Italy in trouble…
According to WSJ, less than two weeks after European leaders unveiled an agreement that was designed to bolster confidence in the region, the yield on Italy’s 10-year debt drew close to the 7% mark, a line in the sand of both practical and psychological importance to the market.
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Psychologically, 7% has become a beacon due to the fact that Greece, Portugal and Ireland each sought bailouts soon after their debt reached these levels. While analysts said it is too simplistic to say that Italy will be forced to ask for support if its 10-year debt yields 7%, they said the recent selloff is taking the country to the tipping point.
A sharp slide in bond prices pushed yields to their highest levels since the inception of the euro. The two-year yield rose a staggering 0.60 percentage points to 6.04% while the five-year yield climbed 0.37 percentage points to 6.56%.The 10-year yield was up 0.27 percentage points to 6.60%, having hit a new high of 6.62% earlier Monday.
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Update 1 (on Nov. 10, 2011)
Italian gov. bond yields continues to soar, now above 7% threshold. See the chart from WSJ below:
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It seemed that Europe is gradually approaching its own Lehman moment. What’s different, compared to previously trouble of other smaller PIIGS, is that the latest escalation fed fears that the euro-zone debt crisis is starting down its most perilous path: going from a storm raging among small countries at Europe’s fringe to one that strikes a major economic power.
Also, Italy’s debt load of €1.9 trillion ($2.6 trillion) is the second largest in Europe, behind Germany’s, and the fourth largest in the world. Next year, more than €300 billion of debt comes due, and Italy must continually tap markets to refinance it.
What’s wrong with America’s job engine?
A nice video/graphical analysis from WSJ:
Summit after Summit
Summit after summit – this seems to be what Europeans are best at. So are Europeans just delaying the inevitable? Europe’s Lehman moment.
Watch this insightful analysis from FT:
(click to watch the video)
America’s ongoing debt deleveraging
Since the financial crisis erupted, millions of Americans have ditched their credit cards, accelerated mortgage payments and cut off credit lines that during the good times were used like a bottomless piggybank. Many have resorted to a practice once thought old-fashioned—delaying purchases until they have the cash.
As a result, total household debt—through payment or default—fell by $1.1 trillion, or 8.6%, from mid-2008 through the first half of 2011, according to the Federal Reserve Bank of New York. Auto loan and credit-card balances in August had their biggest drop since April 2010, the Federal Reserve said.
“Folks aren’t borrowing,” said Jim Ernest, executive vice president at Provident Credit Union in Redwood Shores, Calif. “They are paying down debt and continuing to save.” Since January, 12% of the credit union’s mortgage customers have made at least $1,500 in extra payments.
Nearly 300 borrowers have made at least $1,000 in additional payments on car loans from Provident, said Mr. Ernest, who confessed he sometimes can’t sleep—Provident’s loan portfolio has shrunk by a quarter since the end of 2008.The change in attitude stretches far beyond Mr. Ernest’s credit-union members: two-thirds of Americans polled online in July by U.K. research firm Absolute Strategy Research said they planned to either reduce their debt within a year or stop borrowing altogether.
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From 1997 to 2007, household debt ballooned from 66% of economic output to 98%, according to Federal Reserve data. As of June, the percentage had since been whittled down to 89%.
American households closed 103 million credit-card accounts. And credit-card payments exceeded purchases made with plastic by an estimated $116 billion between the end of the first quarter of 2009 and the end of the second quarter of 2011, according to TransUnion LLC.
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Bernanke Press Conference (Nov. 2, 2011)
Part 1
Part 2
Euro swings back to crisis – big time
Greece just shocked the world:
Greek Prime Minister George Papandreou stunned Europe by announcing a referendum on his country's latest bailout—a high-stakes gamble that could undermine the international effort to preserve the euro.
A "yes" vote in the referendum could deflate the massive street protests and strikes that threaten to paralyze Greece as it tries to enact a brutal austerity program to earn rescue loans from the euro zone and the International Monetary Fund.
A "no" vote, however, could bring down the government and cut off international funding for Greece, leaving the country facing a financial meltdown. The government expects to hold the referendum in January.
