's were a year ago, so it will be interesting to see what happens next with Belgium.

Bangladesh stock market rallies 15% in 78 minutes

Yesterday we reported that the Dhaka (Bangladesh) Stock Exchange appeared to be crashing, as panic selling for two days had caused sharp falls, resulting in thousands of investors rioting violently in the streets. Trading had to be suspended on Monday when the index fell by 660 points in 50 minutes.

On Tuesday, the index gained 992 points in 78 minutes, reversing the losses of the previous day, according to India Times.

Dhaka Stock Exchange - One year preceding January 11, 2011

Dhaka Stock Exchange - One year preceding January 11, 2011

According to a WSJ blog:

"The recovery in the stock market comes after Bangladesh’s Securities and Exchange Commission extended the limit that investors could borrow from brokers, according to a statement on its website."

In other words, investors could borrow more money to pour into the stock market. This sounds like the perfect solution to a crisis!

The violent up/down moves are typical of a complete crash. For example, that's exactly what happened in the days of the 1929 crash of Wall Street, as you can see in my Dow Jones historical page.

Here is a short, frightening Al-Jazeera video of what's happening in Dhaka:

The reason that it's frightening is that there are 3.5 individual investors in the Dhaka Stock Exchange, and many of them have borrowed money and sold everything they have, and put the money into stocks. And they are going to lose most of it.

At least one Eurozone country could go bankrupt

Debt burden / budget deficit: Germany, Eurozone, USA (Spiegel)

Debt burden / budget deficit: Germany, Eurozone, USA (Spiegel)

A survey of German bankers by Spiegel reveals

Most expect Portugal to be the next eurozone country to ask for a bailout.

47% expect at least one eurozone country will default.

However, only 25% said that they expected defaults to negatively affect their own companies.

The last statement appears to be wishful thinking. No one doubts that the collapse of the Lehman Brothers bank in 2008 had wide consequences, and the default of an entire European country will have widespread effects.

The "Debt Burden" graphic shows that the USA is deeper in debt than the Eurozone. Notice that the budget deficit forecasts for 2011 for all three regions show budget deficits falling in 2011. This also appears to be wishful thinking.

Additional links

We recently reported that Japan and South Korea, who were bitter enemies in World War II, are now allying militarily against North Korea and China. North Korea is criticizing South Korea for the agreement, calling it a dangerous plot to invade the North. Associated Press

The potential alliance between South Korea and Japan is causing consternation among some South Koreans, in view of their history, when Korea and China fought side-by-side against Japan in WW II. But they feel that it's a matter of necessity because China is becoming a "hegemonic power" who "ignores international law and international justice," as illustrated by their support of North Korea against South Korea, despite "seemingly irrefutable evidence of North Korean wrongdoing." JoongAng

Prime Minister Benjamin Netanyahu said on Tuesday that only the convincing threat of military action headed by the United States will persuade Iran to drop plans to build an atomic bomb. Haaretz. I think it's safe to say that no such threat will be forthcoming.

The Stuxnet virus and international sanctions have had enough of an effect on Iran's nuclear program that it's now thought Iran's nuclear program has been set back a couple of years. The result is that the risk of an Israeli strike on Iran is receding. Reuters

(Comments: For reader comments, questions and discussion, see the 12-Jan-11 News -- Euro crisis grows in Portugal and Belgium thread of the Generational Dynamics forum. Comments may be posted anonymously.) (12-Jan-2011) Permanent Link
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Generational Dynamics Web Log for 12-Jan-2011 12-Jan-11 News -- Euro crisis grows in Portugal and Belgium

Euro crisis grows in Portugal and Belgium

Bangladesh stock market rallies 15% in 78 minutes

At least one Eurozone country could go bankrupt

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Generational Dynamics Web Log for 12-Jan-2011
12-Jan-11 News -- Euro crisis grows in Portugal and Belgium