European Bonds: Oh no! What happened!

As I type this, you all surely have heard of the bit of turbulence that occurred in the US stock market today, with the Dow Jones dropping 1,000 points, or about 8%. A stat I saw was that at the end there were 32 stocks down for every one stock that went up. But that is not what is happening (as I type this), right now, they are STILL trying to figure out what/if something went wrong or someone made a colossal mistake at about 2:40 EDT. Mind you the market closed over 6 hours ago. The NASDAQ is considering canceling trades made between 2:40 and 3:00. Think that one through very carefully... you may be very very rich if your trade was at 2:50pm, or you may be very very poor... and as of right now, you have NO IDEA! And you thought the age of computers would prevent something like this, vs those traders that had to wait until midnight during the 1929 crash...

But, this is not the post tonight. It is about Greece, which I wanted to do 2 weeks ago, but could not get recent data until yesterday. So far, only Iceland has fallen prey to overwhelming debt, and Greece (depending on your degree of hopefulness) has all but both feet in the grave. The chart below is bonds spreads of the PIIGS (Portugal, Ireland, Italy, Greece, and Spain along with the United Kingdom when compared to the bond of Germany (the biggest kid on the block).

 If you currently have Greek bonds, well you can still start a fire with them and get a bit of heat out of them...  If I have the numbers right (and I apologize, but I cannot find daily data for bonds) German 2 year bonds yield about 4% currently, whereas a Greek bond being 700 basis points above the German bond, or 7%, would therefore yield 11%.  They could not support the debt at 7%, who is crazy enough to think that 11% is even remotely doable? 

And of course Germany before sending money to Greece is demanding Greece get its fiscal house in order by cutting back harshly on government spending and the size of the government, which obviously sent protesters and riot police into the streets once it became clear that Greece was going to comply (they had no choice!).  We still have a bit, but as more and more folks in more and more countries get mad, it is just a matter of time before one country blames the other for its woes and armies start crossing borders. 

Seems to me that Ireland is next, but the news has picked Portugal, and at this stage, that may be all it takes (there does not have to be a rhyme or reason any longer).  Either way, both these countries are shooting for 3rd place with Spain being the dark horse, but also note, the UK is right there (it is hard to see, but Italy is mimicking Spain, and the UK has level off of late).  The original of the graph BTW is from the Federal Reserve Bank of Atlanta.

So you have to ask yourself, if the UK is here, how long before folks start seriously talking about the USA's AAA rating?  Greece's bond rating is BB+ with a negative outlook.  You can reference the post last Dec when it was A-.

Anyway, more to come.  It is now FDIC Friday as I like to call it now, lets see whose bank gets shut down this week!

Keep your money safe!!!