Research for Online Investors
Noriel Roubini spoke at the Michael
Milken Global Conference yesterday in Los Angeles. He told the audience
“The Arab Spring will become an Arab Winter.” Roubini is famous for
predicting the U.S. Housing crash in 2005.
Roubini sees Iran as the number one
threat to the world economy as they pursue a nuclear weapon. He believes
this will lead to a confrontation with either Israel or the U.S. and Iran. He does not believe President Obama will do anything until after the presidential
elections even though he believes the danger will increase in the last half of this year.
Roubini also believes a possible
breakup of the eurozone could be in the future. This would occur if the European Commission and European Central
Bank do not devalue the Euro to inflate the economy out of the recession they are entering. Countries will be tempted to give up the euro and use a national
currency. CNN quotes Roubini, “If enough…countries do that, the collateral damage in terms of losses to
the creditors is going to be massive.” He adds that European banks
have too much exposure and “financial contagion would be significant.”
French President Nicolas Sarkozy met
Socialist candidate Francois Hollande in a televised debate last night with four days until the
election. Bloomberg reports that Sarkozy “struggled” to land a decisive blow on Hollande. The debate lasted almost three hours.
Hollande advocated the eurozone
should issue “Eurobonds” that would be guaranteed by all countries to raise money for bailouts and growth
initiatives. Sarkozy retorted “Who will guarantee them if it’s not
France and Germany? Should we raise our debt to pay the debts of
others? It is irresponsible.”
The idea of Eurobonds was floated
last year by the weaker countries in the monetary union and rejected. We
discussed it on August 15 in Buyers Euphoria. Germany rightly saw it as an
attempt by some to lower their borrowing costs at the expense of Germany.
The European Central Bank (ECB) kept
interest rates at 1.0% this morning. Central Bank President, Mario
Draghi, held a press conference after the interest rate announcement.
Reuters reports he encouraged governments to continue fiscal discipline and work on growth
strategies. Draghi said “The economic outlook continues to be
subject to downside risks…There are indications that global recovery is proceeding. We continue to expect the euro area economy to recover gradually during the
course of the year.”
Spain sold three and five year bonds this morning,
paying 4.037% and 4.7525 These rates are much higher than the last
offering commanded at 2.89% and 3.463% respectively. France sold six and
ten year bonds at lower rates than their last offering.
Initial Jobless claims fell to
265,000 last week which we thought would spur the market higher this morning. European markets were trading higher during their session. Shortly after market open, the ISM Non-Manufacturing Index released at 53.5 which
indicates growth, as it is over 50.0 The market didn’t like the number
as March’s number was 56.0 and expectations were for a 55.5
Tomorrow morning, the Bureau of
Labor Statistics releases Non-Farm Payrolls and the Unemployment Rate.
Any reading over 150,000 could reverse today’s sell-off. A reading less
than 150k may push us lower to test the Bulls.
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