Like Portugal, Spain is also ceasing to be a PIIGS country. Its public accounts produced a deficit in H1 of 2.44% of GNP, a level half as high as the prior year H1 in euros, and nearly as big a drop in percentage terms (from 4.73%). This results from marginally better GNP starting in the new year that finally produced a growth figure of 0.11% in GNP year over year in July. Also helping was substantial revenue increases thanks to a higher value added tax.

But the main tactic for halving the deficit was cost cutting. This includes salary and benefit cuts for the state sector which brought the deficit to euros 25.774 bn euros from the prior year level of 49.801 bn. Costs and headcount and benefits were slashed in the state sector despite nasty-seeming strikes. The personnel cost for the ministries of justice and the interior notably rose only 1.3% in the half year.

Portugal fills in for China making on the cheap everything from mobile phones to luxury shoes, from car parts to carpets. And on back-to-school computers for kids. But you cannot buy either the computer or the company's shares.

Two unlisted Portuguese companies jointly make the portable Fernão Magalhães computer with Intel inside. JP Sa Coutu and Prológica, both from near Porto, also export the machine to Africa, Latin America, and European countries. But mainly they supply poor elementary level students in Portugal with computers costing 250 euros max to make. The Fernão Magelhães, built for kids, is tough and shock-resistent.

There are problems if you are not a Portuguese child. While the old Portuguese anti-QWERTY keyboard no longer prevails (obrigada Brazil), a third set of keys using alt/gr are hard for non-Lusitanophones to use. But it teaches the kids the accents they need for correct spelling. You are not allowed to call the first man to circumnavigate the globe Ferdinand Magellan in polite Portuguese society.

Another issue for oldsters is that the screen is too small for easy viewing by anyone over 20, and the keyboard is easier for women and children to work than for fat-fingered men (at least the Anglo-Saxon sized variety.)

Capacity is 40,000 units per month currently but a new plant is a-building for an undisclosed amount. Both companies are unlisted.

The new computer is a second model based on the “classmate” laptop developed for students in the USA by Intel.

Portugal's José Sócrates govt uses computer bargains for social policy and the subsidies were kept despite austerity. Recipients of unemployment insurance payments have to provide details on their job search and revenues via the Internet for which they can use free computers at town halls and libraries which also offer wi-fi. Sócrates at the new Magelhães plant groundbreaking boasted that the ultra-modern model was purely Portuguese, but for the microprocessor from Intel, to be replaced with a native processor as production is geared up. A batch of 500,000 computers/year is distributed free to primary school graduates from poor families and other worthies like teachers and workers in job training programs. Others have to pay euros 20 to 50 depending on family income, currently equivalent to $25-60, under the 5-yr old e.escolinha program. The govt is paying euros 200-250 per subsidized computer.

Portugal is also installing wi-fi and broadband at a rapid rate. Currently, there are 1.7 mn users of broadband mobile and 1.6 mn users of fixed networks, 16% and 14% of the population respectively.

I got the population of Portugal wrong last week. It is 10.6 mn, no 8 mn. Desculpe.

Now the real PIIGS country seems to be the former Celtic Capitalist haven of Ireland, where the govt is having to shell out another round of bailout money, mostly for Anglo-Irish Bank, a familiar if dodgy operator in the newsletter space with offerings of currency swaps for USA small investors. You used to run into them at every investors' conference peddling expensive international forex and other programs mainly making money for the peddler. Then the privatized Eircom, largest land-line operator in the country, is bust.

Ireland was more real estate dependent than even Spain and the crisis has hit hard. Then too the country's politicians were often on the take from the developers, far more blatantly than even Capitol Hill where FNMA lobbied hard. So given all that trouble in the Auld Sod, here is an Irish stock idea for paid subscribers. And news from Britain, Singapore, Israel, India, France, Canada, and Spain, much of it about sins. But Ireland first.

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Tom McClellan writes in The McClellan Market Report, daily edition:
The Baby Boom started in 1946, and continued through 1964.  Boomers saw their first instance of a financial bubble in the 1970s when gold was finally released from its permanent fix to the dollar, and was allowed to float.  It went from $42 to $900 in a decade, then collapsed throughout the 1980s.

After the gold bubble of the 1970s, Boomers and others swore they would never get caught up in another bubble in something as frivolous as gold.  No, no, from now on they would only invest in things that actually had earnings, like technology stocks.

After the Internet bubble hit is peak in 2000, Boomers swore they would never invest in something ephemeral like Internet stocks. From now on, they would stick to something safe, something real, like real estate.

And now, after the 2007 peak of the real estate bubble led to a collapse of the stock market and a deep economic slowdown, Boomers are again making resolutions to never again get caught up in something so speculative.  No, no, from now on, Boomers are deciding to stick to something safe, something like bonds. After all, people are supposed to invest more in bonds when they get older, aren't they?

The problem is that the Baby Boomers are such a large group that whenever they all try to crowd into the same room, their combined weight is more than can be balanced by the rest of the investing public.  So having Boomers all decide that bonds are the place to be creates some interesting disruptions in the financial markets.

And this new investing fashion that has Boomers piling into bonds arrives just as interest rates are nearing the bottom of the 60-year cycle in interest rates.  One important point to remember is that bond yields move inversely compared to bond prices.  So seeing bond yields fall like this is another way of saying that bond prices are rising.

 In his 1940 book, "Turning Points in Business Cycles", Leonard Ayres compiled a set of high grade corporate bond data going back to 1831.  Ayres is perhaps better known as the guy who first thought it might be useful to compile data on advancing and declining issues while he was working for the Cleveland Trust Company in the 1920s.  He also gained notoriety working as a senior logistics officer for General John J. "Blackjack" Pershing during World War I.

There are important bottoms for interest rates which can be seen near the decadal marks of 1770, 1830, 1890, and 1950.  Each of these bottoms arrives approximately 60 years after the prior one.  The next major bottom for interest rates is ideally due in 2010, plus or minus.  This cycle expectation just happens to coincide with the arrival of Baby Boomers at an age when they figure they ought to load up on bonds, just to be safe.  So once again, Boomers are all piling into another financial asset type at precisely the wrong time.
 

There will be no blog Tuesday as I will be recuperating from a late late flight to England from Portugal.

    I am leaving it to the Germans to deal with the Bundesbank's Thilo Sarrazin's interview with Die Welt am Sonntag. He said Jews have “a particular gene” that sets them apart and that Muslims have more problems assimilating in Europe than other immigrants, according to an interview in the Sunday newspaper. German politicians  starting with Chancellor Angela Merkel and Jewish representatives criticized Herr Sarrazin's, but the Bundesbank is rigorously independent. A former finance minister for the city-state of Berlin, Sarrazin told Die Welt am Sonntag he’s not racist. With a name like Sarrazin he hardly could be anti-Arab, but there is a particular gene amongst Germans which tends to tigger anti-Jewish  sentiments.

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Q2 German economic recovery hit 2.2% growth year over year, the best level since the country was reunified. Germany now looks like leading the European Union (EU) out of the global economic crisis if it learns to work and play and share with others.

The German economic grwoth spurt also saw the Germany statistical office Destatis revising upward its earlier Q1 2010 growth from 0.2% sequentially to 0.5%. So after a slowdown related to bad weather at the start of the year, to quote Nouriel Roubini, "the German economic upswing gained substantial momentum in H1 2010, leading the recovery in the eurozone".

Not so fast. Because Germany is of course the export dynamo of Europe and was well positioned to gain from the low Euro exchange rate earlier this year along with demand for its technology from the BRIC countries. But apart from a bit of spillover to Holland and Austria, its neighbors, German growth tends to stay in Germany. It does not work as a locomotive for the rest of Europe.

Another country doing surprisingly well on exports if not on growth is Portugal where I now am. The government now expects 2010 to see growth at a level of 0.7%, not exactly stunning but much better than EU experts and others had predicted. Moody's in its latest report figures that Portugal's growth in 2010 will be 0.5%, not as optimistic, but still ahead of the European Union executive forecast which was 0.3%.
For Portugal, 2010 still shows an economic crisis because of the government deficit, to equal to 7.3% according to Lisbon and 7.5% according to Moody's. Portuguese exports have been on a roll, and account for most of the growth being booked, with H1 exports growing 11.3% in nominal terms, and at an even higher 12.3% in Q2.

These figures come from a speech Premier Jose Socrates delivered last night. He concluded, giving a hostage to fortune, "these encouraging signals that we are on the right path show that the Portuguese economy is recovering." Portugal, with under 8 million people, is not exactly a well-watched economy. If Germany is the locomotive, Portugal is the caboose.

Portuguese exports range from food and wine to cork, from cars to many spare parts for them, from cheap textiles to pulp and paper, from natural gas to renewable (windmill) electricity, from upmarket footware to stripped down elementary school computers, from gizmos to gunk (cross-traded). But financial services is the surprising winner.

Portuguese banks are cashing in without any stress (or stress tests) thanks to a huge boost in riskless commission income from operations, up 12.6% in H1. We are not talking about investment banks, but the deposit-taking, loan-making commercial banking business. The top 5 here earned 7.7 mn euros per day in commissions during H1.

Of course low interest rates help because bank charges tend to be sticky. But there is another factor. Portuguese banks are winning business from abroad, not just the classic tourism-linked foreign exchange operations for British and Scandinavian visitors (whose numbers are off this year from the crisis.)

They are developing a new service market, for Portugal's only near-land-neighbor, Spain. Worried about their own real-estate-loan-strapped banks and caixas, Spanish savers and businesses are moving money into Portugal, incurring foreign exchange fees which are profitable for the Big 5 banks, plus Santander and Barclays which also are active in Portugal. While Euros operate as a single currency all over the EU, banks still charge for cross-border transfers. According to an Algarve banker source, the main inflows are from corporate accounts and the commissions and fees are negotiated, but still very profitable for the Portuguese banks.

He denies that Portugal is peddling to other Europeans access to its own unique offshore banking center, in Madeira, which belongs to Portugal. But he would say that, right? Today two top-level Spanish bankers have been charged with insider trading over the BHP bid for POT.

Gaining from the troubles of others is what both Portugal and Germany are doing for their economies now.

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