A possibility that would have a devastating effect on Markets

Posted by John Mauldin - Outside the Box

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Today I am sitting listening to Ralph Merkle lecture on nanotechnology, part of a 9-day-long series of lectures on how accelerating change in technologies of all types will affect our world. 15-hour days and intense discussions are stretching my brain, but I still have to make sure you get your Outside the Box. Fortunately, I came across today’s OTB last week from my friends at GaveKal, who offer a way to think about the Greek crisis and what it means for all European bonds.

There are a lot of allegations about manipulation of European bonds. It’s those nasty traders. GaveKal shows us data that bond yields are actually quite logical, given the debt of various countries. But they also warn us, as part of their conclusions:

“As of today, there seems to be no additional risk premium related to the possible dislocation of the Eurozone. Clearly, this possibility would have such devastating effect on world financial markets that investors cannot even think of it (even if many talk about it).”

I suggest you read at least the beginning and then the end of this piece, even if the data makes your eyes glaze over. (I must admit the data made me feel all warm and fuzzy, but then I am somewhat of a wonk.)

Have a great week. I am getting overwhelmed here in California, learning about the future. It is going to be amazing, even if our bonds drop in price. We will live in what may be the most interesting and exciting period of human history. What a contrast between the financial markets and what the scientists continue to amaze us with. It is one of the reasons I think we Muddle Through, in spite of our rather negative economic environment.

John Mauldin, Editor
Outside the Box


An Attempt to Think Through the Greek Crisis

GaveKal Ad-Hoc Comment
Asset Allocation & Economic Research

When covering a news-event such as a train-wreck, journalists will typically take one of two angles: the descriptive narrative, full of gory details and hair-rising tidbits; or the human angle, with stories inviting reactions such as anger, admiration, pity, sadness, etc. from their readers. Which brings us to the latest financial train-wreck, namely Greece and the possibility that some of Southern Europe’s weakest states will face difficulties in rolling over ever larger amounts of debt issued in a currency they cannot print.

Unfortunately, the looming crisis in Europe has typically led journalists scurrying to file either ‘descriptive stories’ on how a country like Greece could find itself in its current predicament, or ‘human interest’ stories on who has made, or lost, money out of recent events. But such stories clearly miss the forest for the trees. Surely the more interesting and important question is what the current unraveling in Europe means for economies going forward? Of course, figuring out what will happen next in Europe is as easy to grasp as a soapy eel. But this should not stop us from drawing some already very obvious conclusions. Moreover, one can probably assume that the panic-like situation currently prevailing in the markets must be generating some opportunities. But how can we identify those? Answering these questions is the aim of this paper.

1- A Review of Recent History

…..read more HERE