Tuesday, September 6, 2011

Spaceport America is almost ready to open



Phase one of the world's first commercial spaceport, which will be the hub for Virgin's consumer spaceflights, is now 90 per cent complete.
The 1,800-acre Spaceport America site, in Las Cruces, New Mexico, is the home base for Virgin Galactic, Richard Branson's most ambitious business venture yet.
It already boasts a runway stretching to nearly two miles long, a futuristic styled terminal hanger, and a dome-shaped Space Operations Centre.

Read more: http://www.dailymail.co.uk/sciencetech/article-2034239/Phase-worlds-commercial-spaceport-90-cent-completed--time-flights-2013.html#ixzz1XFJ163Gh

The Norwegian Krone is the new Swiss Franc

"Norway’s krone rose against all its 16 most-traded counterparts as investors sought an alternative European currency to the euro and franc. ... The krone rose 1.3 percent to 5.3713 per dollar and advanced 1.9 percent to 7.5260 versus the euro. The currency surged 9.5 percent to 6.2634 against the franc."

--http://www.bloomberg.com/news/2011-09-06/franc-slides-against-dollar-euro-as-snb-vows-to-stand-by-currency-target.html

A simple solution to the debt crisis

Greece to default this week

The expectation is that a Greek default is imminent. Last week, the yield on Greek 1 year bonds was a mind-blowing 61%. On Friday, it jumped to 72%. Now it is at 83% and climbing rapidly. The 2 year yield is now over 50%.

This could be a question on a finance exam. Assuming an investor would want 2% return on a no-risk investment, and Greece is certain to default but not immediately, what would be the expected date of a Greek default? Assume interest is accrued monthly.

For the 2 year bonds, this is 18 months, because at that point the interest earned would fully repay the initial investment.
For the 1 year bonds, this is 11 months.

What if the bonds will be worth 50% of face value after a default, what then?
For 2 year bonds, 11 months.
For 1 year bonds, 7 months.

What about a higher value, say 70%?
For 2 year bonds, 7 months.
For 1 year bonds, 5 months.

What about 10 year bonds, now priced at 19.4%?
If they will be worth 50% after default, then a default is expected in 26 months.
If they will be worth 70% after default, then 17 months.
If no remaining value, then 44 months.

If it is true that a default is imminent, then even 83% interest isn't high enough. Assuming 70% residual value and default would occur in 1 month, then what interest rate is appropriate? Answer: 360% interest. This would provide $30 of interest to make up for the 30% haircut.

Assume that the 1 year bond pays no interest, and will pay $100 on maturity. How much would you pay for it to get an effective interest rate of 83% (with interest accrued monthly)? Answer: $47.

What about a 2 year bond, with an interest rate of 50%, accrued monthly, that pays no interest? $38.

Friday, September 2, 2011

1.75% per quarter means doubling in 10 years

If a number grows by 1.75% per quarter, then it will double in 10 years. When we are talking about the national debt, then we want it to grow by less than this amount. The national debt is projected to increase "only" $973 billion next year, which would be less than this amount, since the debt is now at about $14.7 trillion. Somehow I have my doubts that this will happen.

Debt held by the public reaches 10 trillion

08/31/2011 10,024,253,354,407.07

It first reached 9 trillion on 9/30/2010.

Thursday, September 1, 2011

Eurozone to split in two

According to German historian Hans-Joachim Voth, the Eurozone will split within 5 years. Germany will leave along with Austria, Finland, the Netherlands and Denmark and reintroduce the Deutschmark. The leftovers will keep the Euro - France, Italy, Spain, Belgium, Portugal, Ireland, and Cyprus. The leftover Euro can then be devalued to assist these struggling countries.