I'm really not sure why central bankers feel compelled to open their mouths even when there is nothing much good to say. Even the supposedly smart ones like Mark Carney, resident Canadian hired help at the Bank of England. As we used to remark in a derogatory sense, "Said a banker in the City late last night...(you see, one NEVER found a banker in the City late at night unless he was very, very drunk), Mark said late last night that the Old Lady would be flooding the country with Pounds in June just in case the British people got the vote on Brexit the wrong way 'round, which in his learned opinion would prevent panic. Well, no Mark, let's not worry about panic. What you just did is to reinforce the belief that Brexit is a REAL possibility in the minds of the Mandarins which is precisely the opposite of the view that HM Government wishes to present. And oh, you don't flood the country with currency right now, you bleed it out until it is really needed (if it ever is) or perhaps you missed the point of if Britain goes, it is because of the will of the people? A wonderfully intelligent thought: "Let's vote for this and then PANIC!" Ye Gods...
By the by, this is sure the time to be adding to the glut of liquidity that's out there as if we haven't learned that liquidity, like cash, is fungible. I was reading somewhere the other day that there is something like $300 Trillion of debt in the world. The U.S. itself accounts for about $20 trillion of that number. Now little Paulie Krugman will tell you that's no big deal because we own the printing press and everybody wants to buy U.S. debt but of course in these times that's because there's nothing else to buy that has any yield and if you keep buying the same thing it's price is going to go up while it's yield goes down. And eventually that, too, stops. But it's out there and in theory it has to be repaid which means you either leave it to inflation or start selling assets. But because in part of the liquidity sloshing about, there is no inflation, so where do we go from here?
Which brings us back to the ECB on Thursday. Mario is probably even in a worse spot than the Fed because not everyone in his circle of shareholders is on the same page. And yet, voters are demanding that something be done so I suspect that we will get more of the same but with a heavier dose of rate cutting in an attempt to disprove that history that has been written over the past few years. In theory, that knocks the hell out of the Euro and one would have thought that the decline would have been anticipated in recent trading, but that really hasn't happened. Perhaps it is because a Fed rate hike has been completely discounted not only for March but in some quarters for June as well, and yet the spreads between the Note and Bunds are so outrageous the trade seems to be as clear as...mud. At that highlights another problem. None of us are investors any longer, we have been forced to become traders unless one has the stomach for equities which a lot of people do not--and should not--have.
Then again, we all could be China which yesterday reported a drop in exports year-on-year for the month of February of 25% Astounding. Guess what the government is going to do? Why print money of course which will have the effect of cratering the Yuan, which will undoubtedly lead to competitive devaluations in Asia where if memory serves, there is a hell of a lot of debt outstanding...in dollars, Euros and whatever. Reserve currency, indeed. Thank you IMF for once again proving how truly useless you really are.
More tomorrow.
Showing posts with label Euro. Show all posts
Showing posts with label Euro. Show all posts
Tuesday, March 8, 2016
Monday, August 3, 2015
EUROLAND
Greece. Other than playing the heavy in this ongoing surreal drama, it appears that the rest of Europe receives no attention. By the by, the Athens Bourse opened again today and crashed as expected, down 16% at the close. Greek GDP has collapsed as has the manufacturing sector and the banks...one as a result of the other..or vice-a-versa. Whatever. Back to Euroland.
It may be hard to imagine at this point in time, but the Greek crisis may have more of a material, long-lasting effect on Europe than on Greece. That may not be a bad thing. We should remember that the European Union was really an exercise in politics than a political or financial union. If one is to be honest about it, it was really conceived as a way to keep Germany from roaming about outside of its fences as had been the case for the previous 100 or so years with all the unpleasant results that accrued. Would Germany emerge as a premius inter parus in this scheme? Probably was the thought but it avoided the alternative which after two wars was firmly implanted in the European mind. It really wasn't a bad idea but with the political scheme exhaustively thought out, not enough thought was given to the fiscal foundation and although warning bells were sounded literally around the world, there came the birth of the Euro, a screaming, howling child with no mother, no father and hence, no discipline. Some cleverly stayed out of the nursery like the Brits and have lived to rejoice although from time to time they have tried as hard as they might on their own to cock things up to a fare-thee-well. The common currency has caused all sorts of mischief.
Unfortunately, whilst taking this bold step, Europe remained firmly rooted in things past which has caused as much difficulty as the currency. In a world of rapid innovation and greater decentralization, Europe became more central in it's governance and more resistant to innovative change in many areas. The European Commission and Legislature took on the greatest role in rule-making to the smallest level in local economies. With that came the expected inefficiencies which seem to always connected to governmental bureaucracies. At the same time, which creating a common market larger than that of the United States, the inability to modernize probably the most important sector to a continent recovering from unbelievable destruction, the financial sector, has cost Europe dearly. The difference between the Europe of the start of the 21st Century and the Europe of the 20th Century was, in this critical area, very small, indeed. Europe's present and its future revolved around its financial sector and the financial sector was its banks. And the banks never changed. Oh, they created different products to be sure and operated in different sectors, but the one thing that never changed, for the entire history of Europe from the end of WW II, be it in periods of nationalizations or until today, was the connection of national governments to the financial system and the special relationships fostered therein. I think it is accurate to state that the condition that Greece finds itself in today is a result of that relationship.
Greece, to be sure, has been an exercise in governmental malfeasance but one made possible through the insanity of sovereign risk lending conducted as if there was not risk, encouraged by national and Euro-wide governments and regulatory bodies that supported that belief. And it was just not Greece. All of Europe and all of the European institutions and corporate entities were financed by banking sectors that were inextricably intertwined with the political forces at large, irrespective of party affiliation of philosophy. If there was to be a Greece, or an Ireland or a Portugal or a Spain it would not simply be a governmental/political crisis simply solved in a political manner by voting the rascals out, it would always be a banking crisis and solving that is no easy task.
As we have said over and over, the difference between Greece and Mexico in 1982 wasn't that great. First, you save the banks and once you do that, you figure out where to go from there. But, there are ways to do that that can create far greater problems in the future if you do it wrong and because of the relationship between European financial institution and their governments, the Euros got it wrong; they just didn't save the banks, they bailed them out substituting the European taxpayer for the bag holders in this tragedy.
I will not pretend that in the early days of the Latin Crisis that all involved knew where it was heading but I can say with perfect certainty that within a few years the unsustainability of the debt burden for most of the countries involved was readily apparent to most and the solution, though not a happy one was clear. the only question remaining was when and how much and how best to prepare one's self for the inevitable. Most of us did a pretty good job and one thing to keep in mind as well is that we learned from it. There have been sovereign risk disasters since that time but there has been very, very little cross border sovereign risk on the books of American banks. Very little. Not so in Europe and in addition, the appetite for sovereign risk in this country has been satisfied by mutual funds and hedge funds who invest their own money (well, capital levered up to the gills but that is another story). The growth of the capital markets in the United States, unmatched anywhere else in the world has made this amelioration of risk possible. This has not been the case in Europe.
What Europe now faces is the same situation we faced in the eighties except taking the place of shareholders there are voters and that is a game changer; an immediate one and one with far reaching ramifications. I hope to follow up on those thoughts as the week progresses. Hope you stick with me and offer thoughts of your own.
It may be hard to imagine at this point in time, but the Greek crisis may have more of a material, long-lasting effect on Europe than on Greece. That may not be a bad thing. We should remember that the European Union was really an exercise in politics than a political or financial union. If one is to be honest about it, it was really conceived as a way to keep Germany from roaming about outside of its fences as had been the case for the previous 100 or so years with all the unpleasant results that accrued. Would Germany emerge as a premius inter parus in this scheme? Probably was the thought but it avoided the alternative which after two wars was firmly implanted in the European mind. It really wasn't a bad idea but with the political scheme exhaustively thought out, not enough thought was given to the fiscal foundation and although warning bells were sounded literally around the world, there came the birth of the Euro, a screaming, howling child with no mother, no father and hence, no discipline. Some cleverly stayed out of the nursery like the Brits and have lived to rejoice although from time to time they have tried as hard as they might on their own to cock things up to a fare-thee-well. The common currency has caused all sorts of mischief.
Unfortunately, whilst taking this bold step, Europe remained firmly rooted in things past which has caused as much difficulty as the currency. In a world of rapid innovation and greater decentralization, Europe became more central in it's governance and more resistant to innovative change in many areas. The European Commission and Legislature took on the greatest role in rule-making to the smallest level in local economies. With that came the expected inefficiencies which seem to always connected to governmental bureaucracies. At the same time, which creating a common market larger than that of the United States, the inability to modernize probably the most important sector to a continent recovering from unbelievable destruction, the financial sector, has cost Europe dearly. The difference between the Europe of the start of the 21st Century and the Europe of the 20th Century was, in this critical area, very small, indeed. Europe's present and its future revolved around its financial sector and the financial sector was its banks. And the banks never changed. Oh, they created different products to be sure and operated in different sectors, but the one thing that never changed, for the entire history of Europe from the end of WW II, be it in periods of nationalizations or until today, was the connection of national governments to the financial system and the special relationships fostered therein. I think it is accurate to state that the condition that Greece finds itself in today is a result of that relationship.
Greece, to be sure, has been an exercise in governmental malfeasance but one made possible through the insanity of sovereign risk lending conducted as if there was not risk, encouraged by national and Euro-wide governments and regulatory bodies that supported that belief. And it was just not Greece. All of Europe and all of the European institutions and corporate entities were financed by banking sectors that were inextricably intertwined with the political forces at large, irrespective of party affiliation of philosophy. If there was to be a Greece, or an Ireland or a Portugal or a Spain it would not simply be a governmental/political crisis simply solved in a political manner by voting the rascals out, it would always be a banking crisis and solving that is no easy task.
As we have said over and over, the difference between Greece and Mexico in 1982 wasn't that great. First, you save the banks and once you do that, you figure out where to go from there. But, there are ways to do that that can create far greater problems in the future if you do it wrong and because of the relationship between European financial institution and their governments, the Euros got it wrong; they just didn't save the banks, they bailed them out substituting the European taxpayer for the bag holders in this tragedy.
I will not pretend that in the early days of the Latin Crisis that all involved knew where it was heading but I can say with perfect certainty that within a few years the unsustainability of the debt burden for most of the countries involved was readily apparent to most and the solution, though not a happy one was clear. the only question remaining was when and how much and how best to prepare one's self for the inevitable. Most of us did a pretty good job and one thing to keep in mind as well is that we learned from it. There have been sovereign risk disasters since that time but there has been very, very little cross border sovereign risk on the books of American banks. Very little. Not so in Europe and in addition, the appetite for sovereign risk in this country has been satisfied by mutual funds and hedge funds who invest their own money (well, capital levered up to the gills but that is another story). The growth of the capital markets in the United States, unmatched anywhere else in the world has made this amelioration of risk possible. This has not been the case in Europe.
What Europe now faces is the same situation we faced in the eighties except taking the place of shareholders there are voters and that is a game changer; an immediate one and one with far reaching ramifications. I hope to follow up on those thoughts as the week progresses. Hope you stick with me and offer thoughts of your own.
Friday, March 20, 2015
WADDAYA KNOW JOE?
As the old song goes, Joe don't know nothin'. Neither does Charlie. There were half a dozen different stories coming out of Europe today concerning Greece. I was running around all day trying to get confirmation including a couple of the few friends I have left in D.C. who of course knew less than nothing.
One tale had Greece receiving 2 billion Euros for "humanitarian relief." Sounded fishy to me but not outside the realm of Euro-nuttiness so I tried to confirm. No luck. Next, came Tsipras alleging that his new best friend, Angie, had told him that there was no need to conform to much-hated the austerity measures but that now the new guideline was the February 20 agreement with which Greece would follow "at some point." "Wha," said I? Tried for confirmation. Answer: if Tsipras said that he's wrong because Angie never agreed to that nor would she ever. OOOOOOK. Some body's fibbing.
Asked whether the Fund ever got it's payment. Nobody knows nothin'. Wondered whether Angie and Tsipras are running a two person negotiation. One guy said that would be OK but the Belgian PM said not on his watch. Asked whether the Greeks have a timetable and a source close to Greece told me absolutely not. That's not what I hear from a source close to the Euro side. Which reminds me of the Longfellow classic:
Beneath the dark and the daylight, when the night is beginning to lower;
Comes a pause in the day's occupations, which is known as The Children's Hour.
Call it the weekend...same difference.
Now there was one thing clear today and that was the market has convinced itself that the Fed ain't doing nothin' for a while. Equities soared; the 10 year fell below 2.00% and the dollar crashed against everything as the shorts covered like hell. The fact that the 10 year is 178 points in yield above the Bund seemed to have no effect at all. One genius on TV, was asked why anybody would by Bunds with short term negative interest rates, he answered, "capital appreciation." So let me get this straight: you are giving up on the short end 50 basis points in carry against a dollar instrument, plus the negative carry on your instrument and how are you going to make this up? You mean when the negative yield increases in the future? And in the mean time how do you make money, by making it up on the volume? Right, now is there a reinvestment risk thrown in? No? Why? Oh I get it...because if you did that it would really look like a stupid trade. But you bought Euros today? Uh huh. I get it. At least I think I do.
Joe ain't the only guy out there who don't know nothin'.
Children's Hour.
One tale had Greece receiving 2 billion Euros for "humanitarian relief." Sounded fishy to me but not outside the realm of Euro-nuttiness so I tried to confirm. No luck. Next, came Tsipras alleging that his new best friend, Angie, had told him that there was no need to conform to much-hated the austerity measures but that now the new guideline was the February 20 agreement with which Greece would follow "at some point." "Wha," said I? Tried for confirmation. Answer: if Tsipras said that he's wrong because Angie never agreed to that nor would she ever. OOOOOOK. Some body's fibbing.
Asked whether the Fund ever got it's payment. Nobody knows nothin'. Wondered whether Angie and Tsipras are running a two person negotiation. One guy said that would be OK but the Belgian PM said not on his watch. Asked whether the Greeks have a timetable and a source close to Greece told me absolutely not. That's not what I hear from a source close to the Euro side. Which reminds me of the Longfellow classic:
Beneath the dark and the daylight, when the night is beginning to lower;
Comes a pause in the day's occupations, which is known as The Children's Hour.
Call it the weekend...same difference.
Now there was one thing clear today and that was the market has convinced itself that the Fed ain't doing nothin' for a while. Equities soared; the 10 year fell below 2.00% and the dollar crashed against everything as the shorts covered like hell. The fact that the 10 year is 178 points in yield above the Bund seemed to have no effect at all. One genius on TV, was asked why anybody would by Bunds with short term negative interest rates, he answered, "capital appreciation." So let me get this straight: you are giving up on the short end 50 basis points in carry against a dollar instrument, plus the negative carry on your instrument and how are you going to make this up? You mean when the negative yield increases in the future? And in the mean time how do you make money, by making it up on the volume? Right, now is there a reinvestment risk thrown in? No? Why? Oh I get it...because if you did that it would really look like a stupid trade. But you bought Euros today? Uh huh. I get it. At least I think I do.
Joe ain't the only guy out there who don't know nothin'.
Children's Hour.
Friday, March 13, 2015
SQUEAKY BUM TIME?
...which is what the former manager of Man United used to say when it was time to worry. Well, when Little Paulie Krugman almost gets it right, by my reckoning it's squeaky bum time...in spades.
Paulie just figured out that Mario's QE exercise for which he has been screaming for over a years is just about to turn the the U.S. Dollar into Le Currencie Horrible from the standpoint of doing any good for the U.S. economy and--though he will not admit it--not do a damn thing for economic conditions Over There. He also was on the mission of an American QE Whatever once again but with hardly the fervor of past episodes of Paulie Plays John M. If we are lucky, he might figure out that it's fine to be a Keynesian if you are as smart as John M. which Paulie is almost certainly not, but I fear that is a hope for a far distant future. Anyway, this sort of revelation on the part of Paulie is cause for concern: if he can figure it out we should worry.
The Euro was slaughtered again today as was pretty much everything else that counts except the dollar. If I were still trading (the world thanks God that I am not), I'd probably be positioned for the Euro to break the buck inside of two weeks. This movement is something out of the Doomsday Book. Following it right down into the toilet is oil which the smart guys say will be with a 30 handle by the end of the month. With the supply figures out there they are probably right this time.
On top of all of this, comes now another concern which was there all along but somewhat ignored in all of the other melee: dollar denominated debt. Oh not your Greece and points east, but corporate dollar denominated debtors, especially in emerging markets. In places like Brazil. For companies like Petrobras which is mired in scandal and corruption, hampered (to say the least) by political motivated mis-management and in the wrong business at the wrong time with a balance sheet completely mis-matched in currencies. Petrobras is not the only one. The same scenario with a few variations on the theme is being played out around the globe. The Dollar is the financing currency of choice. When your liabilities are appreciating, and you cash and earning are depreciating... We have seen this movie before and it has always been rated R if not X. There are a lot of concerned people out there not named Fergie. Count me among them. Paulie, you should be as well.
Paulie just figured out that Mario's QE exercise for which he has been screaming for over a years is just about to turn the the U.S. Dollar into Le Currencie Horrible from the standpoint of doing any good for the U.S. economy and--though he will not admit it--not do a damn thing for economic conditions Over There. He also was on the mission of an American QE Whatever once again but with hardly the fervor of past episodes of Paulie Plays John M. If we are lucky, he might figure out that it's fine to be a Keynesian if you are as smart as John M. which Paulie is almost certainly not, but I fear that is a hope for a far distant future. Anyway, this sort of revelation on the part of Paulie is cause for concern: if he can figure it out we should worry.
The Euro was slaughtered again today as was pretty much everything else that counts except the dollar. If I were still trading (the world thanks God that I am not), I'd probably be positioned for the Euro to break the buck inside of two weeks. This movement is something out of the Doomsday Book. Following it right down into the toilet is oil which the smart guys say will be with a 30 handle by the end of the month. With the supply figures out there they are probably right this time.
On top of all of this, comes now another concern which was there all along but somewhat ignored in all of the other melee: dollar denominated debt. Oh not your Greece and points east, but corporate dollar denominated debtors, especially in emerging markets. In places like Brazil. For companies like Petrobras which is mired in scandal and corruption, hampered (to say the least) by political motivated mis-management and in the wrong business at the wrong time with a balance sheet completely mis-matched in currencies. Petrobras is not the only one. The same scenario with a few variations on the theme is being played out around the globe. The Dollar is the financing currency of choice. When your liabilities are appreciating, and you cash and earning are depreciating... We have seen this movie before and it has always been rated R if not X. There are a lot of concerned people out there not named Fergie. Count me among them. Paulie, you should be as well.
Wednesday, January 7, 2015
THE LAST BELIEVER?
Writing about the travails of Europe he past few days one thought kept pooping into my head. Is there anyone left who truly believes the monetary union can succeed? Draghi of course comes to mind but looking at his pronouncements and actions (or no actions) of the past few weeks I feel more and more that the guy has given up the ghost and is merely going through the motions. He looks tired, sounds beaten and by any form of judgement, faces an almost impossible task.
The continent is broken. The gulf between the creditor nations of the north and the debtor nations of the south is widening. In December, Spain fell into recession whilst Germany continue to grow with an unemployment rate falling to 5%. The Euro has fallen to its lowest level in years which only increases Germany's export position and noes nothing for the south whose economies become more and more internalized and who's indebtedness inexorably grows faced with an inflation rate in the negative range. The 10 year Bund yields below 0.50%; the 5 year actually traded to yield in negative ranges today pulling down yields in Italy and Spain to be sure but that is meaningless in a no growth, no inflation envirorment. It is clear, now, that China has massively over invested so no help there and even the stunning decline in energy means little. Sr. Draghi may have reached the end of the road. More importantly, he may now be prepared to accept defeat.
Oddly, German prospects, may also be facing a reversal. Over the past year, German exports to Europe have experienced a little noticed change. The market for German in now the U.K., not the members in the EMU as has mostly been the case. Angie landed in London today which is hardly a coincidence and what comes out of this chin wag may have more importance than people realize.
Cameron needs help. The up-coming election is far from the sure thing that many commentators, including myself, thought it would be a year or so ago. The result is in no man's land, and yet it is not altogether clear what Ms Merkel can do to move the momentum in Mr. Cameron's favor. However, one thing she must understand the one thing Mr. Cameron can do is to make good his threat to take the U.K out of the EU. That would probably result in his victory and write finis to the great experiment.
I have more thoughts on this overall situation but right now my eye sight is giving way. Forgive me, but I need to close and return after a bit of rest. Stick with me.
The continent is broken. The gulf between the creditor nations of the north and the debtor nations of the south is widening. In December, Spain fell into recession whilst Germany continue to grow with an unemployment rate falling to 5%. The Euro has fallen to its lowest level in years which only increases Germany's export position and noes nothing for the south whose economies become more and more internalized and who's indebtedness inexorably grows faced with an inflation rate in the negative range. The 10 year Bund yields below 0.50%; the 5 year actually traded to yield in negative ranges today pulling down yields in Italy and Spain to be sure but that is meaningless in a no growth, no inflation envirorment. It is clear, now, that China has massively over invested so no help there and even the stunning decline in energy means little. Sr. Draghi may have reached the end of the road. More importantly, he may now be prepared to accept defeat.
Oddly, German prospects, may also be facing a reversal. Over the past year, German exports to Europe have experienced a little noticed change. The market for German in now the U.K., not the members in the EMU as has mostly been the case. Angie landed in London today which is hardly a coincidence and what comes out of this chin wag may have more importance than people realize.
Cameron needs help. The up-coming election is far from the sure thing that many commentators, including myself, thought it would be a year or so ago. The result is in no man's land, and yet it is not altogether clear what Ms Merkel can do to move the momentum in Mr. Cameron's favor. However, one thing she must understand the one thing Mr. Cameron can do is to make good his threat to take the U.K out of the EU. That would probably result in his victory and write finis to the great experiment.
I have more thoughts on this overall situation but right now my eye sight is giving way. Forgive me, but I need to close and return after a bit of rest. Stick with me.
Friday, May 30, 2014
…AND IN THE SOUTH...
For those looking for some good news, all eyes turned to Italy which is sort of like a guy in front of a firing squad being told that maybe everybody will miss. Then again, the drowning man…
Beppe lost; in fact he got hammered but Renzi, who garnered over 40% of the vote will no doubt reject the austerity policies which he believes have brought Europe to its knees and go all out for a growth package that damns the fiscal torpedoes and rings up "all ahead full" (or "ahead Bendix" for you old salts). Problem is, just how is he going to get that done without completely abandoning every guideline of the Union which will raise a true crap storm in the Calvinistic Northern Tier. But Renzi has proven to be a tougher nut than anyone imagined and there will be substantial backing of any play he may make which will no doubt include France as self-immolation in this partnership with Germany is becoming less and less attractive to Les Citizens.
Spain will be there as the two dominant parties took a drubbing as their combined vote fell under 50% with all shapes and sizes of the opposition gaining none more so than something called the Podemos Radicals who I have been told are bad news coming from no where to around 10%. It's one thing to know who's firing the shots but in Spain, the firing is coming from all directions but with the target clearly being Germany for all and the International Organizations such as the IMF for some.
Not so with Greece. The Left was the clear winner and the policy suggestions all that such a result entails, namely the rejection of most if not all debt obligations and the retreat from the Euro. Once again, though small, Greece looms massive in the direction Europe is headed.
Nevertheless, even if all the disagreements among nations could be resolved, there are two massive obstacles facing the Union that may well prove to be insurmountable. In any scenario on any level the Currency, so treasured by most parties and which first buggered the South with massive inflows will almost certainly prohibit reflation where needed. The currency is a mill stone around the neck of recovery and if--and this is a big if--fiscal and industrial policies are not radically changed will remain as such. Unfortunately, the second massive obstacle is working in concert with my view that governance will not change, and that leaves a a large uptick in the world economy as being absolutely essential to European recovery under the present climate. That is not going to happen either, but hope remains eternal and will so remain right up to the final tolling of the bell.
Astride it all, Draghi speaks this week as to the policy of the ECB. "Whatever it takes," worked last time but there is now…finally…an understanding that Draghi successfully --and brilliantly--talked his way out of a financial crisis because talk was the only thing he had. He still has no more. Reflation, using tools available to the Fed and the Bank of England cannot happen; Sr, Draghi does not have the tools. Nor does anyone else on the continent and the absence of capital markets which give such flexibility to U.S. policy makers looms large. What comes out this week is any one's guess but I would be more than a bit cautious.
I've cried "wolf" before only to be proven wrong but this time I may be right. A financial crisis is one thing; a political crises is another and whether is is a good thing or not about the only thing upon which all parties agree--some grudgingly--is that the Euro is a disaster at this time and for different selfish reasons may have to be abandoned. What that would leave us with is at best a trade union operating much in the same manner as trade has been conducted among sovereign states for 5000 years. Maybe that's not such a bad idea if it is the one policy point on which all can agree rather than one of the members saying one day, "bugger it" and heading off on their own. I don't think the decision point is too far away and as I said that may not be all that bad. After all, such a system got us this far...
Beppe lost; in fact he got hammered but Renzi, who garnered over 40% of the vote will no doubt reject the austerity policies which he believes have brought Europe to its knees and go all out for a growth package that damns the fiscal torpedoes and rings up "all ahead full" (or "ahead Bendix" for you old salts). Problem is, just how is he going to get that done without completely abandoning every guideline of the Union which will raise a true crap storm in the Calvinistic Northern Tier. But Renzi has proven to be a tougher nut than anyone imagined and there will be substantial backing of any play he may make which will no doubt include France as self-immolation in this partnership with Germany is becoming less and less attractive to Les Citizens.
Spain will be there as the two dominant parties took a drubbing as their combined vote fell under 50% with all shapes and sizes of the opposition gaining none more so than something called the Podemos Radicals who I have been told are bad news coming from no where to around 10%. It's one thing to know who's firing the shots but in Spain, the firing is coming from all directions but with the target clearly being Germany for all and the International Organizations such as the IMF for some.
Not so with Greece. The Left was the clear winner and the policy suggestions all that such a result entails, namely the rejection of most if not all debt obligations and the retreat from the Euro. Once again, though small, Greece looms massive in the direction Europe is headed.
Nevertheless, even if all the disagreements among nations could be resolved, there are two massive obstacles facing the Union that may well prove to be insurmountable. In any scenario on any level the Currency, so treasured by most parties and which first buggered the South with massive inflows will almost certainly prohibit reflation where needed. The currency is a mill stone around the neck of recovery and if--and this is a big if--fiscal and industrial policies are not radically changed will remain as such. Unfortunately, the second massive obstacle is working in concert with my view that governance will not change, and that leaves a a large uptick in the world economy as being absolutely essential to European recovery under the present climate. That is not going to happen either, but hope remains eternal and will so remain right up to the final tolling of the bell.
Astride it all, Draghi speaks this week as to the policy of the ECB. "Whatever it takes," worked last time but there is now…finally…an understanding that Draghi successfully --and brilliantly--talked his way out of a financial crisis because talk was the only thing he had. He still has no more. Reflation, using tools available to the Fed and the Bank of England cannot happen; Sr, Draghi does not have the tools. Nor does anyone else on the continent and the absence of capital markets which give such flexibility to U.S. policy makers looms large. What comes out this week is any one's guess but I would be more than a bit cautious.
I've cried "wolf" before only to be proven wrong but this time I may be right. A financial crisis is one thing; a political crises is another and whether is is a good thing or not about the only thing upon which all parties agree--some grudgingly--is that the Euro is a disaster at this time and for different selfish reasons may have to be abandoned. What that would leave us with is at best a trade union operating much in the same manner as trade has been conducted among sovereign states for 5000 years. Maybe that's not such a bad idea if it is the one policy point on which all can agree rather than one of the members saying one day, "bugger it" and heading off on their own. I don't think the decision point is too far away and as I said that may not be all that bad. After all, such a system got us this far...
Thursday, January 9, 2014
SNOWJOB
Yes, it's coming down again, but that's not what I'm talking about in the title to this piece. The Euros fascinate me, they really do. The ability to flit with life, touching reality only briefly is a masterful achievement. It's not like the Leader will, as proven, will from time to time deliberately attempt to mislead (lying); these lads have managed to convince themselves of the truth of their utterances which is a remarkable feat.
The latest practitioner of this art is he head boy himself, Jose Manuel Barroso, head of the Commission who a day or so ago announced that the crisis in Euro was over and there was nothing but blue skies ahead. Ireland, said he, was out of crisis and even back in the borrowing game. Spain's numbers were far better than expected and Latvia, the newest member of the Clan would soon be the Rock Star of Europe. There was of course a few trouble spots in between but surely they would be resolved by the end of the year.
He's a politician of course and what you rarely hear from a pol is the talk of trouble out down in the valley especially if the trouble is on his watch. "It's Bush's fault" is easy (so easy the Euros were also using that line), but after five or six years of somewhat dismal economic and fiscal performance the response one tends to get when the "Bush Solution"--or the local equivalent--is trotted out is, "Who's Bush?" It's on to Plan B in the USA but for Euroland it's simply declare victory and move on. Makes life a lot easier.
The reality is of course somewhat different. The decline in Spanish unemployment for example is more of a result of unemployed Spaniards being found in ever-increasing numbers in England and Germany, creating a phenomenon not unlike that in the United States, while the overall unemployment rate in the EU remains at an uncomfortable and unsustainable 12%+. Italy is faring no better it would appear although it is far more difficult to determine, as the Italian employment rate has been unreliable since Julie was off in Gaul. There is of course little argument that the Euro as viewed internally as the currency of trade is vastly over-valued in regard to both countries, not to mention anything else south of the Alps.
All that would enough of a concern if it were not for France which appears to be finding itself more comfortable in playing the role of the sick man of Europe, a condition which is more and more placed at the feet of Frankie and his economic and (especially) tax policies. The man is facing an increasingly serious political problem. And of course there is Germany which has yet to face the first truly tough issue with a coalition government deeply divided on political dogma. It will come and the result is nowhere guaranteed as I do not believe that decades of disagreement are easily overcome.
Anyway, if I were Mr. Barroso I would certainly temper my enthusiasm with a cold, hard stare at the reality about him. I suspect each one of these issues will arise in the first half of this year and fairly quickly. As a result, issues which previously have been allowed to lay fallow, such as immigration, will find increasing importance in the discussion. The Policies of the ECB, whilst central to the overall issue are yet a separate discussion entirely. Mr. Draghi has, in one sense, played his cards quite close to his vest, not to mention the formulation of a United States of Europe in regard to the Banking Industry. Angels fear to tread on that ground and I have never been accused of being seen with a Harp. I'll wait a bit for even broad generalities on that one.
The latest practitioner of this art is he head boy himself, Jose Manuel Barroso, head of the Commission who a day or so ago announced that the crisis in Euro was over and there was nothing but blue skies ahead. Ireland, said he, was out of crisis and even back in the borrowing game. Spain's numbers were far better than expected and Latvia, the newest member of the Clan would soon be the Rock Star of Europe. There was of course a few trouble spots in between but surely they would be resolved by the end of the year.
He's a politician of course and what you rarely hear from a pol is the talk of trouble out down in the valley especially if the trouble is on his watch. "It's Bush's fault" is easy (so easy the Euros were also using that line), but after five or six years of somewhat dismal economic and fiscal performance the response one tends to get when the "Bush Solution"--or the local equivalent--is trotted out is, "Who's Bush?" It's on to Plan B in the USA but for Euroland it's simply declare victory and move on. Makes life a lot easier.
The reality is of course somewhat different. The decline in Spanish unemployment for example is more of a result of unemployed Spaniards being found in ever-increasing numbers in England and Germany, creating a phenomenon not unlike that in the United States, while the overall unemployment rate in the EU remains at an uncomfortable and unsustainable 12%+. Italy is faring no better it would appear although it is far more difficult to determine, as the Italian employment rate has been unreliable since Julie was off in Gaul. There is of course little argument that the Euro as viewed internally as the currency of trade is vastly over-valued in regard to both countries, not to mention anything else south of the Alps.
All that would enough of a concern if it were not for France which appears to be finding itself more comfortable in playing the role of the sick man of Europe, a condition which is more and more placed at the feet of Frankie and his economic and (especially) tax policies. The man is facing an increasingly serious political problem. And of course there is Germany which has yet to face the first truly tough issue with a coalition government deeply divided on political dogma. It will come and the result is nowhere guaranteed as I do not believe that decades of disagreement are easily overcome.
Anyway, if I were Mr. Barroso I would certainly temper my enthusiasm with a cold, hard stare at the reality about him. I suspect each one of these issues will arise in the first half of this year and fairly quickly. As a result, issues which previously have been allowed to lay fallow, such as immigration, will find increasing importance in the discussion. The Policies of the ECB, whilst central to the overall issue are yet a separate discussion entirely. Mr. Draghi has, in one sense, played his cards quite close to his vest, not to mention the formulation of a United States of Europe in regard to the Banking Industry. Angels fear to tread on that ground and I have never been accused of being seen with a Harp. I'll wait a bit for even broad generalities on that one.
Tuesday, November 5, 2013
THE FIRST SALVOS
Actually, more like a signal flare. Germany doesn't exactly stand alone but the issue is going to be how many will stand with her on a common problem affecting all of the Euro states. It is the Euro itself of course, or rather the valuation thereof which common wisdom deems the problems.
Ordinarily, logic tells us that the strength of the Euro, or the weakness of the dollar--we'll get to that in a minute--would affect all of Euroland in depressing markets for all members. But what happens when your biggest market is Euroland itself which is precisely the case with Germany? What happens is German exports to its Euro partners and buys little in return causing a hellacious result in comparative balance of payments. Now the fact that there is no country in Euroland as competitively efficient as Germany, nor has there been in recent memory, causes our Germany friends to say, "Hang on, why blame us?" Then again, it has been the Bundesbank that has held this thing together for the last five years which the good Volk understand only too well and are getting quite tired of that situation.
Then again, the price for what stability has been achieved has, in many economies, been catastrophically high. Germany's demand for austerity, while dear to the heart of Germany public opinion has created massive unemployment, a total lack of growth and political upheavals, even more greatly magnified because it is now pretty well understood hat the lack of political leadership was a primary cause of the economic downturn in the first place.
Greece remains a mess despite a vast inflow of foreign capital of a vulture fund nature, Cyprus...well it's Cyprus and who cares. Italy is in another political crisis; Spain hangs on but the Catalan separatist movement will not go away; Portugal..again, who cares, but France...now there is a real problem. Frankie has so badly screwed the pooch that it may become ungovernable come the turn of the year and without France, no coalition could possibly stand up to Germany assuming the political guts and will existed in any of the others in the southern tier. And so the talks begin under the clouds of severe political turmoil with few goal expressed (or even understood) except that things are bad and everything must be changed. The entire mob gets together in a few short weeks to try to sort this out and while I don't wish to make more of this than it is, the Brits are sitting on the outside looking in and not minding much of what they see inasmuch as certain portions of their economy (e.g. service sector, even WITHOUT finance) are doing better than anyplace on the continent and with a pretty good understanding after all the hooting and hollering that the average Brit would be perfectly delighted to be out of Europe, a situation that makes it unlike that the Cameron government will be pulling on the traces to act as peacemaker in all this. The exact opposite may in fact be the case.
And as for Over Here? There remains speculation that tapering is just around the corner. With the multiple cock-ups of this administration, an election in 12 months time, and the now-complete politicization of the Federal reserve, there will be no tapering in the near future and therefore, no help on the currency side for our Euro friends. Of perhaps greater importance is the minuscule amount of cred ability this administration has with Euroland. We are out of the picture. More's the shame...and the crime.
Ordinarily, logic tells us that the strength of the Euro, or the weakness of the dollar--we'll get to that in a minute--would affect all of Euroland in depressing markets for all members. But what happens when your biggest market is Euroland itself which is precisely the case with Germany? What happens is German exports to its Euro partners and buys little in return causing a hellacious result in comparative balance of payments. Now the fact that there is no country in Euroland as competitively efficient as Germany, nor has there been in recent memory, causes our Germany friends to say, "Hang on, why blame us?" Then again, it has been the Bundesbank that has held this thing together for the last five years which the good Volk understand only too well and are getting quite tired of that situation.
Then again, the price for what stability has been achieved has, in many economies, been catastrophically high. Germany's demand for austerity, while dear to the heart of Germany public opinion has created massive unemployment, a total lack of growth and political upheavals, even more greatly magnified because it is now pretty well understood hat the lack of political leadership was a primary cause of the economic downturn in the first place.
Greece remains a mess despite a vast inflow of foreign capital of a vulture fund nature, Cyprus...well it's Cyprus and who cares. Italy is in another political crisis; Spain hangs on but the Catalan separatist movement will not go away; Portugal..again, who cares, but France...now there is a real problem. Frankie has so badly screwed the pooch that it may become ungovernable come the turn of the year and without France, no coalition could possibly stand up to Germany assuming the political guts and will existed in any of the others in the southern tier. And so the talks begin under the clouds of severe political turmoil with few goal expressed (or even understood) except that things are bad and everything must be changed. The entire mob gets together in a few short weeks to try to sort this out and while I don't wish to make more of this than it is, the Brits are sitting on the outside looking in and not minding much of what they see inasmuch as certain portions of their economy (e.g. service sector, even WITHOUT finance) are doing better than anyplace on the continent and with a pretty good understanding after all the hooting and hollering that the average Brit would be perfectly delighted to be out of Europe, a situation that makes it unlike that the Cameron government will be pulling on the traces to act as peacemaker in all this. The exact opposite may in fact be the case.
And as for Over Here? There remains speculation that tapering is just around the corner. With the multiple cock-ups of this administration, an election in 12 months time, and the now-complete politicization of the Federal reserve, there will be no tapering in the near future and therefore, no help on the currency side for our Euro friends. Of perhaps greater importance is the minuscule amount of cred ability this administration has with Euroland. We are out of the picture. More's the shame...and the crime.
Tuesday, October 22, 2013
BACK TO THE FUTURE
I have spent too much time as of late talking about that which I never talk about which is politics, or at least political figures. Not good for Ms. James' little boy, Charlie. Gets him too riled up. So I shall be smart and get back to what got me started with this thing: Banks and Banking with a first installment beginning with what's going on Over There.
Nothing new. Oh, I know, there are stories about how much better things are and how well Europe is doing, and the new investment we are seeing and that the banks are out of the woods. Don't believe everything you read in the papers or in blogs. The crisis of last year has been averted for the time being but real structural problems remain. Investment is flooding into places like Greece looking for rock-bottom prices and enormous returns, but the soothern tier remains troubled to say the least and the rise of the Euro, or the collapse of the dollar--take your pick--bode ill. But the banks, ah the banks, wither they go, and the answer is no one really knows.u
In such cases the answer is a classic one: let's have a stress test! Now, one may ask, Haven't we had a bunch of those before? Answer: yes. And what did they show? Well the last one about a year ago came out--for the most part--pretty well. The only problem was it was as phoney as a three dollar bill and everyone knew it but it served the political purpose of getting things calmed down for the time being until more permanent solutions might be dreamed up. So, we are going to try it again early next year and this one is promised to be the real thing, according to no less an authority than Mario Draghi, the head of the ECB. In fact, Sr. Draghi might well be believed this time around because in announcing the test he indicated that there might be some bad news involved in a most interesting manner and raised the specter of what no politician wanted; a "backstop," put in place by individual nations to cover the capital requirements of banks revealed by the test to be in need. Without such mechanisms said Sr. Draghi, there would be absolutely no chance of fulfilling ECB banks' requirements through private capital markets. Rage and consternation.
The last thing ECB governments want is to go to their adoring public with another bank bail-out plan. Much better that a "screw the depositor and bondholder Cyprus II" operation be undertaken, but as Sr. Draghi rightly points out any chance of this happening, however slight, will destroy the market for European banks forever and a day. Hence, the backstop. But there is a bit more. What can be interpreted from the ECB's position is that it fully expects the stress tests to show the need for new bank capital and probably in vast amounts; some estimates have the final figure upwards of a trillion Euros which is a big number in real money especially at these FX rates which today had the Euro at 1.36 to the buck.
It's not that the future is looking all that rosy either. In the end, the United States plays a massive role in what happens Over There and today's job numbers, despite the drop in the unemployment rate for reasons past-explained, stank. Probably will next month as well. Probably will have a general economic slow down as well. Tapering is off the table and the prospect for stronger dollar to aid Euro exports is history at least for 6 months. At the end of the day, the European state of banking is a muddle and seemingly will remain so. Great for me. I can deal with that a lot easier than I can with Eric Holder getting mad at me.
Nothing new. Oh, I know, there are stories about how much better things are and how well Europe is doing, and the new investment we are seeing and that the banks are out of the woods. Don't believe everything you read in the papers or in blogs. The crisis of last year has been averted for the time being but real structural problems remain. Investment is flooding into places like Greece looking for rock-bottom prices and enormous returns, but the soothern tier remains troubled to say the least and the rise of the Euro, or the collapse of the dollar--take your pick--bode ill. But the banks, ah the banks, wither they go, and the answer is no one really knows.u
In such cases the answer is a classic one: let's have a stress test! Now, one may ask, Haven't we had a bunch of those before? Answer: yes. And what did they show? Well the last one about a year ago came out--for the most part--pretty well. The only problem was it was as phoney as a three dollar bill and everyone knew it but it served the political purpose of getting things calmed down for the time being until more permanent solutions might be dreamed up. So, we are going to try it again early next year and this one is promised to be the real thing, according to no less an authority than Mario Draghi, the head of the ECB. In fact, Sr. Draghi might well be believed this time around because in announcing the test he indicated that there might be some bad news involved in a most interesting manner and raised the specter of what no politician wanted; a "backstop," put in place by individual nations to cover the capital requirements of banks revealed by the test to be in need. Without such mechanisms said Sr. Draghi, there would be absolutely no chance of fulfilling ECB banks' requirements through private capital markets. Rage and consternation.
The last thing ECB governments want is to go to their adoring public with another bank bail-out plan. Much better that a "screw the depositor and bondholder Cyprus II" operation be undertaken, but as Sr. Draghi rightly points out any chance of this happening, however slight, will destroy the market for European banks forever and a day. Hence, the backstop. But there is a bit more. What can be interpreted from the ECB's position is that it fully expects the stress tests to show the need for new bank capital and probably in vast amounts; some estimates have the final figure upwards of a trillion Euros which is a big number in real money especially at these FX rates which today had the Euro at 1.36 to the buck.
It's not that the future is looking all that rosy either. In the end, the United States plays a massive role in what happens Over There and today's job numbers, despite the drop in the unemployment rate for reasons past-explained, stank. Probably will next month as well. Probably will have a general economic slow down as well. Tapering is off the table and the prospect for stronger dollar to aid Euro exports is history at least for 6 months. At the end of the day, the European state of banking is a muddle and seemingly will remain so. Great for me. I can deal with that a lot easier than I can with Eric Holder getting mad at me.
Wednesday, May 23, 2012
IF YOU GOT A DOLLAR, HONEY, I GOT A EURO
1.2587-89 to you my son. That close represents a nearly 2-cent move in 24 hours. an unheard of sort of move in currency trading. One can say that there is an immense short that is simply begging to be squeezed but then one may ask who has the nerve to be a buyer? All other news pales today in the face of what some traders are now calling the destruction of the market for Euros.
In the face of this, equity markets crashed but more importantly, commodity fell through the floor. The implications are stunning: the price of gasoline is certain to fall which may be good for the economy in the U.S. except that the massively strong dollar will undoubtably hurt U.S. exports...except that the largest import cost, oil, will concurrently fall. Germany's export maching will receive the fallen Euro as manna from heaven and every European exporter will benefit, but not to the extent of Germany where the rich will certainly get richer. Or, as Pooh said, "I'm confused."
All of this occurred amidst the--apparent--confirmation that the Greeks were indeed formulating contingency plans as to how to exit the zone, politicians all over Euroland were expressing their views as to whether such an event would be good, bad or indifferent as to the future and the Germans making it more than clear that any consideration of a Eurobond ist kaput. And have a nice day, too, Fritz.
There's an old joke about a guy standing on a street corner hitting himself on the head with a small bat. A bystander walks up to him and asks, "Why are you doing that?" and the reply is, "It feels good when I stop." Is there any end to this Euro stupidity? Haven't they learned that trying to kick the can down the road doesn't work any more? They have a shot at this stage at holding it together without Greece but no shot at all if they try to keep Greece in? Say goodby to Greece and forget about ring-fencing the countries themselves with proposals that will be argued forever. Ring-fence the banks by publicly guaranting liquidity which will give yourselves the time to begin the more than difficult task of restructuring your entire economies. And do it NOW. A day or two like today and time will have won.
Nothing in the Chinese tale of yesterday apart from another I-don't-know-what-the-hell-is-going-on journalist. Sovereigns have been direct purchasers for generations, except he didn't know it. Spike!
In the face of this, equity markets crashed but more importantly, commodity fell through the floor. The implications are stunning: the price of gasoline is certain to fall which may be good for the economy in the U.S. except that the massively strong dollar will undoubtably hurt U.S. exports...except that the largest import cost, oil, will concurrently fall. Germany's export maching will receive the fallen Euro as manna from heaven and every European exporter will benefit, but not to the extent of Germany where the rich will certainly get richer. Or, as Pooh said, "I'm confused."
All of this occurred amidst the--apparent--confirmation that the Greeks were indeed formulating contingency plans as to how to exit the zone, politicians all over Euroland were expressing their views as to whether such an event would be good, bad or indifferent as to the future and the Germans making it more than clear that any consideration of a Eurobond ist kaput. And have a nice day, too, Fritz.
There's an old joke about a guy standing on a street corner hitting himself on the head with a small bat. A bystander walks up to him and asks, "Why are you doing that?" and the reply is, "It feels good when I stop." Is there any end to this Euro stupidity? Haven't they learned that trying to kick the can down the road doesn't work any more? They have a shot at this stage at holding it together without Greece but no shot at all if they try to keep Greece in? Say goodby to Greece and forget about ring-fencing the countries themselves with proposals that will be argued forever. Ring-fence the banks by publicly guaranting liquidity which will give yourselves the time to begin the more than difficult task of restructuring your entire economies. And do it NOW. A day or two like today and time will have won.
Nothing in the Chinese tale of yesterday apart from another I-don't-know-what-the-hell-is-going-on journalist. Sovereigns have been direct purchasers for generations, except he didn't know it. Spike!
Monday, July 18, 2011
MAYBE AL WAS RIGHT
It's a long shot, but the fly-over zone is hot as hell so maybe Al Gore was on to something other than how to make a quick 100 million and score Hollywood babes. Maybe, but I doubt it. Al was never on to anything that required any degree of intellectual effort.
This is a bad time for guys like me because we need action; we can't make up things out of thin air and right now that's what we have and hot thin air at that. I've been around long enough to realize that when it all goes quiet that mwans there are real problems. Politician of any stripe cannot resist babbling about all that they're doing to solve the problems of the day with their astounding intelligence and super-human energy levels. When it goes quiet that means they got nuthin'. Washington is at an impass and the Euros are starying into an abyss known as the End of the EURO. The stock market is wandering lower, gold is wandering higher, durations are becoming shorter and shorter, and a new breed of geniuses are clammoring for investors to buy T-Bills because they are sold on a discounted yield basis which means there cannot be an interest payment default...huh? If there is anyone out there who can understand what the hell that is supposed to mean, call me. I'm tellin' ya, it's the silly season. Must be the heat.
The fate of the Euro, however, is now being openly discussed, not only within the blogosphere and academia, but by serious folk on both sides of the pond. Frankly, I think the French and the Germans along with a few others would sacrifice anyone and anything to preserve the currency but I have to admit that a few doubts are creeping into this, my long-standing belief. I must admit at being surprised as to how long it has taken the Euros to come to the realization that as to Greece the jig is up and really
surprised at the lack of pragmatism which heretofore had always been synomious to them as to finding a solution. Academic arguments as to what constitutes "eligible paper" at a time like this is well out of character. Then again that might change. Last week the results of the new "stress tests" on Euro banks were released and greated with instant incredulity on the part of everyone. I am told the ECB was stunned at the reaction which in it self would spark incredulity. The postponement of the ministers' meeting to Thursday of this week was in no little part influenced by the reaction. The last vestage of clothing has been torn away: there aint nothin' on the Emperor. I think they must--and will--move shortly; they have run out of time. Hence, now the silence. We shall wait.
Over here, it's much the same. The suit was talking tough on tv this morning and the comment was made that the markes did......nothing. He's irrelevant. Has been for a while, just no one noticed. We've reached the end of ideas and now it comes down to can the respective caucasuses reach majorities within themselves to allow a deal to happen or not. Frankly, I don't know and as I have said if not, I don't know the result. Here, too, we wait.
Carter checked in as you have probably seen. There are not many of us involved with triplets at any level but I can offer this advice: Carter, if you are thinking about retiring from the world in a log cabin somewhere in the woode, think again. There is no cabin so big that does not become small when triplets come a-calling. You need a place to run and hide. And I don't think the Euros make it to September even if it means the French don't get all of their holiday in August...then again, you may have a point. Nothing is THAT important...
This is a bad time for guys like me because we need action; we can't make up things out of thin air and right now that's what we have and hot thin air at that. I've been around long enough to realize that when it all goes quiet that mwans there are real problems. Politician of any stripe cannot resist babbling about all that they're doing to solve the problems of the day with their astounding intelligence and super-human energy levels. When it goes quiet that means they got nuthin'. Washington is at an impass and the Euros are starying into an abyss known as the End of the EURO. The stock market is wandering lower, gold is wandering higher, durations are becoming shorter and shorter, and a new breed of geniuses are clammoring for investors to buy T-Bills because they are sold on a discounted yield basis which means there cannot be an interest payment default...huh? If there is anyone out there who can understand what the hell that is supposed to mean, call me. I'm tellin' ya, it's the silly season. Must be the heat.
The fate of the Euro, however, is now being openly discussed, not only within the blogosphere and academia, but by serious folk on both sides of the pond. Frankly, I think the French and the Germans along with a few others would sacrifice anyone and anything to preserve the currency but I have to admit that a few doubts are creeping into this, my long-standing belief. I must admit at being surprised as to how long it has taken the Euros to come to the realization that as to Greece the jig is up and really
surprised at the lack of pragmatism which heretofore had always been synomious to them as to finding a solution. Academic arguments as to what constitutes "eligible paper" at a time like this is well out of character. Then again that might change. Last week the results of the new "stress tests" on Euro banks were released and greated with instant incredulity on the part of everyone. I am told the ECB was stunned at the reaction which in it self would spark incredulity. The postponement of the ministers' meeting to Thursday of this week was in no little part influenced by the reaction. The last vestage of clothing has been torn away: there aint nothin' on the Emperor. I think they must--and will--move shortly; they have run out of time. Hence, now the silence. We shall wait.
Over here, it's much the same. The suit was talking tough on tv this morning and the comment was made that the markes did......nothing. He's irrelevant. Has been for a while, just no one noticed. We've reached the end of ideas and now it comes down to can the respective caucasuses reach majorities within themselves to allow a deal to happen or not. Frankly, I don't know and as I have said if not, I don't know the result. Here, too, we wait.
Carter checked in as you have probably seen. There are not many of us involved with triplets at any level but I can offer this advice: Carter, if you are thinking about retiring from the world in a log cabin somewhere in the woode, think again. There is no cabin so big that does not become small when triplets come a-calling. You need a place to run and hide. And I don't think the Euros make it to September even if it means the French don't get all of their holiday in August...then again, you may have a point. Nothing is THAT important...
Monday, May 9, 2011
IMPATIENCE WITH IMPATIENTS
I planted 10,000 of the damned things today. My back is simply kaput, tot, dead. My hands don't work, my knees are shot and my neck feels like it survived a botched hanging. This is going to be short because I desperately need a wiskey.
Somebody should shoot Greece and put it out of its misery. Poor buggers (oops!) got downgraded again today all the way to single-B...as though anyone cares. Last week, however, amid the talk of the Euros (read Germans) probably having to come up with an extra 30 billion or so Euros on top of the already committed 110 billion, there began the rumbling that Greece would abandon the Euro altogether which caused to currency to rapidly decline against the dollar. That of course was rapidly dismissed by most of the adults involved but the speculation lingered over the weekend and into today. The currency bounced back a bit but the problem that I expect to rise up shortly is the perception that Emperor Europe is walking around without too many clothes on.. I really don't believe that things can improve without growth (as Carter suggested) which means that the boys have a pretty tough call: either they face reality and begin restructuring in earnest or take the pure political route and inflate their way out of the problem. The latter may well be unacceptable to Hans and Brunhilda but remember, this is all about the banks and all about money. Do the bankers get bailed out yet again or does the Volk triumph? Remarkably, I don't have the answer but I do know that this growth thingy better start happening over here or else The Leader and his gang are in for trouble in 2012. There are just so many terrorist leaders out there to whom you can give a double tap and boost the polls.
The Suit and Madame Clinton are in China today along with Jovial Joe Biden which scares the heck out of me whenever they allow him out on his own. Anyway, nothing is certain to come of this so I will leave it to the historian to write about whilst turning to a small but really good piece of news; Poo Bair has decided to call it quits. Now of course this may result in a complete disaster in re the new appointee for the head of the FDIC but I shall try to remain positive in approaching the future. The problem, of course, is the horrific piece of legislation that forms the template for the work of any agency head but ol'Poo and demonstrated such a lack of understanding of the matters at hand that one suspects she could misinterpret the Sermon on the Mount with relative ease. Anyway, she's gone and I just might add another wiskey to my evening's medicinal portion in quiet celebration. I should be in fine fettle about four hours from now.
See ya.
Somebody should shoot Greece and put it out of its misery. Poor buggers (oops!) got downgraded again today all the way to single-B...as though anyone cares. Last week, however, amid the talk of the Euros (read Germans) probably having to come up with an extra 30 billion or so Euros on top of the already committed 110 billion, there began the rumbling that Greece would abandon the Euro altogether which caused to currency to rapidly decline against the dollar. That of course was rapidly dismissed by most of the adults involved but the speculation lingered over the weekend and into today. The currency bounced back a bit but the problem that I expect to rise up shortly is the perception that Emperor Europe is walking around without too many clothes on.. I really don't believe that things can improve without growth (as Carter suggested) which means that the boys have a pretty tough call: either they face reality and begin restructuring in earnest or take the pure political route and inflate their way out of the problem. The latter may well be unacceptable to Hans and Brunhilda but remember, this is all about the banks and all about money. Do the bankers get bailed out yet again or does the Volk triumph? Remarkably, I don't have the answer but I do know that this growth thingy better start happening over here or else The Leader and his gang are in for trouble in 2012. There are just so many terrorist leaders out there to whom you can give a double tap and boost the polls.
The Suit and Madame Clinton are in China today along with Jovial Joe Biden which scares the heck out of me whenever they allow him out on his own. Anyway, nothing is certain to come of this so I will leave it to the historian to write about whilst turning to a small but really good piece of news; Poo Bair has decided to call it quits. Now of course this may result in a complete disaster in re the new appointee for the head of the FDIC but I shall try to remain positive in approaching the future. The problem, of course, is the horrific piece of legislation that forms the template for the work of any agency head but ol'Poo and demonstrated such a lack of understanding of the matters at hand that one suspects she could misinterpret the Sermon on the Mount with relative ease. Anyway, she's gone and I just might add another wiskey to my evening's medicinal portion in quiet celebration. I should be in fine fettle about four hours from now.
See ya.
Thursday, May 6, 2010
A TALE OF TWO CITIES
I said this was going to be a long one today, but it is not. It's going to be short and hopefully thought provoking. The two cities are Washington and Frankfurt, the time is the present and the issue is not the fall of French Royalty but perhaps of the European Union.
Back in 2008 Hank Paulson and Ben Bernanke, old DUSTOFF himself said, in effect, the American Financial system will not fail. Everybody believed them and the worldwide financial system did not fail. Today, Jean Claude Trichet said Greece would not default and every trader in Europe looked up from their stickey buns and said, "Bugger off." And therein is the difference. European liquidity dried up, dealers went home, the U.S stock market tanked in a nanosecond--not as a direct reaction to be sure--and the world is looking decidedly dicer today than at any time since 2008. The bailout of Greece will fail and the contagion will spread as the Europeans and their central bank have proven unable to deal with this crisis either in a timely or effective fashion. Money may enter Greece and if it does it will go straight out the door to the banks that hold the debt who will run like hell to get as far away from Greece as possible; Greece will be cut off from future flows, the amount of financing will in any case prove to be inadequate and what was deemed impossible will occur: an EU country will default. In the meantime, vultures are circling the obvious candidates and do not be surprised if the next headline involves the state of European banking or one or two individual banks who are faced with real difficulty.
The ramifications? All thoughts of the Euro as an alternative to the dollar will be, to understate it a bit, put on hold. The realization that this is not a political union but a gaggle of politicians will come to the fore. The chance of massive capital flight or repositioning of capital away from Europe is very real and the gap between Germany and the rest will widen to the point where it may be politically impossible to rationalize to the German people why the EU is good for them. This is a very, very awkward time gang and one in which this country is not in a position to play any sort of leadership role even if this mob in D.C. had a clue. One thing they should keep in mind, however: M. Trichet is powerless because he needs 16 politicians to agree with any of his pronouncements. The more "oversight" by pols over a supposedly independent central bank, the more paralysis one creates in times when action is required and needless to say (or perhaps not) the entrance of politicians is concurrent with the exit of credibility.
Looks like a hung parliament in Blighty. This is going to be a kick.
See you tomorrow
Back in 2008 Hank Paulson and Ben Bernanke, old DUSTOFF himself said, in effect, the American Financial system will not fail. Everybody believed them and the worldwide financial system did not fail. Today, Jean Claude Trichet said Greece would not default and every trader in Europe looked up from their stickey buns and said, "Bugger off." And therein is the difference. European liquidity dried up, dealers went home, the U.S stock market tanked in a nanosecond--not as a direct reaction to be sure--and the world is looking decidedly dicer today than at any time since 2008. The bailout of Greece will fail and the contagion will spread as the Europeans and their central bank have proven unable to deal with this crisis either in a timely or effective fashion. Money may enter Greece and if it does it will go straight out the door to the banks that hold the debt who will run like hell to get as far away from Greece as possible; Greece will be cut off from future flows, the amount of financing will in any case prove to be inadequate and what was deemed impossible will occur: an EU country will default. In the meantime, vultures are circling the obvious candidates and do not be surprised if the next headline involves the state of European banking or one or two individual banks who are faced with real difficulty.
The ramifications? All thoughts of the Euro as an alternative to the dollar will be, to understate it a bit, put on hold. The realization that this is not a political union but a gaggle of politicians will come to the fore. The chance of massive capital flight or repositioning of capital away from Europe is very real and the gap between Germany and the rest will widen to the point where it may be politically impossible to rationalize to the German people why the EU is good for them. This is a very, very awkward time gang and one in which this country is not in a position to play any sort of leadership role even if this mob in D.C. had a clue. One thing they should keep in mind, however: M. Trichet is powerless because he needs 16 politicians to agree with any of his pronouncements. The more "oversight" by pols over a supposedly independent central bank, the more paralysis one creates in times when action is required and needless to say (or perhaps not) the entrance of politicians is concurrent with the exit of credibility.
Looks like a hung parliament in Blighty. This is going to be a kick.
See you tomorrow
Wednesday, May 5, 2010
MR. GARMAN
There's this guy by the name of Garman who is a regular contributor on CNBC I have found him to be one of the most astute if not the most astute commentators they have. Caught him today. He said without much hesitation that the Euro is dead and the EU is finished...it's just a matter of time.
You might remember that a few days ago I noted that the market was pricing in a full scale rescheduling when it came to Greek debt. Every day it appears more and more likely and now it is becoming fashionable for all the wags out there to proclaim that they have "issues" with the bail-out package as to whether it is really enough. As most of these geniuses still haven't a clue, I guess this St. Paul like moment is not a bad thing but it still makes me shudder. The Greeks had their little demonstration-day today and managed to kill three people whilst burning down a bank. Not helpful. As a wise man once put it, "It's always darkest just before the lights go out."
Tomorrow is going to be a monumental day across the pond as we see what effect today's outburst will have and at the same moment it's election time in Blighty. I'm going to hold off a bit to see what the lay of the land is before commenting further. Remarkably, the New York Times was silent today and no one...and I mean NO ONE--has even raised the issue of NATO in light of what could be a coming Euro collapse. How long do you think that state of affairs is going to last and I wonder what The Leader is thinking? Gotta love this foreign policy of inclusion...except there may not be anybody to include. Stay tuned. Big blog tomorrow
You might remember that a few days ago I noted that the market was pricing in a full scale rescheduling when it came to Greek debt. Every day it appears more and more likely and now it is becoming fashionable for all the wags out there to proclaim that they have "issues" with the bail-out package as to whether it is really enough. As most of these geniuses still haven't a clue, I guess this St. Paul like moment is not a bad thing but it still makes me shudder. The Greeks had their little demonstration-day today and managed to kill three people whilst burning down a bank. Not helpful. As a wise man once put it, "It's always darkest just before the lights go out."
Tomorrow is going to be a monumental day across the pond as we see what effect today's outburst will have and at the same moment it's election time in Blighty. I'm going to hold off a bit to see what the lay of the land is before commenting further. Remarkably, the New York Times was silent today and no one...and I mean NO ONE--has even raised the issue of NATO in light of what could be a coming Euro collapse. How long do you think that state of affairs is going to last and I wonder what The Leader is thinking? Gotta love this foreign policy of inclusion...except there may not be anybody to include. Stay tuned. Big blog tomorrow
Monday, May 3, 2010
A NEW DAY DAWNING?
Not from where I sit. Not from where my really smart friend Larry sits either. He's gloomier than I am but then again he has a 5000 bottle wine cellar of really special Shirazs from Oz and a whole bunch of great Eyty stuff that he couldn't possibly drink so if anyone will stand me the price of a ticket to London life may well begin to look a bit brighter.
The Greeks collected 120 million Euros for three years from Euroland and a bundle from the IMF who is back in the nation building business once again after about 10 years of 10,000 out-of-work economists in search of a mission. God's in his heaven, yada, yada. I've seen this show before. It will take about six months for the Greeks to announce that they can't possibly comply with the IMF mandates whilst in the mean time the punters will be beginning to pound the 'Geese and the Spanish into submission while whomsoever is in charge of that gaggle that will be the House of Commons will be wrestling with what both of us fear will become the most unmanageable nation in Europe. Now, as Larry suggests this may all be a ploy on the part of the Euros who, knowing this deal hasn't a chance of working just wants to set up a smoke screen for the eventual rescheduling of all of these debts which are lodged in the banking system, but I'm not so sure. You see, Larry is a hell of a lot smarter than the guys (and gals) running this thing and whilst that's what HE would do, this mob hasn't figured it out...yet. Then again they might ask him for advice which they can probably get for free because God knows he doesn't need the money. That will give the two of us a wonderful opportunity to get gloriously drunk, sit back and laugh our bums off at the scene before us. If anyone's interested, I have his number.
Back on this side of the pond, The Leader is reveling in some good economic numbers which, sadly for him, have been over-shadowed by the oil spill in the Gulf. I think they are trying to blame it on George Bush but so far no such luck. The Fed is making encouraging sounds but still refuses to tighten up and the exposure to Fanny and Freddie just keeps going up. You may think I'm nuts but you heard it here first: I have seen financial institutions estimate possible losses in various sectors for almost 40 years. Those estimates all have one thing in common; they are always too optimistic. I think that at the end of the day the U.S. taxpayer is looking at one trillion in losses in these two pieces of junk and in the FHA. Suddenly, there comes the revelation that the bill put forward by Chris the Crook doesn't even mention Fan and Fred. Whatupwiththat? People are also coming to the understanding that not much is accomplished by this rubbish legislation, that TBTF remains, that Poo Bair hasn't a clue and will not have a clue as to how to deal with, say, a Bank of America much less Citigroup and the real effect of the language on derivatives will be to drive the business into the arms of institutions that we can't touch. Amazingly, it's the academics that are beginning to sound the alarm which is scary in itself. Yessirree, a real bright horizon out there.
We shall be following the sequence of events but in the mean time you will be happy to know that the rain held off for a time and the tomatoes were put in. A Victory Garden and Larry's cellar may get us through this.
The Greeks collected 120 million Euros for three years from Euroland and a bundle from the IMF who is back in the nation building business once again after about 10 years of 10,000 out-of-work economists in search of a mission. God's in his heaven, yada, yada. I've seen this show before. It will take about six months for the Greeks to announce that they can't possibly comply with the IMF mandates whilst in the mean time the punters will be beginning to pound the 'Geese and the Spanish into submission while whomsoever is in charge of that gaggle that will be the House of Commons will be wrestling with what both of us fear will become the most unmanageable nation in Europe. Now, as Larry suggests this may all be a ploy on the part of the Euros who, knowing this deal hasn't a chance of working just wants to set up a smoke screen for the eventual rescheduling of all of these debts which are lodged in the banking system, but I'm not so sure. You see, Larry is a hell of a lot smarter than the guys (and gals) running this thing and whilst that's what HE would do, this mob hasn't figured it out...yet. Then again they might ask him for advice which they can probably get for free because God knows he doesn't need the money. That will give the two of us a wonderful opportunity to get gloriously drunk, sit back and laugh our bums off at the scene before us. If anyone's interested, I have his number.
Back on this side of the pond, The Leader is reveling in some good economic numbers which, sadly for him, have been over-shadowed by the oil spill in the Gulf. I think they are trying to blame it on George Bush but so far no such luck. The Fed is making encouraging sounds but still refuses to tighten up and the exposure to Fanny and Freddie just keeps going up. You may think I'm nuts but you heard it here first: I have seen financial institutions estimate possible losses in various sectors for almost 40 years. Those estimates all have one thing in common; they are always too optimistic. I think that at the end of the day the U.S. taxpayer is looking at one trillion in losses in these two pieces of junk and in the FHA. Suddenly, there comes the revelation that the bill put forward by Chris the Crook doesn't even mention Fan and Fred. Whatupwiththat? People are also coming to the understanding that not much is accomplished by this rubbish legislation, that TBTF remains, that Poo Bair hasn't a clue and will not have a clue as to how to deal with, say, a Bank of America much less Citigroup and the real effect of the language on derivatives will be to drive the business into the arms of institutions that we can't touch. Amazingly, it's the academics that are beginning to sound the alarm which is scary in itself. Yessirree, a real bright horizon out there.
We shall be following the sequence of events but in the mean time you will be happy to know that the rain held off for a time and the tomatoes were put in. A Victory Garden and Larry's cellar may get us through this.
Friday, April 30, 2010
A DAY FOR INTROSPECTION
I'm doing something wrong and I'm paying for it. Just got the forecast for the weekend: rain for two days straight. No breaks, no let-up. That means the tomatoes don't get planted outside. That means we lose a week. Damn. And all because I write something with which the whole damn entire New York Times agrees, from the front page, to the first business page to even Paul Dumbo Krugman. Every thing I have written about Greece and sovereign risk the past week they have parroted. Krugman even picked up on the fact that Spain's debt profile is markedly different. Back to the drawing board 'cause the New York Times couldn't be agreeing with me which would mean they are right, could they? This is a bad day guys, all around.
My comments about the effect of Goldie's actions even are beginning to prove correct. Rumors abound that a criminal action is being explored by the Fed and you can be certain that States' Attorneys General are licking their chops. Of course GS absolutely went in the tank today closing below 144. The market exacts a heavy price. I still find it difficult to believe that their actions are "actionable" in a legal sense but they were sure arrogant and stupid. We shall see.
Anyhoo, the fascinating thing about what's going on across the pond is that the rumblings about whether the EU and the Euro really have a future have intensified. Even Krugman was in a speculative mood today which for that arrogant bugger is really rare. Usually he tells you what is going to happen and then when it doesn't he forgets that he told you. I guess this is too big a deal even for him, hence the musing-only. He did remind us that he warmed about the absence of fiscal control by individual nations faced with a common currency but then again, so did my four-year old granddaughter albeit she is very bright for a four year old. In any case, this is a real test and it aint multiple choice. No guessing here; that mob better begin to get it right before the general populace really figures out what the true situation is because at this stage they haven't. As I keep saying, there is nary a leader in sight--let's hope one emerges over the week-end, then again it's May Day and they'll probably all be marching with the proletariate (AKA "The Unwashed") so maybe not. As for me I'M going to ask my really smart friend Larry what he thinks and report back next week. If it's not raining where you are, put your tomatoes in the ground and think of me.
Have a great weekend
My comments about the effect of Goldie's actions even are beginning to prove correct. Rumors abound that a criminal action is being explored by the Fed and you can be certain that States' Attorneys General are licking their chops. Of course GS absolutely went in the tank today closing below 144. The market exacts a heavy price. I still find it difficult to believe that their actions are "actionable" in a legal sense but they were sure arrogant and stupid. We shall see.
Anyhoo, the fascinating thing about what's going on across the pond is that the rumblings about whether the EU and the Euro really have a future have intensified. Even Krugman was in a speculative mood today which for that arrogant bugger is really rare. Usually he tells you what is going to happen and then when it doesn't he forgets that he told you. I guess this is too big a deal even for him, hence the musing-only. He did remind us that he warmed about the absence of fiscal control by individual nations faced with a common currency but then again, so did my four-year old granddaughter albeit she is very bright for a four year old. In any case, this is a real test and it aint multiple choice. No guessing here; that mob better begin to get it right before the general populace really figures out what the true situation is because at this stage they haven't. As I keep saying, there is nary a leader in sight--let's hope one emerges over the week-end, then again it's May Day and they'll probably all be marching with the proletariate (AKA "The Unwashed") so maybe not. As for me I'M going to ask my really smart friend Larry what he thinks and report back next week. If it's not raining where you are, put your tomatoes in the ground and think of me.
Have a great weekend
Thursday, April 29, 2010
WE'LL ALWAYS HAVE THE ODYSSEY...
...which is a story about some Greek guy that took 20 years to get home from a war over some babe that took forever while his wife fended off suitors (for 20 years...how hot was she!?) which is still a better tale than the nonsense that is swirling around the wine-dark sea today.
Anyway, the N Y Times finally figured out one part of this soap opera today when they published the estimated exposure of the European banks about which your humble blogger had provided to you about two months ago. This was the second time for the Times but at least they managed to connect the dots which shows that this is not merely a bail-out on the part of the Euros but a doubling-down on the part of everybody but especially the Germans whose savings system just LOVED sovereign risk which is now the property of the Bundesrepublik. Oops. Nevertheless, a deal from the Germans is promised by the weekend and a structure from the IMF by early next week which will hopefully get some money flowing because repayments are rapidly approaching and if missed, things could really get ugly. So sad. With a touch more trust this thing could have been covered up for a while longer until something intelligent could be put in place but no such luck. Bye elections in Germany, natural distrust not only for Greece but throughout the Euro Zone (as I once said these guys have been trying to kill each other for nine centuries), and a total lack of leadership about which we spoke the other day.
Of course everyone realizes that the Greek paper held by the Euro banks is considered to be discountable which for all intents and purposes means it can be considered to be money-good, with no risk of default and against which no reserves need be taken. Think any of those banks have reserved against this stuff? If you do, think again. No chance. None. Should we worry? Nah. The Euros don't think like us. The banks are covered. Messy but effective. Even if there is a default. But let us remember, the majority of the Greek debt is sovereign in nature; that is not the case in Spain, which the wags are preparing to put on a wooden peg and stick in the ground for some humanitarian like George Soros to take a wack at. The result of the to-ing and fro-ing over the weekend will merely affect the timing of the next round. Portugal is buggered already what with the small size of it's economy and the cost of debt service...which, incidentally, is a hell of an argument for a concerted effort to keep interest rates down world-wide although I'm not sure it will help. Sad. The Iberian Peninsular could become a real tale and in addition, Barca is out on a disallowed goal as a result of a hand ball. Now THAT'S a real tragedy.
Here's looking at you, kid.
Reader Carter, in response to yesterday's effort asked who I thought was the client and whether I though GS owed a duty to both the long and short client as well as the cash and synthetic clients.
I'm not quite sure as to all the parties about which (s)he speaks but in my mind the only "Client" would be Paulson who asked GS to structure the transaction. The question gets, of course, to the heart of the SEC case but in my mind I find it difficult to ascribe any duty to GS in this particular circumstance because of the nature of the transaction.
Back in the good old days when--and I mean WAY back--when I ran syndicated lending at a bank I on two occasions refused participations to other institutions because I knew (or believed) they were not in a position to properly evaluate the risk so I am fully aware and sympathetic to the arguments. I was also considered a nut, but that's another story. Times have changed and so have the morays of the people in the profession. But in this situation the product was a unique one which, by its very nature required positioning of opposites and that should have been know to all parties. ACA was highly sophisticated and, indeed, not only knew the nature of the referenced assets but chose them. It made a directional bet and was wrong. There is no question they knew there were shorts in the deal. The same is true of the Germans who were long-time players in real estate. To say you relied on the opinion of rating agencies in a transaction this complex is to say you are a fool. I don't know of the involvement of anyone else and therefore can't comment.
The fault I think is one of commission. I think it is disgraceful that a totally useless exercise like this would be conducted by a firm of the size, the market position and the prestige of GS. The price to be paid is not that of a politically motivated SEC but the price they are paying as I write this. The market exacts a heavy price. I really don't think--indeed, I hope--that things will ever be the same for Goldman Sachs.
Thank you Carter, I appreciate your attention and interest
Anyway, the N Y Times finally figured out one part of this soap opera today when they published the estimated exposure of the European banks about which your humble blogger had provided to you about two months ago. This was the second time for the Times but at least they managed to connect the dots which shows that this is not merely a bail-out on the part of the Euros but a doubling-down on the part of everybody but especially the Germans whose savings system just LOVED sovereign risk which is now the property of the Bundesrepublik. Oops. Nevertheless, a deal from the Germans is promised by the weekend and a structure from the IMF by early next week which will hopefully get some money flowing because repayments are rapidly approaching and if missed, things could really get ugly. So sad. With a touch more trust this thing could have been covered up for a while longer until something intelligent could be put in place but no such luck. Bye elections in Germany, natural distrust not only for Greece but throughout the Euro Zone (as I once said these guys have been trying to kill each other for nine centuries), and a total lack of leadership about which we spoke the other day.
Of course everyone realizes that the Greek paper held by the Euro banks is considered to be discountable which for all intents and purposes means it can be considered to be money-good, with no risk of default and against which no reserves need be taken. Think any of those banks have reserved against this stuff? If you do, think again. No chance. None. Should we worry? Nah. The Euros don't think like us. The banks are covered. Messy but effective. Even if there is a default. But let us remember, the majority of the Greek debt is sovereign in nature; that is not the case in Spain, which the wags are preparing to put on a wooden peg and stick in the ground for some humanitarian like George Soros to take a wack at. The result of the to-ing and fro-ing over the weekend will merely affect the timing of the next round. Portugal is buggered already what with the small size of it's economy and the cost of debt service...which, incidentally, is a hell of an argument for a concerted effort to keep interest rates down world-wide although I'm not sure it will help. Sad. The Iberian Peninsular could become a real tale and in addition, Barca is out on a disallowed goal as a result of a hand ball. Now THAT'S a real tragedy.
Here's looking at you, kid.
Reader Carter, in response to yesterday's effort asked who I thought was the client and whether I though GS owed a duty to both the long and short client as well as the cash and synthetic clients.
I'm not quite sure as to all the parties about which (s)he speaks but in my mind the only "Client" would be Paulson who asked GS to structure the transaction. The question gets, of course, to the heart of the SEC case but in my mind I find it difficult to ascribe any duty to GS in this particular circumstance because of the nature of the transaction.
Back in the good old days when--and I mean WAY back--when I ran syndicated lending at a bank I on two occasions refused participations to other institutions because I knew (or believed) they were not in a position to properly evaluate the risk so I am fully aware and sympathetic to the arguments. I was also considered a nut, but that's another story. Times have changed and so have the morays of the people in the profession. But in this situation the product was a unique one which, by its very nature required positioning of opposites and that should have been know to all parties. ACA was highly sophisticated and, indeed, not only knew the nature of the referenced assets but chose them. It made a directional bet and was wrong. There is no question they knew there were shorts in the deal. The same is true of the Germans who were long-time players in real estate. To say you relied on the opinion of rating agencies in a transaction this complex is to say you are a fool. I don't know of the involvement of anyone else and therefore can't comment.
The fault I think is one of commission. I think it is disgraceful that a totally useless exercise like this would be conducted by a firm of the size, the market position and the prestige of GS. The price to be paid is not that of a politically motivated SEC but the price they are paying as I write this. The market exacts a heavy price. I really don't think--indeed, I hope--that things will ever be the same for Goldman Sachs.
Thank you Carter, I appreciate your attention and interest
Tuesday, April 27, 2010
MY FRIEND JIMMY MARSHALL
...was a partner at the New York firm of White & Case. I was just a pup banker but Jimmy liked me and took me under his wing. He was a southern gentleman from an old Virginia family, had attended "The University" and it's law school and had been in the practice of law for over thirty years when I first met him...and yes, he was the great-great-great-great grandson.
Despite all of this, at the start of any negotiation Jimmy would always say, "Gentlemen (there were no ladies), in matters such as this someone has to be a son-of-a-bitch and since I am best qualified to perform that role I nominate myself." Jimmy always performed admirably.
Greece, Europe and perhaps the world has suffered from the absence of a Jimmy Marshall. No one took charge and the result is now a real question emerging as to whether Greece can survive without a major restructuring that could result in losses all around. Today, S & P lowered Greece's credit rating to junk while at the same time cutting it's rating for Portugal. As for Greece S & P was merely reflecting the market assessment which was pricing medium term risk at a level of 1200 bp above the Bund. At this level it is fair to say that the market has priced in a restructuring:on a mark-to-market basis the rivers are running red with blood.
Who takes the blame for this? Surely there is enough to go around but as the primus-inter-parus of this band of merry men, one has to tie the can onto Germany for this one. A clear statement of German support would have nipped this thing in the bud--yes it would still have been ugly but not to this extent. I feel like a real jerk as I had truly believed that the threat of the collapse of the Euro and the EU itself would be enough to get an adult response to this situation. That collapse is now very much in sight and one wonders whether there has been an organized effort to achieve this result or was it just incompetence that has ruled the day. So one is left to wonder where do we go from here? For the life of me, I'm out of ideas but to under estimate the scope of the financial catastrophy we might be witnessing would be seriously unwise. As I have stated the true condition of European financial institutions is undoubtably not as good at this stage as is the condition of our own and a series of sovereign defaults could set off a crisis not dissimilar from what we have just experienced. Let us hope this does not occur.
Jimmy, we hardly knew ya, but boy, do they need you now.
The Goldman hearings today are an embarassment. Carl Levin is a disgrace as a legislator and pretty much as a human being which is kind of redundant as he is a career politician. His colleagues are not much better. None of them knew what they are talking about. The Goldman mob was shown as being probably brilliant in their field but absolutely useless in the role assigned. They are narrow, inarticulate little nerds. Trading quants at best. They did no good to their firm or to themselves.
More on both these items tomorrow. Oh, in case you missed it, the stock market tanked on both of these events, the Euro is in the crapper and Treasuries are going flatter and flatter across the curve. Somebody must think we're in great shape which leads one to wonder what would be happening if the Yuan was convertible which it would have to become if broadly revalued. Be careful for what you wish.
The grandkids are great, thank you. Nice to be back
Despite all of this, at the start of any negotiation Jimmy would always say, "Gentlemen (there were no ladies), in matters such as this someone has to be a son-of-a-bitch and since I am best qualified to perform that role I nominate myself." Jimmy always performed admirably.
Greece, Europe and perhaps the world has suffered from the absence of a Jimmy Marshall. No one took charge and the result is now a real question emerging as to whether Greece can survive without a major restructuring that could result in losses all around. Today, S & P lowered Greece's credit rating to junk while at the same time cutting it's rating for Portugal. As for Greece S & P was merely reflecting the market assessment which was pricing medium term risk at a level of 1200 bp above the Bund. At this level it is fair to say that the market has priced in a restructuring:on a mark-to-market basis the rivers are running red with blood.
Who takes the blame for this? Surely there is enough to go around but as the primus-inter-parus of this band of merry men, one has to tie the can onto Germany for this one. A clear statement of German support would have nipped this thing in the bud--yes it would still have been ugly but not to this extent. I feel like a real jerk as I had truly believed that the threat of the collapse of the Euro and the EU itself would be enough to get an adult response to this situation. That collapse is now very much in sight and one wonders whether there has been an organized effort to achieve this result or was it just incompetence that has ruled the day. So one is left to wonder where do we go from here? For the life of me, I'm out of ideas but to under estimate the scope of the financial catastrophy we might be witnessing would be seriously unwise. As I have stated the true condition of European financial institutions is undoubtably not as good at this stage as is the condition of our own and a series of sovereign defaults could set off a crisis not dissimilar from what we have just experienced. Let us hope this does not occur.
Jimmy, we hardly knew ya, but boy, do they need you now.
The Goldman hearings today are an embarassment. Carl Levin is a disgrace as a legislator and pretty much as a human being which is kind of redundant as he is a career politician. His colleagues are not much better. None of them knew what they are talking about. The Goldman mob was shown as being probably brilliant in their field but absolutely useless in the role assigned. They are narrow, inarticulate little nerds. Trading quants at best. They did no good to their firm or to themselves.
More on both these items tomorrow. Oh, in case you missed it, the stock market tanked on both of these events, the Euro is in the crapper and Treasuries are going flatter and flatter across the curve. Somebody must think we're in great shape which leads one to wonder what would be happening if the Yuan was convertible which it would have to become if broadly revalued. Be careful for what you wish.
The grandkids are great, thank you. Nice to be back
Thursday, April 15, 2010
DANDELIONS
Anybody out there like dandelions? They are really a delicious additions to a salad; bright, crunchy and slightly bitter. My grandmother loved dandelions. My neighbor seems to love dandelions...well, actually, she and her husband are, I suspect, the founders of the green movement and her lawn is covered with dandelions, which in the fullness of time produce that wonderful white thingy that every kid in the world blows off and spreads the seeds to every lawn within a hundred miles, which if not treated, are destroyed.
I was spraying the progeny of her last year's crop this morning when she advanced onto my property and told me I was destroying the planet. I asked her if the Weed be Gone might destroy her if--accidentally of course--I managed to spray her. She left in fear and anger. I fear I may have to build a fence. They make good neighbors or so I read someplace. Anyway, if you like dandelions, come on over. You can graze the neighbor's front lawn.
The scene today reminded me of The Leader and his Congressional caucus on financial regulatory caucus of yesterday. Two sides, of entirely different persuasion, each speaking nonsense to the other. In the case of the Repubs they were afraid to get roiled (memo to Mitch: by showing up you jerk you guaranteed it). In the case of The Leader because he hasn't the slightest idea of the substance of the subject and as usual, simply showed up to make political points which from time to time he does very well--except when he gets the crap kicked out of him by some guy named Ryan at which point he falls back onto his, "Let me be a petulant punk because I am the President" roll--which is becoming more and more the case. I have simply lost interest in commenting on this disgraceful exhibition any longer. I think I'm just going to wait and see what this Congress comes up with and comment on the final product except for this observation: if there are people who wish to game the system, they will game the system. Chris the Crook will not prevent it; indeed, look at his personal record. Imagine, he and Barney in the forefront of the protection of the American people. You couldn't make this stuff up. As for the "loyal opposition:" Ha! Over the past three generations, we have weened morality out of our society; this is the failure of the system. As for regulation, some guy named Mo had a pretty good set of rules a way back when. Maybe we should take a look at those one more time.
Looking across the pond, Greece and Portugal did very well in the Bond markets earlier in the week with a blow-out auction of 2 and 10 year stuff on behalf of the latter. The terms for the Greeks via the EU are becoming clearer and the IMF will be involved which, as suggested, was probably the way it was going to be all-along. The pressure appears to be off for a while but the political situation all across Europe is still quite fragile and any upset there could roil the markets once again. It was messy, but all-inall, I think the Euros did a pretty good job of holding things together...for now. The German by- elections will be important and within a month we have the general election in the UK which, while not what it used to be in the Grand Scheme of Things (sorry Mr. Bull), still must be watched. It's the politics not the finances which will be driving Europe in the coming months and then when June comes around nobody will care about anything other than the World Cup. Ah peace and quite until August and then we have pennant races and the start of football. Things are looking up.
Once again, thanks for all of you who helped with Google. It is greatly appreciated.
I was spraying the progeny of her last year's crop this morning when she advanced onto my property and told me I was destroying the planet. I asked her if the Weed be Gone might destroy her if--accidentally of course--I managed to spray her. She left in fear and anger. I fear I may have to build a fence. They make good neighbors or so I read someplace. Anyway, if you like dandelions, come on over. You can graze the neighbor's front lawn.
The scene today reminded me of The Leader and his Congressional caucus on financial regulatory caucus of yesterday. Two sides, of entirely different persuasion, each speaking nonsense to the other. In the case of the Repubs they were afraid to get roiled (memo to Mitch: by showing up you jerk you guaranteed it). In the case of The Leader because he hasn't the slightest idea of the substance of the subject and as usual, simply showed up to make political points which from time to time he does very well--except when he gets the crap kicked out of him by some guy named Ryan at which point he falls back onto his, "Let me be a petulant punk because I am the President" roll--which is becoming more and more the case. I have simply lost interest in commenting on this disgraceful exhibition any longer. I think I'm just going to wait and see what this Congress comes up with and comment on the final product except for this observation: if there are people who wish to game the system, they will game the system. Chris the Crook will not prevent it; indeed, look at his personal record. Imagine, he and Barney in the forefront of the protection of the American people. You couldn't make this stuff up. As for the "loyal opposition:" Ha! Over the past three generations, we have weened morality out of our society; this is the failure of the system. As for regulation, some guy named Mo had a pretty good set of rules a way back when. Maybe we should take a look at those one more time.
Looking across the pond, Greece and Portugal did very well in the Bond markets earlier in the week with a blow-out auction of 2 and 10 year stuff on behalf of the latter. The terms for the Greeks via the EU are becoming clearer and the IMF will be involved which, as suggested, was probably the way it was going to be all-along. The pressure appears to be off for a while but the political situation all across Europe is still quite fragile and any upset there could roil the markets once again. It was messy, but all-inall, I think the Euros did a pretty good job of holding things together...for now. The German by- elections will be important and within a month we have the general election in the UK which, while not what it used to be in the Grand Scheme of Things (sorry Mr. Bull), still must be watched. It's the politics not the finances which will be driving Europe in the coming months and then when June comes around nobody will care about anything other than the World Cup. Ah peace and quite until August and then we have pennant races and the start of football. Things are looking up.
Once again, thanks for all of you who helped with Google. It is greatly appreciated.
Tuesday, April 13, 2010
PEONIES
They're up. And I'm down,...on my knees that is. Herself has God-knows how many Peonies and she knows the name of every one. She's great with the grandkids too, but a bit shaky from time to time as to the dog and the kids which in the dog's case is ok because she's as deaf as a post and can't hear what she's being called. Get's me wrong half the time but I'm getting used to it. It's been a long time.
Anyway, we've been weeding, feeding and generally making peonies happy plants for two days, which in the run of things is a better couple of days than poor, old Jean-Claud Trichet has had with the Euros and the Greeks. The Euros ( read Merkel) cut a deal with the Greeks and the IMF to stabilize the situation while telling Jean-Claud to mind his own business. Well, now the Greeks have the IMF which from time to time politicians like to have because they can always say, "Don't blame us for all the depravations in your life style, the IMF made us do it!" This one should be interesting because the IMF never had an original thought in their entire history of Nation-saving but this time around they are going to have to work without the good old saw of, "Devalue your Currency!!!" No can do guys; the Greeks have the Euro so we're stuck with just suck it up, raise taxes, stop spending and hope there isn't a revolution. As for the European Central Bank? If I were M. Trichet I would start looking and speaking carefully to those banks within the Euro zone that hold Greek debt, because after round one has run its course there might be a need to do a little bank rescuing as the next (only?) thing in the IMF bag of tricks is rescheduling. No I haven't a clue really, but if history is any guide the marks on assets on the books of Euro banks, where similar to U.S. institutions are no where near as aggressive; add a bunch of Greek debt to the mix and we got us a developing situation. And now that we have solved Greece, onward to Spain, Portugal and La Bella Italia which in case you have missed it are real countries.
I'm beginning to think more of the unthinkable. We all keep hearing on both sides of the pond that the dissolution of the Union is impossible but the Germans are acting more and more like they don't think it really matters...to them at least. The Brits, of course or at least a goodly bunch of them never wanted to be part of it in the first place and will surely be even more against joining the Euro Zone. The French? Zut allors! If we cannot run it why bother? And so the next year or so is going to be a most interesting one to watch. This is what they say, makes markets.
The good news is that Google has apparently decided that this blog is not spam after all and I no longer have to decipher those funny written letters (I can't do it half the time) in order to get this things published. A warm thank you for those of you who contacted Google on my behalf. I'll try to continue to inform and entertain.
Back to the Peonies
Anyway, we've been weeding, feeding and generally making peonies happy plants for two days, which in the run of things is a better couple of days than poor, old Jean-Claud Trichet has had with the Euros and the Greeks. The Euros ( read Merkel) cut a deal with the Greeks and the IMF to stabilize the situation while telling Jean-Claud to mind his own business. Well, now the Greeks have the IMF which from time to time politicians like to have because they can always say, "Don't blame us for all the depravations in your life style, the IMF made us do it!" This one should be interesting because the IMF never had an original thought in their entire history of Nation-saving but this time around they are going to have to work without the good old saw of, "Devalue your Currency!!!" No can do guys; the Greeks have the Euro so we're stuck with just suck it up, raise taxes, stop spending and hope there isn't a revolution. As for the European Central Bank? If I were M. Trichet I would start looking and speaking carefully to those banks within the Euro zone that hold Greek debt, because after round one has run its course there might be a need to do a little bank rescuing as the next (only?) thing in the IMF bag of tricks is rescheduling. No I haven't a clue really, but if history is any guide the marks on assets on the books of Euro banks, where similar to U.S. institutions are no where near as aggressive; add a bunch of Greek debt to the mix and we got us a developing situation. And now that we have solved Greece, onward to Spain, Portugal and La Bella Italia which in case you have missed it are real countries.
I'm beginning to think more of the unthinkable. We all keep hearing on both sides of the pond that the dissolution of the Union is impossible but the Germans are acting more and more like they don't think it really matters...to them at least. The Brits, of course or at least a goodly bunch of them never wanted to be part of it in the first place and will surely be even more against joining the Euro Zone. The French? Zut allors! If we cannot run it why bother? And so the next year or so is going to be a most interesting one to watch. This is what they say, makes markets.
The good news is that Google has apparently decided that this blog is not spam after all and I no longer have to decipher those funny written letters (I can't do it half the time) in order to get this things published. A warm thank you for those of you who contacted Google on my behalf. I'll try to continue to inform and entertain.
Back to the Peonies
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