The first sign of trouble for Europe might have been its lagging luxury brands. Now, yields are spiking on the continent, and it appears that confidence is waning. Yesterday I wrote to you about the troubles in France:
Your Survival Guy is gearing up for another research trip to Paris in October. As you read about the problems in France: the record debt, the dysfunctional government with comparisons to Italy (which is now the one in better fiscal shape), you have to wonder how big government in France digs out of this one. What’s clear is Paris will always be Paris, but it is shrinking. Venturing beyond the core arrondissements of the 8th (Le Bristol), the 1st (Ritz), and the 16th (Four Seasons George V) on the Right Bank and the 6th, 7th, and perhaps the 5th on the Left will become less desirable as the money to keep them beautiful dries up.
Today, Spencer Jakab explains in The Wall Street Journal that not everything is well in the United Kingdom. He writes:
The Beatles, railroads, tennis—lots of good things were all the rage in Britain before going global. Now a bad one could be, too.
Investors are starting to get alarmed at rising bond (or gilt) yields in the U.K. even as its currency comes under pressure. That’s a combination seen in troubled emerging markets, but rarely developed ones. The yield on 30-year gilts hit its highest level since 1998 on Tuesday with fiscal concerns mounting.
There are jitters in France and Japan too—long-term yields recently hit multidecade peaks in both countries. The U.S. could face similar strains, although it has the big advantage of owning the world’s reserve currency.
You can see on my chart below that gilts are nearing their 1998 highs.
High borrowing costs for governments mean a drain on taxpayer dollars and potentially future economic troubles. All this comes as Europe is preparing to spend even more on military equipment and personnel to meet its NATO obligations.
Action Line: Keep your eye on Europe, financially and militarily, the continent is at a critical point. If you’re headed to Europe soon, or have recently been, I’d love to hear your impressions of the economy and what you saw there. Nothing beats a firsthand account. Email me at ejsmith@yoursurvivalguy.com. Click here to subscribe to my free monthly Survive & Thrive letter.
Originally posted on Your Survival Guy.
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