GBR Market Wrap: Markets Indicate an Imminent Default by Greece

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In this Week’s Issue: November 18, 2011

Weekly Snapshot
• U.S. leading economic index increased 0.9% in October (0.1% in September)
• Criminal investigation into the collapse of MF Global has begun
• MF Global diverted hundreds of millions of dollars in customer money to BNY Mellon
• U.S. industrial production expanded 0.7% in October (-0.1% in September)
• The ECB intervened in the markets by purchasing Italian and Spanish debt
• German and French economic growth rebounded in the third quarter
• The Euro area annual inflation was unchanged at 3.0%
• Italian 10-year bond yields rose past 7% but fell to 6.12% on Friday
• Spain’s 10-year bond yields closed the week at a yield of 6.38%
• U.S. producer prices declined 0.3% in October, seasonally adjusted
• U.S. retails sales in October were up 0.5% (m/m) and up 7.2% from one year ago

Market Barometers

st-2011-11-18

fx-2011-11-18

Weekly Chart
All eyes were on Greece, Italy, and Spain again as if we don’t have enough of a mess in our own economic and fiscal backyard. Nevertheless, the situation in Europe is grave. Greek 10-year government yields have spiked again and are now at a staggering 28.19% while the Greek one-year is at a stratospheric 265.9% (no, it’s not a typo). The markets clearly indicate the imminent default by Greece. Then why are some leading European politicians still hanging on to this dream that Greece might somehow turn around? To put things into perspective, please consider the chart below, courtesy of Der Spiegel. It looks like Greece’s miraculous fiscal “discipline” that allowed them to join the Eurozone was nothing but a mirage. Ten-year government bond yields are back right were they ought to have been all along…

Greek Yield

Recommended Read
Here is an excellent summary reminding us how the Euro and its Eurozone came about and how Greece was able to join the common currency. Please consider: How a Good Idea Became a Tragedy.

Good luck and good investing!


Clemens Kownatzki, MBA is an adjunct professor of financial risk management at the Graziadio School of Business and Management, as well as the founder and CEO of FX Investment Strategies, a Registered Investment Advisor. In addition to running his investment advisory firm, he is a contributing author at SeekingAlpha.com and BusinessInsider.com. He also authored the book, Money Music 101, available on Amazon and Kindle, in addition to publishing the popular investment blog www.fxinvestmentstrategies.com along with a weekly newsletter.Disclaimer

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Author of the article
Clemens Kownatzki, MBA
Clemens Kownatzki, MBA
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