Will Euro recover in the next few months?

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Re: Will Euro recover in the next few months?

Postby lbksig » 19 May 2010, 13:32

hardball wrote:
May 19 (Bloomberg) -- The euro sank to the weakest level in more than four years and the pound slumped to a 13-month low as Germany’s ban on some speculative sales triggered concern Europe’s debt crisis will worsen.

The yen gained against all 16 major counterparts amid heightened demand for safety after Germany prohibited naked short-selling and speculating on sovereign debt and the Bank of Italy allowed lenders to exclude losses on government bonds.

About time! :bravo:


Which part? I agree that naked short selling shouldn't be allowed. You should be required to hold stock to cover your position because (theoretically) unlimited liability is dangerous to market stability. The other parts seem fishy to me.

Why can't you "speculate" on sovereign debt? If debt levels are high then the borrower is at a higher risk level because they are more likely to default. The interest rate they pay, and the value of their bonds, should reflect that higher risk level. Governments shouldn't get to manipulate the markets to guarantee themselves low interest loans with other peoples money. Also, why should losses on government bonds be excluded whereas losses on other bonds are not?
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Re: Will Euro recover in the next few months?

Postby TwoTongues » 19 May 2010, 13:47

For the speculation on sovereign debt part, don't large volume sell-offs have the potential to cause default i.e. inability to pay out? What I mean is, preventing large volume, short-turn around moves (speculation) in the sovereign debt market would help prevent economic catastrophe in a similar way to the "circuit breaker" on the US stock market - can't drop too far too fast to destroy anything big.

Also, what are the odds of the government of a Western nation defaulting on its bonds? (that's a serious question, I don't know) I would assume very very very low, even when it's a serious economic downturn. If that's true, then it's really just a money game, as no one expects a Western government to default for real.

BTW, the ignorance of Fred Thompson's statement in your signature is mindboggling.
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Re: Will Euro recover in the next few months?

Postby lbksig » 20 May 2010, 04:08

TwoTongues wrote:For the speculation on sovereign debt part, don't large volume sell-offs have the potential to cause default i.e. inability to pay out? What I mean is, preventing large volume, short-turn around moves (speculation) in the sovereign debt market would help prevent economic catastrophe in a similar way to the "circuit breaker" on the US stock market - can't drop too far too fast to destroy anything big.


The way I understand it, large volume sell-offs don't affect the payout but affect the ability of the country to refinance the debt. Very simply put, the payout is for the value of the bond and is between whoever issued the debt and whoever holds the debt. A large volume sell-off would be good for the debt issuer (so long as they have the cash) because they could purchase back their outstanding debt for less than face value of the bond based on the market's belief that the paper isn't worth the face value amount.

Most countries don't have the cash reserves to pay the outstanding debt, or don't want to, so they pay off the old debt holders by the funds they get from selling new bonds. Where they get hit is on A) the interest rate they pay on the new bonds and B) if anyone will actually buy the bonds. If the market thinks Greek bonds are at a high likelihood of default based on their debt load and spending patterns, no one will buy Greek bonds unless the interest rate compensates them for the risk. That makes it more expensive to borrow because instead of paying 5% interest you now have to pay 10%. If the risk level is too high then no matter how high an interest rate you give, no one will purchase the debt. That's what would cause the catastrophe that you alluded to.

Also, what are the odds of the government of a Western nation defaulting on its bonds? (that's a serious question, I don't know) I would assume very very very low, even when it's a serious economic downturn. If that's true, then it's really just a money game, as no one expects a Western government to default for real.

BTW, the ignorance of Fred Thompson's statement in your signature is mindboggling.


I don't think anyone knows. Pre-Euro it wouldn't matter much if Greece/Italy/Portugal defaulted on their bonds because it would be contained. The shared currency spreads the damage much wider if someone defaults. Greece knows that they will get bailed out because they have an ability to cause serious damage to the Euro by defaulting. They are also much less likely to institute the necessary spending cuts because they know they'll get bailed out by Euro holding countries. Those countries have debt of their own and if the Euro gets beaten down, it will be harder to pay it off.

Fred Thompson's quote is humorous in that he's both right and wrong. Payroll tax cuts benefit small businesses the most, but its big business that drives the economy. A cut in the payroll tax won't lead to any new hiring because demand isn't there. Even if demand is there, businesses aren't going to hire because they can see the higher tax rates that are coming down the pipeline. Small government, and lower tax rates, would benefit everyone but it's unlikely to happen. At least he isn't feeding people to pigs though :wink:
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Obama's offering a payroll tax cut, but only for small business. Ok, fair's fair. We pay taxes, but only for small government. - Fred Thompson
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Re: Will Euro recover in the next few months?

Postby Gman » 20 May 2010, 06:10

lbksig wrote:
hardball wrote:
May 19 (Bloomberg) -- The euro sank to the weakest level in more than four years and the pound slumped to a 13-month low as Germany’s ban on some speculative sales triggered concern Europe’s debt crisis will worsen.

The yen gained against all 16 major counterparts amid heightened demand for safety after Germany prohibited naked short-selling and speculating on sovereign debt and the Bank of Italy allowed lenders to exclude losses on government bonds.

About time! :bravo:


Which part? I agree that naked short selling shouldn't be allowed. You should be required to hold stock to cover your position because (theoretically) unlimited liability is dangerous to market stability. The other parts seem fishy to me.

Why can't you "speculate" on sovereign debt? If debt levels are high then the borrower is at a higher risk level because they are more likely to default. The interest rate they pay, and the value of their bonds, should reflect that higher risk level. Governments shouldn't get to manipulate the markets to guarantee themselves low interest loans with other peoples money. Also, why should losses on government bonds be excluded whereas losses on other bonds are not?


Just a clairfication, Naked short selling doesn't have anything to do with holding the stock you've 'shorted'. Naked short selling is selling a stock without delivering the stock you've sold. This headline is confusing to me because 'naked' short selling should be illegal already.
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Re: Will Euro recover in the next few months?

Postby tommy525 » 13 Jun 2010, 07:55

http://www.taipeitimes.com/News/biz/arc ... 2003475368

Looks like Euro may get US dollar parity as I predicted a few weeks ago. Not that it has or will but it looks headed that way.
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