Sovereign Debt

Magical Thinking

... the more we embrace and encourage state-directed magical thinking, whether it’s of the monetary or fiscal policy sort, what we are actually doing is opening the city gates to the old evil magic and the alt-priests of fascism and totalitarianism.

Brazil Formally Impeaches Dilma Rousseff In 61 To 20 Vote

As was widely expected, the final step of Brazil's historic impeachment process of former president Dilma Rousseff, concluded moments ago with a decision to formally impeach the former president, with 61 senators voting for her ouster, and 20 voting against. Dilma Rousseff thus becomes the second president to be impeached in Brazil’s 31-year-old democracy, paving the way for what the market hopes is a fundamental shift in economic policy.

"Central Banks Now Own $25 Trillion Of Financial Assets"

  1. Central banks own $25tn of financial assets (a sum larger than GDP of US + Japan, and up $12tn since Lehman);
  2. There are currently $12.3tn of negative yielding global bonds (28% of total);
  3. There is currently $8tn of negative yielding sovereign debt (54% of total).

Is Portugal The Next "Shoe To Drop" In Europe?

Portugal 10-year yields imply that investors are starting to get a little worried about an October ratings decision that could make Portugal the EU's next big bailout candidate.

Jim Grant: "This Will Turn Out To Be Very Bad For Many People"

"The stock market is at record highs and the bond market is acting as if this were the Great Depression... the Fed is virtually a hostage of the financial markets. When they sputter, let alone fall, the Fed frets and steps in... the Fed is justified in that belief because it is responsible to a great degree for the elevation of financial asset values... and to me, gold is a very timely way to invest in monetary disorder."

Bill Gross Warns "Central Bankers Are Destroying The Engine Of The Real Economy"

In the US the year-on-year trend for productivity has turned negative . Most central bankers dismiss this fact as a short-term aberration. But the Japanese economy provides an example of what interest rates at or near zero can do to a large, developed economy. The answer is not much: not much real growth; not much inflation - and, together, not enough nominal GDP growth to repay historic debt should yields on sovereign debt ever return to normal.

Portugal Gaining On Italy In The European Banking "Doom Loop"

Portugal’s doom loop metric has soared over the past two years.  Portuguese banks have been gorging on Portuguese sovereign debt, taking it from 7 percent of total assets to 10 percent - the same level as Spain.  If they continuing loading up at this pace, they will reach Italian levels by 2018.

Chinese Bond Yields Tumble To 2009 Lows As Spooked Investors Rush Out Of Potential Defaults

The biggest (unspoken of) bubble in the world, just got bubblier. Following the lowest 10Y China government bond auction yield since records began in 2004, a surge of foreign inflows (seeking yield) combined with domestic flight-to-safety from the increasingly default-ridden corporate bond sector has sent China's government bond yields to 2009 lows.

James Grant: Negative Interest Rates Will End... Badly

“Radical monetary policy begets more radical policy... It seems to me, at some point, markets or voters will put a stop to this.” If and when that time comes, Grant notes that investors will be looking for physical stores of wealth, explaining "the case for gold is not as a hedge against monetary disorder, because we have monetary disorder, but rather an investment in monetary disorder."