"The world-wide credit crisis is returning to the front burner. In Europe, it is full throttle ahead and spreading. Based on the Greek and Irish templates, 10-year bond yields suggest that a...bailout for Portugal is days away."
Global Market Perspective, April 2011
The quote above proved accurate: Portugal accepted $116 billion in international aid on May 4.
Portugal's government fell in March, after the parliament rejected an austerity plan. Moreover, the country failed to meet its 2010 deficit reduction targets.
And as you're probably aware, Portugal's bailout is Europe's third in about a year -- following Greece and Ireland.
But after the bailouts of Greece and Ireland, the rally in Europe's bourses seemed like a "pause" button on the sovereign debt crisis. In reality, the "play" button was never turned off. The absence of media coverage on the debt problem did not mean it had gone away.
Indeed, the cost of insuring questionable European sovereign debt has recently been even higher than during the worst of the 2008-2009 crisis.
So: Does the debt crisis end with Portugal? Is Spain financially stable?
A March 25 Wall Street Journal headline claimed "...Spain Dodges Contagion." On March 24, a CNNMoney headline read "Why Portugal Won't Bring Down Spain."
The European Competition Commissioner recently said there's "no risk" to Spain, and that "...the evolution of indicators in Spain is clearly different from...Portugal, Ireland or Greece."
Let's return to the April Global Market Perspective and consider its view of Spain:
"Even as the countertrend rally in stocks holds up, Portugal teeters on bankruptcy, and an even bigger disaster, Spain, waits in the wings."
The context of this remark speaks for itself, via the price patterns of Spain's and Portugal's stock indexes. See the chart below (wave labels removed):
Nevertheless, in the 12 months since Greece was bailed out, European and other financial authorities have opined that contagion could be contained. A Feb. 5, 2010 businessweek.com headline states: "Goldman's Nielsen Says Greek Contagion Will Be Contained." An April 2010 Reuters headline reads: "Portugal May Avoid Greek Contagion with Austerity Plan."
Opinions and speculations about possible future European bailouts are one thing, and the reality of enormous sovereign debt loads are another. And these debt loads have not been confined to just Greece, Ireland and Portugal.
Put your finger on the pulse of 50+ markets -- risk-free
EWI's Global Market Perspective is the 100-page "little black book" that gives you the latest Elliott wave forecasts of 50+ global markets every month. Here are just some of the markets you see covered in the just-published May issue:
European Stock Markets: Germany, France, UK, EuroStoxx 50, Greece, Russia and more.
Interest Rates: U.S. Treasuries, Bund, Bobl, Long Gilt, Short Sterling, 10-year Australian Bonds, 10-year JGBs.
U.S. Markets: DJIA, S&P 500, U.S. dollar and more.
Asian-Pacific Stock Markets: Japan, China, Australia, Singapore, Hong Kong, Korea, Taiwan, New Zealand, Malaysia, Philippines, Thailand, Indonesia, Sri Lanka, Bangladesh, Mongolia, and more.
Forex: U.S. Dollar Index, EURUSD, USDCHF, USDJPY, USDSEK, USDZAR, AUDUSD, USDRUR, USDMXN, USDBRL, USDCAD, EURCHF, EURCAD, EURJPY, EURGBP, GBPJPY, AUDJPY.
Energy: Crude Oil, Natural Gas.
Precious Metals: Gold,Silver.