Are Bond Vigilantes Starting To Wake Up?

"Obama-GOP tax deal costs $900 billion over two years. US kicking the can further down the road. Are bond vigilantes starting to wake up?"

in Twitter

Related: ProShares UltraShort 20+ Year Trea (ETF) (NYSE:TBT), iShares Barclays 20+ Yr Treas.Bond (ETF) (NYSE:TLT), iShares Lehman 7-10 Yr Treas. Bond (ETF) (NYSE:IEF)

Roubini Fears the Bond Vigilantes May Come to U.S. (CNBC)

"Economist Nouriel Roubini on Wednesday voiced concern over a compromise on extending tax cuts struck by US President Barack Obama and Republican leaders, saying the agreement could expose the US to bond vigilantes who will drive up bond yields."

in CNBC

Related ETFs: ProShares UltraShort 20+ Year Trea (ETF) (NYSE:TBT) , iShares Barclays 20+ Yr Treas.Bond (ETF) (NYSE:TLT), iShares Lehman 7-10 Yr Treas. Bond (ETF) (NYSE:IEF)

China`s Inflation Outlook.

China’s food prices look to be peaking, with vegetable prices falling in the second half of November after government efforts to boost supplies and impose price caps took effect. Still, the CPI last month increased at its fastest pace in more than two years. The two required reserve ratio (RRR) hikes in November resulted in some acute liquidity shortages toward the end of the month, but these appear to have dissipated in the first week of December. We expect the central bank to hike interest rates by 25 basis points (bps) in the coming weeks.

in RGE.com

Related: iShares FTSE/Xinhua China 25 Index (ETF) (NYSE:FXI), PowerShares Gld Drg Haltr USX China(ETF) (NYSE:PGJ), Morgan Stanley China A Share Fund, Inc. (NYSE:CAF)

The US Real Estate Market Is Double Dipping

"The United States real estate market, for sure, is double dipping. The apparent increase in prices has been fully reversed, demand is falling, and supply is going to increase.”

in New York Times

Related: iShares Dow Jones US Home Const. (ETF) (NYSE:ITB), Lennar Corporation (NYSE:LEN), D.R. Horton, Inc. (NYSE:DHI), Bank of America Corporation (Public, NYSE:BAC), Citigroup Inc. (NYSE:C) , JPMorgan Chase & Co. (Public, NYSE:JPM), Huntington Bancshares Incorporated (NASDAQ:HBAN)

There's Not Going To Be Anybody Coming From Mars Or The Moon To Bail Out The IMF Or The Eurozone

"We started with private debt, we socialized it and it became public debt. Now we have sovereigns in trouble being bailed out by essentially super sovereigns, IMF, euro zone, EU. But there's not going to be anybody coming from Mars or the moon to bail out the IMF or the eurozone."

in Reuters Insider

Related: SPDR S&P 500 ETF (NYSE:SPY), iShares Russell 2000 Index (ETF) (NYSE:IWM), iShares MSCI United Kingdom Index (ETF) (NYSE:EWU), iShares MSCI Spain Index (ETF) (NYSE:EWP)

A Spanish Inquisition.

With Ireland's financial woes exposed, Spain's similarities warrant inspection.
Contagion has taken hold of Spain, with respect to both the sovereign and the banking system, in the wake of Ireland's financial troubles and bailout application. In contrast with Greece, where the key vulnerabilities are in the public sector, both Spain and Ireland have run up large private sector imbalances following real estate booms and busts. In "Comparing Spain With Ireland and Other PIIGS: Better in Some Ways, More at Risk in Others," available exclusively to clients, we shed light on Spain's balance sheet vulnerabilities to assess liquidity and solvency risks in comparison with Ireland and the other PIIGS (Italy, Greece and Portugal).

Spain shares some of Ireland's key vulnerabilities, including a housing bubble more pronounced than that in the U.S. and large nonperforming loan overhang in the banking sector. Though Spain's housing bubble is less severe than Ireland's, and though the Spanish banks' commendable loan-loss provisioning system is providing a buffer, a comparison of price-to-rent ratios shows that the bulk of the housing price correction and loss recognition has not yet come. Thus, the pressure on the banking system is bound to increase going forward.

Plus, unlike Ireland, Spain's economy is subject to structural rigidities that prevent a fast return to growth and a quick competitiveness adjustment through internal devaluation. While this year's fiscal performance is largely on track, the 2011 fiscal target of 6% will be more challenging amid fiscal austerity. In some dimensions Spain's macro and financial fundamentals (for example, national savings and public debt levels) are better than those of other periphery countries. But in many dimensions, fundamentals are worse and financial vulnerabilities more severe (for example, unemployment and financing needs).

As the flow of excess savings from abroad has receded after the investment bust, Spain's private losses are being socialized, with dire consequences for the public sector balance sheet--although not to the same extent as in Ireland. Ireland's outsized banking sector in comparison to GDP and its decision to stand behind banks that are too big for it alone to save have accelerated the unsustainable debt dynamics. But one must ask: Is Spain in a fundamentally different situation? Investors seemed willing to give Spain the benefit of the doubt, but market dynamics since Ireland's application for external support show that a reassessment is taking place.

If the current liquidity pressures don't abate and Spain, alongside Ireland and possibly Portugal, is forced to turn to the E.U. funding mechanism, the 500 billion euros of E.U. resources (in addition to the not-yet-committed 250 billion euros in potential IMF funds) would be strained. With Spain too big to fail but also effectively too big to save, a bailout request would open the door to speculation against the cohesion of the eurozone. Indeed, German Bundesbank President Axel Weber's comment that the 500 billion euro bailout fund could be increased if necessary to prevent a breakup of the currency union shows that this concern is shared among even the most vocal bailout skeptics.

The alternative to a bailout is a bail-in of private investors. The inclusion of collective action clauses on new debt issues starting in mid-2013, as part of the new European Stabilization Mechanism, is meant to facilitate this process in those cases where insolvency has been established. While useful, such legal technology is not necessary to achieve an orderly restructuring of sovereign debt--previous instances illustrate that market-based restructurings via exchange offers are sufficient.

Elisa Parisi-Capone is a senior analyst for finance, banking and Western Europe with Roubini Global Economics, Christian Menegatti is the head of global research and Nouriel Roubini is the chairman.

Related: iShares MSCI Spain Index (ETF) (NYSE:EWP), Telefonica S.A. (ADR) (Public, NYSE:TEF) , Banco Santander, S.A. (ADR) (NYSE:STD) , Banco Bilbao Vizcaya Argentaria SA (ADR) (NYSE:BBVA), Repsol YPF, S.A. (ADR) (NYSE:REP) , Banco Popular Espanol SA (MCE:POP), Inditex SA (MCE:ITX) , Gas Natural SDG SA (MCE:GAS)

Spain Is Too Big To Fail, Too Big To Be Saved.

"Spain is too big to fail but also too big to be saved or too big to be bailed out. Official funds aren't currently enough to bailout Spain."

in Twitter

Related: iShares MSCI Spain Index (ETF) (NYSE:EWP), Telefonica S.A. (ADR) (Public, NYSE:TEF) , Banco Santander, S.A. (ADR) (NYSE:STD) , Banco Bilbao Vizcaya Argentaria SA (ADR) (NYSE:BBVA), Repsol YPF, S.A. (ADR) (NYSE:REP) , Banco Popular Espanol SA (MCE:POP), Inditex SA (MCE:ITX) , Gas Natural SDG SA (MCE:GAS)

Advanced Economies Will Have To Spend Less, Consume Less, Import Less

“Advanced economies will have to spend less, consume less, import less and save more for years to put the economy back on track. The monetary easing came after inflation readings stood below the central bank’s target.”

in Taipei Times

Related: SPDR S&P 500 ETF (NYSE:SPY), iShares Russell 2000 Index (ETF) (NYSE:IWM), iShares MSCI United Kingdom Index (ETF) (NYSE:EWU), iShares MSCI Spain Index (ETF) (NYSE:EWP)

China`s Inflation And Asset Bubbles.

"Today China is overheating, inflation is rising, there is excessive monetary growth, excessive credit growth, beginning of asset bubbles. One of the ways which China can control this risk is to allow a faster rate of appreciation of the currency."

in Bloomberg.com

Related: IShares FTSE/Xinhua China 25 Index (ETF) (NYSE:FXI) , Morgan Stanley China A Share Fund, Inc. (NYSE:CAF) , PowerShares Gld Drg Haltr USX China(ETF) (NYSE:PGJ) , Baidu.com, Inc. (ADR) (NASDAQ:BIDU) , Sohu.com Inc. (NASDAQ:SOHU), Aluminum Corp. of China Limited (ADR) (NYSE:ACH)

Contagion Is Spreading From Ireland To Spain.

"Contagion is spreading from Ireland to Spain, which shares some key vulnerabilities in the wake of its real estate boom/bust and large non-performing loan overhang in the banking sector. A house price comparison shows that the housing bubble in Spain was more pronounced than in the United States but less pronounced than in Ireland."

in roubini.com

There Is Financial Contagion In Europe.

“There’s now financial contagion in Portugal, Spain and to a smaller degree even in countries like Italy, Belgium and others in the euro zone.”

Nouriel Roubini, in a speech to a conference in Taipei today

Official Resources Wouldn't Be Enough To Cover The Financing Needs Of Spain

"After bailout of Greece, Ireland and Portugal, official resources wouldn't be enough to cover the financing needs of the Spanish sovereign and its banks."

in Twitter

Fiscal Austerity Will Lead To Debt Restructuring Among Nations

"A period of low growth and low inflation in the U.S. and Europe is being exacerbated by rashly implemented fiscal austerity that will stifle growth and eventually lead to debt restructuring among nations and international institutions, economist Nouriel Roubini said Monday.

Debt restructuring is most probably "inevitable," said Mr. Roubini, a professor of economics and international business at New York University and chairman of Roubini Global Economics.

Governments are kicking the burden of fiscal responsibility down the line to international institutions, while failing to address the economic stagnation that will come from severe budget cuts, he said at an economic conference in the Czech capital."

in WSJ

Related ETFs: iShares MSCI Spain Index (ETF) (NYSE:EWP), iShares MSCI Italy Index (ETF) (NYSE:EWI)

Most Fiscal Consolidation Should Be Back-Loaded And Not Front-Loaded

"Ideally, in a world in which you can do it, every country should cut spending and raise taxes, but most fiscal consolidation should be back-loaded and not front-loaded as front-loading cuts economic activity."

in a Prague conference

Greece And Ireland Are Solvency Issues, Not Liquidity Issues.

"Greece & Ireland are solvency not liquidity issues. So official financing & bailing out even bank creditors only kicks the can down the road."

Related ETF and stocks: Bank of Ireland (ADR) (NYSE:IRE), Allied Irish Banks, plc. (ADR) (NYSE:AIB), National Bank of Greece (ADR) (NYSE:NBG)

Spain Is Too Big To Fail, Too Big To Be Bailed Out.

"You can try to ring fence Spain. You can provide financing to Ireland, Portugal and Greece for three years and try to leave them out of the market and maybe restructure their debt down the line. But if Spain falls off the cliff, there is not enough official money in this envelope of European resources to bail out Spain.

Spain is too big to fail, on one side, and too big to be bailed out. In Spain, there’s a trillion Euro in public debt. On top of that public debt, you have almost a trillion of the foreign liabilities of the private sector — houses, financial institutions, corporates — Spain was running a current account deficit to finance the excessive spending of the private sector. So it’s not just public debt but private debt that has to be rolled over."

in CNBC

The US Tax Burden Is The Lowest Of Any Advanced Economy.

"The US tax burden is the lowest of any advanced economy. Down now to 15% of GDP from the already pathetically low 20% of GDP."

in Twitter

Bond Vigilantes And The US Government Bonds.

"The bond vigilantes have not woken up for the US treasury market—yet."

Nouriel Roubini - November, 2010

Related ETFs: ProShares UltraShort 20+ Year Trea (ETF) (NYSE:TBT) , iShares Barclays 20+ Yr Treas.Bond (ETF) (NYSE:TLT)

The Real Threats Are Anemic Growth And Deflation, Not Inflation.

"Lets fight real threats - anemic growth, double dip risk, deflation risk - not phantom ghosts of inexistent goods inflation."

Nouriel Roubini, in Twitter

The Irish Are On A Path To Near Or Complete Insolvency.

"Put simply the Irish – like the Greeks – are on a path to near or complete insolvency. The reason the EU has so far decided to provide emergency financing to Greece and Ireland is not because it lacks a legal mechanism for orderly restructuring; it is rather because of concerns about systemic contagion."

in Financial Times, today

African Opportunities?

"Africa is risky because there is less liquidity and the governance is not ideal. But in comparison to 10 years ago when there was civil strife and unstable governments, many things have improved."

Nouriel Roubini, in Reuters

"Some of the better economies in Africa: South Africa, Botswana, Namibia, Angola, Mozambique, Nigeria, Ghana, Kenya, Uganda, Tanzania, Rwanda"

in Twitter

Overcapacity In Steel Production Is A Serious Problem.

"The overcapacity in steel production in the world is a serious problem that could lead to trade wars among countries and regions, Nouriel Roubini, the famed economist from New York University's Stern School of Business recently said, according to media reports.

This is a serious problem we have seen in a number of sectors, including steel, where there is overcapacity installed in China and other countries, says Roubini. He also stated that it is leading to a situation where either you don't produce, making factories lose money, or, if you produce at capacity, the increased output falls on weak demand and implies a collapsing price."

in www.indiainfoline.com

Related: United States Steel Corporation (NYSE:X), AK Steel Holding Corporation (NYSE:AKS), ArcelorMittal (ADR) (NYSE:MT)

Investors Should Stop Chasing “Crowded” Trades In Emerging Markets

Economist Nouriel Roubini said in an interview out today that investors should stop chasing “crowded” trades in emerging markets. He believes that African markets such as Ghana, Kenya, Nigeria and Tanzania are better bets. The distinction is that such African countries are most often categorized as so-called frontier markets, even smaller and less-developed than emerging markets.

in Barron`s

Portugal And Ireland Will Soon Need The EFSF Or IMF Support.

"Portugal and Ireland will soon need the EFSF or IMF support as they are on the verge of losing market access as bond vigilantes are up in arms."

Nouriel Roubini, November 9th