The FT is reporting today that the new fiscal rules for the EU “include a commitment not to force private sector bondholders to take losses on any future eurozone bail-outs”……The immediate result of this plan is that everybody will rush into the highest-yielding bonds in Europe, which is exactly what seems to have happened today……In order for markets to work, lenders need to suffer when they make bad lending decisions. If the Europeans didn’t learn from Ireland, couldn’t they at least learn from the Fed’s much-criticized decision to pay off all AIG creditors at 100 cents on the dollar? Blanket guarantees at par are pretty much always a really bad idea — and this one, if it comes to pass, will be the biggest one yet.
via The euro zone’s terrible mistake | Felix Salmon.
Colin Twiggs: ~ More evidence of moral hazard: giving bond-holders an effective put against the EU. Perhaps a partial guarantee (e.g. 90 percent) would be more effective in containing moral hazard as the bond-holder still has some skin in the game.
where do you see the price for gold and copper in the new year
Copper is trending lower and gold is likely to follow…….unless we see QE3.
On a fundamental basis China’s demand for copper has to taper off sometime soon as Europe and US buy less stuff. Gold on the other hand might part ways with other commodities seeing that Invester demand in tough times continues to rise because of increased uncertainty. Silver seems to be parting ways too from being an Industrial commodity to being and investment commodity. Maybe a good time to get into Gold and Silver stocks while they are still down.