It is? Good, I can talk about Euroland. Believe me, it was hard but a resolution is a resolution and I stuck by mine even in the face of having to listen to my friend, Massimo, constantly calling to tell me how right he was and asking where in the hell was his recognition. OK, Massimo, you were spot on.
Massimo did in fact call it perfectly. He said that the Euros would put together some sort of agreement on fiscal union and after an appropriate period of time, Mario Draghi at the ECB would rain Euros on Italy which is exactly what happened. Of course what he didn't say was that Draghi would rain Euros all over the place which is really what happened so sorry Mario, that part you missed. So did most other people.
To recap, Draghi monetized the sovereign debt by a massive 650 billion facility directed at the banks who picked up 3 year funding at 1% and then did the right thing by investing in Euro debt instruments, especially the Italian 1, 3 and 10 years bond auctions which were floated at year-end. The bids coved the offered amounts, sucess was declared, Mario proclaimed a genius of Bernanke proportions, Buon Natale to all and to all a good night for 2011. Ciao!
Today we awoke to some good Economic numbers in the U.S., silence from Euroland and a Dow that opened up over 200 points; not a bad way to start the new year. None of this is a bad thing but as we try to anticipate what faces us in the new year it is perhaps a good a idea to look at a few free-standing facts which, as a politician once said, are hard things to ignore.
While Draghi's action saved the bond dealers' bacon it did so at a price. As we commented at the time, the 3-year Italian bond was issued at a yield of over 3.50% per-cent compaired to Germany's .60%...hardly a shout of confidence. Then, during my quiet period, out came the 10-year at 6.98%...hardly sustainable...and while the convidence that Draghi's actions gave the markets in the short term that he would be an activist central banker (don't we just all LOVE that), confidence is easily lost and requires a constant dose of "what have you done for me lately/" to be held in place. What he' going to have to pull out of the hat is around 120 billion Euros for Italy in the next couple of months, about 50 billion for Spain (the number keeps going up because of the new findings of state debt), an almost certain French downgrade, and an unknown number for Greece as the restructuring of that country's debt accompanied by a big loss for the banks make that a moveable target as well as the afore-mentioned recapitalization and probable restructuring of the European banking sector in an amount uncertain. And that's just in the first quarter!
What Mario also accomplished--and he had no alternative--was to highlight that the only source of funding and liquidity for Euroland was Mario Draghi, the most devestating free-standing fact of all-- which in all probability will lead to negative growth in the first quarter and the further unsustainability of the financial financial arrangements which have been set in place. With elections in France and Greece coming up shortly, the politics may shortly replace the financial issues the region faces. Mario has one hell of a tough job but he has bridged the crisis of end-2011 to this year in a very adroit manner. Will he make it? I'l be sure to ask Massimo but as for me this time I think he may be looking at a bridge too far. We'll be watching
Welcome back. Hope the holidays were good to you and your family.
ReplyDeleteHerr. Draghi will have another $200 billion by the end of March.