Bond Market Anticipates Greece Defaulting Within 2 Years — Portuguese Bond Yield At the Highest Since 1997 — Spain Credit Rating Cut — Japan’s Economy Shrank 1.3% in Fourth Quarter — Jobless Claims in the U.S. Unexpectedly Rise to 397,000 — Equity Markets, Euro Rally 1%

This is just another example of just how much bullishness is still persisting in the current markets. European countries are collapsing under the weight of their debt, the Japanese economy has gone nowhere in the past 20 years and still sinking, the US "massaged numbers" are getting worse and worse, and yet, equity markets jumped on yet-another-buy-the-dip rally and the Euro rallied as well, on hopes that Trichet, the pussycat, will print more money to help avoid a default — another proof that market participants do not understand how the monetary inflation/deflation works.

And yet another sign of perverse and dangerous bullishness is that whatever the number, no matter how bad and worrisome it is, the analyst/commentator/economist will say that the worst is now behind us, that the bottom has been reached, and that now, we are headed for improvements and better times.

As I told one of my friends who asked for my opinion by email, I believe we are building a generational top in the markets. Either now or within a few months. We're headed for a Japanese style equity bear that will last for decades...

March 11 (Bloomberg) -- As European Union leaders haggle over their second plan to stem the financial crisis, traders are betting Greece won’t be able to pay its debts.

Greek 10-year bond yields rose to a record this week and it costs more than ever to insure against a default, even though the nation received a 110 billion euro ($153 billion) bailout from the EU and the International Monetary Fund last year. Two- year yields exceed 10-year levels, suggesting a restructuring may come before the three-year aid program expires.

“The onus is on EU officials to dissuade the market from the notion that a debt restructuring is inevitable,” said Robin Marshall, director of fixed-income at London-based Smith & Williamson Investment Management, which oversees $20 billion. “They’ve lost investor confidence in any resolution that doesn’t involve some form of restructuring.”
[...]
Portuguese 10-year bond yields reached 7.70 percent on March 9, the highest since at least 1997, when Bloomberg began collecting the data. On the same day, equivalent-maturity Italian yields climbed above 5 percent for the first time since November 2008, while Irish 10-year yields touched the most since February 1993. 

Swaps insuring Greek government bonds rose five basis points to an all-time high of 1,037 basis points yesterday, meaning that it costs $1.04 million annually to insure $10 million of debt for five years. The spread between Greek two- and 10-year securities widened to 171 basis points yesterday, the most since May, when the creation of the EFSF convinced markets that EU government wouldn’t let the euro fail.
[...]
Such measures may not be enough to keep Greece solvent, according to Ben May, an economist at Capital Economics Ltd. in London, who estimates that the economy will contract by 4.5 percent this year, and 2 percent next year, causing public debt to spiral to 170 percent of GDP and making debt restructuring is “virtually inevitable.”

Downgrading Greek debt weeks before the EU decides on new measures for tackling the crisis was “incomprehensible” and “completely unjustifiable,” the nation’s finance ministry said on March 7. “It wouldn’t just be a problem for Greece, but for the whole euro zone,” if the bailout terms are not softened, Prime Minister George Papandreou said, according to an interview published in Le Monde newspaper yesterday.

March 10 (Bloomberg) -- Spain’s credit rating was cut to Aa2 by Moody’s Investors Service, which said the cost of shoring up the banking industry will eclipse government estimates. The euro weakened and Spanish bond yields rose.

Spanish lenders will need as much as 50 billion euros ($69 billion) to meet new capital requirements, Moody’s forecast, more than double the 20 billion euros seen by the government. The risks to public finances are “skewed to the downside,” the company said in a statement today. The outlook is “negative,” suggesting more rating cuts are under consideration.
[...]
Moody’s cited the 17 regional governments as a risk for the overall budget.

“There are no new policy initiatives to reduce the regions’ structural spending pressures in the areas of healthcare and education,” the company said. This year’s deficit target for the regions of 1.3 percent of GDP is “significantly more ambitious than that of last year, and the effort required to implement it would be quite unprecedented for many regions.”

March 10 (Bloomberg) -- Japan’s economy contracted more than the government initially estimated in the fourth quarter because of a downward revision to capital investment and consumer spending.

Gross domestic product shrank at an annualized 1.3 percent rate in the three months ended Dec. 31, more than the 1.1 percent contraction reported last month, the Cabinet Office said today in Tokyo. The median forecast of 26 economists surveyed by Bloomberg News was for a 1.2 percent contraction.

Recent reports show the world’s third-largest economy may have already put the worst behind it with machinery orders, an indicator of future capital spending, and industrial production both rising in January. Companies including Sony Corp. and Nissan Motor Co. are forecasting an increase in sales as demand in Asia grows.

“Consumer spending will come back and exports and production will be supported by the global recovery,” said Takehiro Sato, chief Japan economist at Morgan Stanley MUFG Securities Co. in Tokyo, who correctly predicted the annualized GDP contraction.
[...]
Private consumption fell 0.8 percent drove GDP lower in the fourth quarter after the government ended a subsidy program to buy fuel-efficient cars in September and reduced incentives to purchase electronic home appliances in December, a program that will end in March. Capital spending rose 0.5 percent, compared with the initial estimate of a 0.9 percent increase.

GDP will probably expand 1.73 percent in the first quarter with growth accelerating to a 2.08 percent pace by the fourth quarter, according to the average forecast of 43 economists in a survey by the government-affiliated Economic Planning Association released on March 8.

Today’s report confirmed “the economy paused in the October to December period, but it is rebounding this year,” supported by exports and automobile sales, Takashi Wada, a parliamentary secretary to the Cabinet Office, told reporters in Tokyo.

March 10 (Bloomberg) -- First-time claims for jobless benefits rose last week from an almost three-year low, highlighting the uneven nature of the improvement in the U.S. labor market.

Applications for first-time unemployment benefits increased by 26,000 to 397,000 in the week ended March 5, Labor Department figures showed today. Economists forecast claims would climb to 376,000, according to the median estimate in a Bloomberg News survey.
[...]
“We’re just giving back the distortions from the holiday in the prior week,” said Mike Englund, chief economist at Action Economics LLC in Boulder, Colorado. “It does appear that tightening in the labor market has gained a little steam.”
[...]
“We believe that we are in a continued positive economic recovery that will lead to positive labor growth over the course of the next couple of years,” Carl Camden, chief executive officer at Troy, Michigan-based temporary staffing provider Kelly Services Inc., said Feb. 24 at a conference in Boston. “We see strength in U.S. conditions.”