Saturday, May 8, 2010

Hello Portugal

Portugal's 2 year note finished the week at 8.78 percent yield. The prior week, the handle for the 2 year note was in the 5's. Hmmm. For bondholders, that's a pretty good hit, even for a 2 year note. It will get worse.

The European Union officials think the worst is over as they attempt to patch up a bailout effort for Greece. It is only beginning. Portugal cannot conceivably survive if has to finance two years notes at this yield. What will the EU do with Portugal?

Shall we move on to Spain and Italy? Who is going to bail out the German and French banks? Is everyone on the planet too big to fail?

The bankruptcy of the European welfare state is simply a matter of time. The best strategy is to let Greece go and not to compound this foolishness. The sooner the welfare state is demolished, and it will be demolished at some point, the sooner that Europe can begin a sustainable economic path. Either that or they will descend into the state run economy that held sway in China and Russia during the dark years.

Free retirements, free health care and bloated government sectors are not consistent with economic growth. Europe will learn, eventually.