(Image courtesy of PressTV.ir)
What a difference a few weeks makes! For those of us that are sports fans, a few years ago the great Stephon Marbury said of the Knick situation during another dreadful season that “The ship be sinking”. He was actually the second NY athlete to say that. A guy named Michael Ray Richardson did it in the 80’s (just want to keep my historic and totally useless spots facts accurate). This is what came to my mind first thing this morning when I got into my office and turned everything on. Just to try this morning on for size, how about these headlines to pretty much sum everything up:
- Spain slump deepens as bailout fears grow;
- Great uncertainty hangs over German economy;
- Greece now in “Great Depression”.
And here we all thought the Mets and Yankees had a bad weekend!! The ship is sinking or so it appears as the situation in the EU has obviously not improved since we last talked and has now reached the point of calamity. Many smart people out there have always pointed to Spain as being the linchpin to the future of the Euro. With their situation getting worse and with the markets just compounding the problem by selling all things Spain, with the exception of their favorite Barcelona soccer jersey, it does almost feel as if it is inevitable for the total collapse of the Spanish economy and ultimately the EU.
Unfortunately we have seen these types of events before in a smaller but yet meaningful scale with the collapse of Bear, Lehman, FNMA/FHLMC, Countrywide and some others less significant. Things were obviously bad in all those cases but once the market decides that your done then any hope at reviving what little good is left vanishes quickly. You get the feeling the same could and will happen with Spain but unlike the pre-mentioned situations there is no Fed bailout (FNMA/FHLMC) or there is no company that will bottom-feed to pick up the dead carcass like Chase did with Bear or BofA did for Countrywide (which they will eternally regret). We are talking about the economic collapse of a country with about 50 million people that had a first class banking system. In all due respect to Greece…this is not Greece. Then when you couple this with the “Germany economic uncertainty” headline, it is time to hide under the table. We are in for a rocky road ahead.
All this is unprecedented and the financial markets are acting that way which is why the flight-to-quality trade is in full tilt in-spite of insanely low historic yields in the US Treasury markets as well as the mortgage markets. The 10yr is now down to 1.41% and it is hard to make a strong argument that it can’t go lower especially when the expectation of QE3 is at its all-time high. I am not ready to declare a 1.0% 10yr just yet but it is on the tip of my tongue. Keep in mind that I do believe these low yields are insane and when the bubble bursts it will get ugly. However, I just do not see a return north on bond yields in the immediate future. To help matters along this morning in keeping yields low, we have the stock market getting crushed. Most indexes are down as much as 2.0%. Even oil is getting hit after what has been a quick return to higher oil prices (it doesn’t take them too long to get to the pump when that price goes up…funny) as it is down about 4.0%.
So much for a ho-hum summer complements of our friends overseas. London will have a hard time producing anything in the 2012 Summer Games that is getting more attention than what the EU is giving us.