European Debt Dominoes Continue Top Tip! Immediate Steps to Avoid Losses …

Interest-Rates / Global Debt Crisis
Jan 14, 2011 - 07:59 AM

By: Mike_Larson

Do you remember Baghdad Bob from Gulf War II? He was the Iraqi minister of information who kept pledging that the U.S. was being routed and our troops were nowhere near Baghdad … even as they were marching through the streets. The colorful denials made for great entertainment.

Now the same theatre of the absurd process is playing out in many of Europe’s major capitals.

First Athens — and then Dublin — pledged they didn’t need a penny of aid from the European Union or European Central Bank. They said they could pay back their debt, no problem, even as their bond prices were plunging and interest rates were soaring. The bailout denials kept coming and coming … right until the fateful day when they threw in the towel and begged for the money!

Soon, the next domino in the chain is going to fall. Then the next after that. If you’re an investor exposed to the risk, you need to get out of the way.

I’ll tell you how in a minute. But first, let’s lay out the daisy chain of events to come …

Portugal Next; Then Belgium? Spain? Italy?

The focus this week has been on Portugal. The country’s deficit hit 9.3 percent of GDP in 2009, putting it just a few small steps behind bailout nations Ireland and Greece.

Meanwhile, its overall debt outstanding is closing in on 90 percent of GDP. Standard & Poor’s will likely soon cut its A- rating on Portuguese bonds, while Moody’s Investors Service could lower its rating a couple of levels.

In response, global bond investors are dumping the country’s bonds, driving borrowing costs higher. The government just auctioned off 650 million euros in three-year notes at a yield of 5.4 percent, up from 4.04 percent just last October. Its ten-year borrowing costs? Even higher — recently breaching the 7 percent mark.

Government officials have responded by trotting in front of cameras and microphones to deny they need any help. José Socrates, Portugal’s prime minister, said a few days ago:

“The country is doing its job and doing it well. Portugal will not request financial aid for the simple reason that it’s not necessary.â€