Phil Flynn: PIGS in Space

When I go down on the trading floor and talk about pigs, normally I am referring to hogs or pork bellies. But this week is something different. We'll focus our attention on Portugal, Ireland, Greece and Spain. Or you can exchange or add another I if you want to throw in Italy. In this case PIGS - or PIIGS - is not the other white meat, but a cause of great concern on the global economic scene.

Portugal now seems to be the main epicenter of the constantly shifting risk factors in the ongoing global economic crisis. Even casual observers of the global market place have been aware of the recent problems growing in the Eurozone particularly with Greece. The massive debt in Greece has roiled the global market for most of the year and now there are fears that their problems may be spreading throughout the region. Oh sure, the other countries within the designation PIGS or PIIGS if you prefer, did not want to be coupled together with Greece perhaps because they did not want to be part of something called PIGS or because they were fearful that the association with Greece and their problems could spread to them faster than a winter cold. Spain’s Finance Minister Elena Salgado was one of the first to speak out and said that Spain's situation is not like that of Greece. Yet earlier this week it seems that when one of these little PIGS’s went to the market and found that things were not that good.

The market really got fearful after Portugal basically had a failed bond auction. The Portuguese treasury and Government Debt Agency tried to sell €500 million in 12 month bills but was only able to sell €300 million. This raised concern that buyers of debt are getting tired of getting low rates of return when sovereign countries credit worthiness is not what should be. Last year Portugal’s debt was 9% of its GDP and with a potential softening in the EURO zone, bond buyers think that their chances to be paid back might not be that good. Obviously that means that bond buyers will demand a higher rate of return to take on more risk thus ultimately driving up interest rates in Portugal and throughout the region as debt strapped nations vie for capital to fund their out of control spending.....Read the entire article.

The "Super Cycle" in Gold and How It Will Affect Your Pocketbook in 2010

Share