Euro and stocks get hammered as ECB rejects ‘nuclear option’

“Watching the pot come to a boil”

7-May-10 News — Euro and stocks get hammered as ECB rejects ‘nuclear option’
Greece approves austerity package, amid somber protests

What was the cause of the Dow’s 1000 point drop?


Dow Industrials, 6-May-2010. High = 10879, low=9869. <font size=-2>(Source: NY Times)</font>
Dow Industrials, 6-May-2010. High = 10879, low=9869. (Source: NY Times)

The Dow Jones Industrial Average plunged hundreds of points for a while on Thursday afternoon, attaining an almost 1000 point drop at one point. At that point, bargain hunters came into the market, convinced that stops were “incredibly cheap” (as one financial pundit I heard said). At the end of the day, the Dow Industrials were down “only” 348 points.

Some pundits are claiming that the plunge was caused by some kind of computer glitch. Bloomberg quotes a New York Stock Exchange spokesman as blaming the guys over at the Nasdaq exchange.

“There were a number of erroneous trades Our guys just told me Nasdaq is investigating the erroneous trades. What happened today in P&G for instance, the bad print was on Nasdaq, not here.” The reference to P&G was a 37% plunge in Proctor & Gamble stock prices.

These claims seem almost comical. There was clearly a panic going on.

At the height of the panic, around 2:45 pm on Thursday, I heard the following from the Bloomberg TV financial news reporter Adam (I didn’t get his last name):

“I just tried calling several trading desks. They would not pick up the phone. They said, ‘I can’t talk, I’m flooded with orders.’ And that’s what you’re seeing. Guys are selling indiscriminately. If you have money in the market, and you’ve made money, then you have to sell right now, it doesn’t matter. You don’t care what the bid is, you just want out, you’ve got to protect what you’ve got.Look, it was only 14 months ago that this thing was at the low, and you have to protect what you have. That’s what it boils down to. …

The mindset is ‘Get me out!’ As one trader said — I spoke to him, one of the few who would pick up for me — he said, I’m selling stock for a guy right now. I called and I said, ‘I do have a bid.’ And the guy said ‘Sold!’ And I said, ‘But you don’t know what I’m buying.’ He said, ‘I don’t care. There’s a bid. That’s all I want. I’ll sell anything. Just show me a bid.’ That’s what it boils down to.”

In fact, the plunge was not a surprise to some traders. Higgenbotham, in the Generational Dynamics forum, says: “The market had been showing weakness since last evening. I e-mailed my broker before the crash, warning him the S&P could drop 30 points in a short period of time if 1150 gave way.” As it turned out, the panic began shortly after the S&P index fell below 1150.

The fact that the plunged wasn’t CAUSED by a computer glitch doesn’t mean that computers didn’t play an important role, in what some analysts are calling a “computer rout,” according to Bloomberg.

It’s worth remembering that in the 1929 crash, when everything was being done manually, the stock exchange was backed up for hours, before all the trades could be settled. Today, computers settle the trades quickly, but computers also generate orders much more quickly as well, so that a panic can take place at the speed of light, rather than just at the speed of a human.

I’m always reminded of a saying that I first started hearing in the 1970s: “To err is human, but to really f–k things up takes a computer.”

As regular readers of this web site are well aware, Generational Dynamics predicts that a major stock market crash is mathematically certain.

The reason is that the stock market has been overpriced by a factor of 150%-200% since 1995. By the Law of Mean Reversion, they must fall to Dow 3000 or lower for a roughly equivalent length of time. See “How to compute the ‘real value’ of the stock market.” This is an absolute certainty, if not now, then at some time in the near future.

The European Central Bank rejects the ‘nuclear option’

A lot of people are blaming the panic on Jean-Claude Trichet, president of the European Central Bank (ECB).

Thus, Bloomberg quotes one analyst as saying, “The ECB can fix this instantly by doing what the Fed has done — instantly providing liquidity by buying bad fixed-income instruments and paying cash in U.S. dollars. The reason the market is horrified now is Trichet said it’s not even being discussed. Smart investors are basically selling risk assets.”

This is what the Europeans are calling the “nuclear option” — purchasing vast amounts of toxic assets from Greece, Portugal, Spain and other eurozone countries, similar to the Fed’s TARP (troubled asset recovery program). Trichet had been expected to announce such a program at his press conference on Thursday afternoon, but instead he retained very conservative ECB policies.

This option would have required the ECB to “print money” — issue almost $1 trillion of its own debt — and use that money to purchase the assets.

An analysis by the NY Times indicates that this kind of explosive move would be almost politically impossible in Europe, because of national rivalries, especially opposition by the Germans.

According to the article,

“It is not really about money,” said Timothy Congdon, an economist and professed euro skeptic who foresees an exodus of savings from banks on Europe’s periphery to Germany as doubts build about these countries’ staying power in the Eurozone. “It is about how much pain the people in periphery can stand in order to keep this thing going. Once the confidence is gone, and Greeks and Spaniards move their deposits to Frankfurt, it becomes a self-fulfilling prophecy, and the whole thing implodes.”

Congdon concludes that the ECB is under the influece of Germany, which firmly opposes this type of expansive policy, which would only weaken the euro currency.


Euro collapses vs the dollar, since Monday of this week <font face=Arial size=-2>(Source: ftalphaville.ft.com)</font>
Euro collapses vs the dollar, since Monday of this week (Source: ftalphaville.ft.com)

Unfortunately, Trichet’s strategy isn’t working, as the adjoining graph shows. The value of the euro against the dollar has been falling since last year, and has been falling rapidly this week, once it became obvious to investors that the latest EU non-bailout bailout of Greece wasn’t going to help.

Greece is at the ‘edge of an abyss’

The bodies of three people, one of whom was a pregnant woman, were pulled from the charred remains of the bank that had been firebombed by leftist protestors on Wednesday. The deaths shocked the nation.

Kathimerini quotes Greece’s president Karolos Papoulias as summing up the situation as follows: “Our country has reached the edge of the abyss. It is everybody’s responsibility that we do not take the step toward the drop. Responsibility is proved in action, not in words. History will judge us all.”

Much of the financial world was riveted on televised scenes from the streets of Athens on Wednesday, and many blame Thursday’s Wall Street plunge on continuing violence in Athens by those protesting the austerity requirements of the bailout. However, Athens was much more somber on Thursday than on Wednesday, and the crowds were much smaller, according to the Times Online.

The debate in the Greek parliament was over whether they should agree to the austerity demans of the EU — cutting spending, and raising taxes. The socialist government of Prime Minister George Panandreou criticized the protestors, saying, “neither rocks nor violence will get Greece out of the guardianship” of the EU.

Conservative opposition leader Antonis Samaras said, “The dose of the medicine you are administering is in danger of killing the patient. You know that these measures have sparked a social explosion. The citizens of this country have to believe there is a way out. Because whoever cuts pensions of €700 cannot convince anyone.”

All this happened while protestors were outside, demanding that the austerity bill be rejected.

However, prime minister Papandreou carried the day by saying that there was no alternative. “Today things are simple. Either we vote and implement the deal, or we condemn Greece to bankruptcy.” The parliament passed the austerity bill.

It’s remarkable that these events, which would normally be avoided by anyone outside of Greece, had suddenly become the focus of worldwide attention. As always, Generational Dynamics focuses on the behaviors and attitudes of large masses of people, and large masses of people around the world followed the situation in Athens very closely. This shows how much the world has become anxious about the situation in Greece, and how they feel that it will affect their own personal lives.

And indeed, the Greek “contagion” is having an effect far beyond Greece’s borders. As we pointed out a couple of weeks ago, Europe is in the midst of a full-scale panic. Nothing that’s happened since then has had any effect, other than to accelerate the panic and resulting deterioration.

An analysis by Reuters points out that a wider euro debt crisis is almost certainly coming soon. The article points out that bond prices in Spain and Portugal have been collapsing, although they haven’t yet reached Greece’s low point. European banks already refuse to lend money to Greek banks, and the big danger right now, according to the article, is that the same fate will happen to banks in Portugal, Ireland and Spain.

The contagion is spreading to Asia as well. As I’m writing this on Thursday evening (Friday morning in Asia), stock prices have fallen sharply.

It’s altogether possible that the panic that we saw on Wall Street on Thrusday is just part of the “contagion” that began in Greece. If so, then we can expect a lot more carnage in the days to come.

Additional links

A big nationwide real estate developer in China is offering a 15% discount on property across the country. I heard China expert Jim Chanos on CNBC say that was a very big story. It could be a sign that China’s real estate bubble is finally crashing. The Shanghai stock market has fallen sharply as a result. China Daily

More than 2,000 babies have been born to women who lost their children in China’s 2008 Sichuan earthquake. China had relaxed the “one child” rule for these women. Radio Australia News

Taiwan’s president Ma Ying-jeou had to back off of a recent statement saying, “we will never ask the Americans to fight for Taiwan.” China Post

The CIA has received secret permission to use unmanned drones to attack a wider range of targets in Pakistan’s border region. This is a significant expansion. LA Times

(Comments: For reader comments, questions and discussion, see the 7-May-10 News — Euro and stocks gets hammered as ECB rejects ‘nuclear option’ thread of the Generational Dynamics forum. Comments may be posted anonymously.) (7-May-2010) Permanent Link

6-May-10 News — Deadly riots in Athens shock the world
European officials search desperately for a way to stop the approaching meltdown

Three die in violent ‘anti-austerity’ riots in Athens


Athens rioting: A Molotov cocktail explodes among a group of riot police <font face=Arial size=-2>(Source: Independent)</font>
Athens rioting: A Molotov cocktail explodes among a group of riot police (Source: Independent)

Three people were killed when left-wing demonstrators burned down a bank by throwing a petrol bomb. The Independent reports that over 100,000 protestors filled Athens streets to protest the austerity measures — spending cuts and tax increases — imposed on Greece in return for the promised aid package from the European Union and the International Monetary Fund (IMF).

These kinds of riots go on in various countries around the world without drawing as much attention. For example, similar riots in Thailand and Kyrgyzstan have been reported in the press in recent months, but without the massive worldwide public interest.

The interest in this case is caused by the fear that the riots will mean the collapse of the aid package, with follow-on effects causing financial crises in other eurozone countries and around the world. In particular, the violence may completely torpedo the aid package to Greece, leading to immediate default that would quickly spread to other countries.

There are two possible directions that this violence can go.

In some cases, these kinds of deaths cause everyone to pull back from violence and take another path. We’ve seen this in Thailand for example.

In other cases, the violence feeds into more violence.

The protestors have made it clear that they will continue their protests, but in the next few days we’ll see whether the protests become more peaceful or more violent.

Officials fail to halt meltdown of euro currency

As we’ve been saying lately, portions of Europe’s economy are in the midst of a full-scale panic and crash.

There have been a series of attempts by European officials to halt the meltdown by offering various different types of aid to Greece, although in most cases the “aid” was nothing more than words, as we’ve frequently reported.

This past weekend, Greece was offered 110 billion euros of aid, with the intention of stopping the financial deterioration of the eurozone. But it was as unsuccessful as the previous attempts. On Wednesday, the euro currency fell to below $1.28, it’s lowest value against the dollar in 14 months. It was $1.45 at the beginning of this year. Yields on Greek 2-year bonds are around 15%, indicating that investors believe that a default has a very high probability.

The Greek “contagion” is spreading to other countries. According to Reuters, Moody’s Investors Service says that a downgrade of Portugal’s credit rating is likely. Interest rates on Spanish debt reached their highest levels since the launch of the euro, according to the Telegraph.

The article quotes Marco Annunziata, Europe economist at UniCredit, as saying:

“Contagion pressures continue to rage unabated. The flames have rushed through the firewall of the IMF/EU programme for Greece and now threaten other peripheral countries.While the sell-off on sovereign bond markets so far remains discriminating, the risk that it might suddenly mutate into irrational panic can no longer be ignored. Eurozone policymakers need to take further steps quickly.”

These are strong words, much stronger than might have been heard even a week ago, but they represent the increasingly desperate level of concern of analysts over a potential meltdown — specifically in the form of a panic.

At the center of the controversy is Germany, the strongest economy in Europe, and chancellor Angela Merkel, who is increasingly being blamed for “causing” the problem by dithering too long.

Merkel is faced with the problem of convincing the Bundestag (parliament) to support the aid package for Greece, particularly Germany’s 25 billion euro contribution to the package. She’s quoted as saying:

“Nothing less than the future of Europe is at stake. The happy tale of German history since World War Two and our emergence as a free, united, and strong country cannot be separated from the European Union. We owe decades of peace and prosperity to the understanding of our neighbours. Europe today is looking to Germany. As the strongest economy in Europe, Germany has a special responsibility and it takes this responsibility to heart.Immediate help is needed to ensure the financial stability of the eurozone. This must be done to avoid a chain-reaction to the European and international financial system, and contagion to other eurozone states. There is no alternative.”

It’s worthwhile to pause for a moment to explain why I focus on quotes of this sort.

Generational Dynamics studies changes in attitudes and behaviors of large masses of people, entire generations of people. These two quotes are important because they reflect major changes in attitudes among Europeans in just the past two weeks. These indicate that Europeans are increasingly anticipating the full-scale crash that Generational Dynamics has been predicting for some time. It’s the desperate nature of these quotes that’s significant.

The desperation is buttressed by more sober analyses.

Last week I quoted highly respected financial columnist Wolfgang Münchau as predicting that Greece would default next year, not this year. I pointed out that there was a logical inconsistency in this statement: If investors believe that Greece will default next year, then they won’t want to invest in Greece this year, and so Greece would default this year.

Now Münchau has a new analysis in EuroIntelligence:

“The numbers still do not add upThe aim of the rescue package agreed for Greece cannot conceivably have been to prevent a default. For all the daunting austerity and structural reform it requires, the numbers do not add up. The main purpose I can detect is to reverse the rise in Greek bond yields and stop contagion.

We should not knock this deal from Athens. The eurozone might not have survived otherwise. This column would have been an obituary. I am also glad to note that those in charge gave a positive answer to a question I posed last week, which was whether the authorities would ever get ahead of the situation. They did, and they deserve credit.

But in spite of the readiness to accept extreme austerity, Greece will not get by without some form of debt forgiveness. I can understand why the International Monetary Fund and the European Union did not want to open that can of worms at this point. It would have prolonged the negotiations. In the middle of an acute bond market crisis one has to manage expectations very carefully.

A debt restructuring will eventually be necessary, however, because Greece’s debt to gross domestic product ratio is going to rise from its current 125 per cent to about 140-150 per cent during the adjustment period. Without restructuring, Greece will end up austere, compliant, and crippled.”

This analysis pretty much rips apart all the assumptions that we’re hearing from politicians and other analysts. And once again, we have the same logical inconsistency: If Greece is going to default (debt will require restructuring) in the future, then investors will not invest in Greece today.

With that in mind, let’s go back to what Merkel said: “Immediate help is needed to ensure the financial stability of the eurozone. This must be done to avoid a chain-reaction to the European and international financial system, and contagion to other eurozone states. There is no alternative.”

But in fact Münchau’s analysis indicates that the “immediate help” does absolutely nothing to ensure the financial stability of the eurozone, or to avoid a panicked chain reaction. Since the aid package will have no effect on the outcome in Greece, it cannot have any effect on the outcome in the eurozone.

And we’re seeing this in action. The violence in Athens means that the required austerity package may be watered down. The weakness of Greece has already spread to Spain and Portugal, and worsens by the day. And an analysis in Financial Times indicates that there’s increasing concern of a default in Italy. And Merkel has already made it clear that the situation in Greece was unique, and bailout will not be repeated for these other countries.

As we’ve said several times in the last couple of weeks, there’s only one desperate measure left, what the Europeans call the “nuclear option.” This means that the European Central Bank (ECB) will issue hundreds of billions of euros in new debt (“print money”), and use the money to aggressively purchase bonds of eurozone countries. This would effectively bail out the individual countries, and prevent them from defaulting, but it’s quite possible that ECB will then be in danger of default.

As regular readers of this web site know, from the point of view of Generational Dynamics, there’s little doubt where this is going. Europe and the world are headed for a major financial crisis, worse than in the 1930s. Right now, readers should be aware that the rapidly deteriorating situation in Europe means that this crisis may be very close.

Additional links

The ten best geek characters in mainstream movies. The winner: Indiana Jones. Wired

Another sign of political realignment: A surge of black Republicans are running for Congress, the greatest number since Reconstruction, as an unexpected consequence of President Obama’s election and the rise of the Tea Party. NY Times

Explosive traces have been found on debris from the sunken South Korean warship Cheonan. This confirms that the explosive that sank the Cheonan came from a torpedo, further implicating North Korea. AFP

(Comments: For reader comments, questions and discussion, see the 6-May-10 News — Deadly riots in Athens shock the world thread of the Generational Dynamics forum. Comments may be posted anonymously.) (6-May-2010) Permanent Link

5-May-10 News — Financial markets volatile as Europe considers the ‘nuclear option’
Shadow inventory indicates there’ll be another leg down in housing prices

World markets volatile as Europe considers the ‘nuclear option’

Last week I wrote that there was full-fledged panic in progress, as Greek bond prices were crashing, with a “contagion” effect on Portugal and the euro.

Sunday’s non-bailout bailout of Greece was supposed to stop the panic, but it didn’t.

Then on Monday, the European Central Bank (ECB) took the first step to invoking the “nuclear option” (“quantitative easing” through aggressive purchasing of countries’ bonds) by allowing Greek junk bonds to be used as collateral in credit operations, according to an ECB press release.

One important measure of the level of panic is the prices of credit default swaps (CDSs) for Greek debt. Recall that a CDS is a kind of insurance policy that pays off if the underlying debt defaults. In “normal” times, a typical CDS price is $10-25,000 to insure $10 million of debt.

CDS prices on Greek debt dipped slightly on Monday, because of the aid package, but by Tuesday they were back up to the astronomical level of 725bp, according to FT Alphaville, meaning that it will cost $725,000 to insure $10 million of Greek debt.

More worrisome is that the panic is spreading to other euroland countries. The following graph shows what’s happening to CDS prices for Portugal and Spain:


CDS prices for debt from Spain and Portugal, Nov 2009 - present <font face=Arial size=-2>(Source: ftalphaville.ft.com)</font>
CDS prices for debt from Spain and Portugal, Nov 2009 – present (Source: ftalphaville.ft.com)

This graph shows dramatically how CDS prices are spiraling out of control for Portugal and Spain, as they follow Greece’s path.

Markets around the world fell 2-3% on Tuesday. Financial pundits that I heard give various reasons:

  • Lack of faith that the Greeks will fulfill their austerity commitments. This lack of faith is fairly widespread, and it means that Greece will be near default again at some point in the future, possibly the near future. At any rate, if you’re an investor and you’re afraid that Greece will default within two years, then you aren’t going to be too anxious to invest in Greek two-year bonds.
  • Concern that the bailout money won’t be provided to Greece after all. Germany appears to be fully on board, but leaders of other countries aren’t so sure. EU Observer quotes Robert Fico, the prime minister of Slovakia, as saying, “I don’t trust the Greeks. The approval by the [Greek] government is not enough. We want to see laws approved by the parliament leading to cuts in salaries, pensions and social benefits. Until then the Slovak cabinet will not authorise its loan.”
  • Concern that the Greek problem will spread to other PIIGS countries (Portugal, Ireland, Italy, Greece, Spain). I heard one pundit express a great deal of concern about Italy. On the other hand, Spanish Prime Minister Jose Luis Rodriguez Zapatero dismissed as “complete madness” the market rumors about Spain, according to Reuters. This provided some grim humor, since this is exactly the kind of thing that the Greeks were saying just a couple of months ago.
  • Concern that if the problem DOES spread to other countries, then no bailout will be forthcoming. This was signaled by German chancellor Angela Merkel, whom Bloomberg quoted as saying that the euro region must have a way to allow for “an orderly insolvency” of future countries in crisis.
  • Concern that the euro currency is crashing. On Tuesday it fell to its lowest level in over a year against the dollar, according to the Telegraph.
  • Concern that European banks will suffer some bankruptcies, causing banks around the world to lose money.
  • Concern that the bailouts will cause a major recession in Europe, and that this will spread to other countries, since Europe will become less available as a market for exports.

These are plenty of negatives weighing on the world’s markets.

Considering the ‘nuclear option’

Balancing all of those negatives there’s only one potential “positive,” and that’s the “nuclear option,” a form of massive quantitative easing.

If the ECB exercises this option, it will “print money,” and use the money it creates to aggressively purchase bonds from several euro countries. An FT Alphaville analysis indicates that the ECB is indeed considering this option. ECB president Jean Claude Trichet was quoted as saying, “At this stage, we have absolutely no decision on the purchase of government bonds,” and his use of the phrase “at this stage” in the past has meant that a change of policy was being considered.

According to the article, an increasing number of analysts believe that the nuclear option is the only way to keep the Greek contagion from spreading.

“Oh dear. Whilst one day’s trading does not necessarily indicate a trend, I would bet that there are a lot of very worried EU officials this afternoon,” says Gary Jenkins of Evolution Securities. “In the poker game between the markets and the EU the former has consistently asked to see the latter’s hand, and with the €110bn 3 year package the EU was no doubt hoping that it was game over. But maybe not.”

Jenkins also points out that “About the only thing the EU has left up its sleeve is to ask that the ECB buy bonds in the market. However this would have to be in significant size to have any real impact.”

Commentary from the Royal Bank of Scotland argues that the ECB should take this step right away, rather than wait for the situation to get worse.

Back in August, 2007, I posted the article, “The nightmare is finally beginning.”

That was when the global credit crisis began, and it appeared that the crisis would spiral out of control. That’s when Fed chairman Ben Bernanke announced a small reduction in the Fed funds rate, and that’s all it took to allow the stock market bubble to continue growing for another month, going above Dow 14,000.

Those were the good old days, because the solution was so simple. But as we’ve gone from one crisis to another, each significantly more serious than the previous one, it’s been necessary to do a lot more than just make an interest rate reduction. Particularly after the Lehman Brothers bankruptcy in September, 2008, governments around the world implemented huge stimulus and quantitative easing programs, resulting in a renewed stock market bubble throughout the last year.

But as the current Greek crisis worsens, more and more people seem to agree that central banks have almost run out of ammunition. There’s really only one weapon left, and that’s a huge purchase of government bonds by the ECB.

The problem is that, once again, Generational Dynamics predicts that this cannot end the crisis, but can only postpone the crisis a little bit longer. Let me make a point that I’ve made several times before.

On Tuesday, the Dow Industrials fell over 200 points to just above 10,900. Everybody believes that this is a bad thing.

But it was just a little over a month ago that the the Dow ROSE to a price just above 10,900, and that was a cause for celebration. How could the same price be bad news today, when it was very good news a month ago?

The point I’m making is that there’s no one that I hear on television or read in the financial papers ever addresses the question of what the Dow SHOULD be. Is 10,900 too high or too low? Should it be 11,000? 14,000? If so, then why not 20,000 or 100,000 or a million? Is there any reason why a million is any better or worse than 10,900? And would Dow 1 million be good news or bad news? What if it had been 1.1 million the week before?

And once you’ve accepted that a million is just as fair a price as 10,900, then you’d also have to agree that 9,000 is also a fair price. So is 8,000 or 5,000, or 1,000.

If you were investing in an apartment building, you could answer that question by estimating the rental income and expenses over time, and perform a present value computation to get the real value of the apartment building.

You can do the same thing with stocks by using price/earnings ratios. That’s what I did in the article, “How to compute the ‘real value’ of the stock market.” As that article shows, the stock market has been in a bubble since 1995, and is still overpriced today by a factor of almost 200%, so by the Law of Mean Reversion, there will be a stock market crash to a range below Dow 3000.

That’s the reality of the situation. Stimulus and quantitative easing programs have postponed the inevitable, and they may or may not do so one more time in Europe, but it is mathematically certain that a major stock market crash is still to come.

The sound of angry Greek men


Giant banner near the Parthenon in Athens, hung by Greece's communist party
Giant banner near the Parthenon in Athens, hung by Greece’s communist party

Demonstrators from Greece’s communist party, KKE, took over the Parthenon on Tuesday, and hung the huge banner shown in the adjacent photo. Their apparent intention was to encourage all the people of the different countries in Europe to rise up with them in protest to the austerity measures imposed on Greece.

This is one of the reasons that many Europeans don’t trust the Greeks, and why many analysts doubt that Greece will stick to the austerity measures that they’ve already agreed to.

In fact, there’s been a lot of discussion on the BBC about why the Greeks aren’t more grateful that they’ve been bailed out. Many people outside of Greece feel that they’re going to suffer because of Greece’s profligacy, and that they should at least receive a “thank you” for their sacrifices.

As FT Alphaville put it, referring to the Parthenon demonstration, “That, of course, follows Europe’s €110bn bailout pledge for Greece this weekend. Charming.”

That article also referred us to the video of the song “Do You Hear the People Sing?” from the musical show Les Misérables.

This is a great song, and serves as our musical entertainment for today. Once you’ve heard it, then you too will be motivated to go out and start a revolution:

Military spending in Greece

A web site reader asks:

“What is your take on this comment “One of the most surprising parts of the IMF program is that it includes pledges by Greece to cut military spending, which the IMF didn’t detail. The IMF rarely deals with military matters, which are considered the heart of a nation’s sovereignty. In Pakistan, by contrast, the IMF had to sell its loan program to the military, said officials involved with the talks, by convincing prominent generals that a weakened economy would undermine Pakistan’s national security.” Its seems there is a plan in place to weaken the Hellenic Army?”

The issue with the Greek armed forces is Turkey. Greece is one of Europe’s biggest arms purchasers, according to an analysis by the French news agency AFP, out of concern over a war with Turkey. However, the IMF has warned Greece that military spending must be “clearly reduced.”

Orthodox Christian Greece and Muslim Turkey have been at war several times for centuries, most recently in the Mediterranean island of Cyprus in the 1970s. Even today, the island is split into two fortresses, one with Greek citizens and one with Turkish citizens.

Turkish Prime Minister Recep Tayyip Erdogan will visit Greece next week, with the goal of improving relations between the two countries. After all these centuries, it’s doubtful that one meeting will make much difference.

Another leg down in the housing market?

According to the WSJ, there’s plenty of reason to believe so.


Housing market inventory -  number of months to clear out existing real and shadow inventory <font face=Arial size=-2>(Source: WSJ)</font>
Housing market inventory – number of months to clear out existing real and shadow inventory (Source: WSJ)

As the above graph shows, it would now take 103 months (8 1/2 years) to sell off all the foreclosed properties in banks’ possession.

As of March, banks had an inventory of about 1.1 million foreclosed homes, up 20% from a year earlier, according to the article. Another 4.8 million mortgage holders were at least 60 days behind on their payments or in the foreclosure process, meaning their homes were well on their way to the inventory pile. That “shadow inventory” was up 30% from a year earlier.

That means that housing prices are certain to continue to fall. My own estimate, as I’ve stated before, is that they’ll fall to 1990 prices.

Additional links

South Korea appears to be inching closer to blaming North Korea for the sinking of the warship Cheonan. On Tuesday, president Lee Myung-bak convened an unsual meeting of top military commanders, and vowed “clear and resolute measures” against those responsible. NY Times

For techies: How to stay anonymous online. PC Magazine

Al Gore has purchased a $9 million mansion in Montecito, Calif., with an “almost comical carbon footprint,” indicating that he’s probably giving up on the global warming movement. Pajamas Media

There are now numerous examples of how YouTube.com has become the internet’s primary and rapidly expanding jihadi base. Jihadist groups are using it to take responsibility for terrorist attacks, and for training and propaganda. MEMRI

The “Red Shirt” demonstrators that have taken over Bangkok’s retail district are willing to negotiate with Thailand’s government officials over a proposed reconciliation plan involving early elections. However, the demonstrators want a much earlier date than the November date being offered. Xinhua

“Cash recycling machine” and “Slip and fall down carefully” are examples of signs in Shanghai in Chinglish, a Chinese version of English that results from poor translations of Chinese into English. A campaign in Shanghai seeks to eliminate these signs. NY Times

A U.S. military base on the Japanese island of Okinawa has become increasingly unpopular with the island’s people. When Prime Minister Yukio Hatoyama was running for election last year, he promised to move the military base off the island. But now he’s backtracking on that promise, and looking for a compromise plan. Nikkei.com

Faisal Shahzad, the attempted Times Square car bomber, was born and trained in Pakistan, before he became a naturalized U.S. citizen. On Tuesday, Pakistan law enforcement agencies arrested Shahzad’s family members living in Karachi. Dawn

Fallen arches are not a problem for most people, but in severe cases can be very painful, and require surgery. NY Times

Beautiful women are bad for your health. Telegraph

(Comments: For reader comments, questions and discussion, see the 5-May-10 News — Financial markets volatile as Europe considers the ‘nuclear option’ thread of the Generational Dynamics forum. Comments may be posted anonymously.) (5-May-2010)

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s