Skip to main content

doubting Europe's creditworthiness!

La grande correction?  I don't know.  Generally, you only know that a big move is afoot once its all over.  Dragi could once again put forward the "plunge protection team" at work and prove that everything is fine, by buying every bond in sight.

But the reality of core/non-core Europe is serious.  First off, Germany is exporting to the rest of Europe, and still works on the premise that its client's inability to pay their bills is not its problem (right).  France is starting to behave like a non-core (that may be temporary) yields are rising fast in France:



But that's northing compare to Greece that saw a 200 bps yield rise in the past week.  (Hurray to all the French and German banks that sold off their Greek exposure to ECB over the past 36 months).   Don't know how many Macro funds went bust this week -- my guess is that its going to take a few weeks/months before the blood bath there emerges fully, but these leveraged hedge funds are simply not equipped to take that kind of price movement in the bond market.

US 10 years treasury trade with a yield of 1.99% and for Germany (similar instruments) the price is 0.79%.  If Germany cannot have a roaring economic growth when interest rates are as low as they are now -- compare to 7% in 2007, its an indication that even in Germany, not all is well.

I am still far from certain that Europe has done everything it can to delay the inevitable.  Clearly, with correcting stock markets, a wild ride bond market its getting more and more difficult to make the problem go away.  There was also a rather dramatic "tiff" between France and Germany after Sapin was told by Schaeuble (their country's respective minister of finance) that more stimulus was out of the question.

Add to all this that the wheels are coming off in Japan.  Abe's plan of fiscal stimulus, easing money and structural reform is not working out as planned.  Japan's GDP is shrinking fast -- 1.8% in the second quarter (7% annualized...).  Take home pay in Japan is shrinking by 3% per annum.  

China's own challenges are forcing it to re-energize its drive to slow property prices; a massive challenge when you consider the strength of the entrenched forces to maintain the status quo (never mind the current, and very public, mess that is Hong Kong).  China cannot be counted on to be a helpful force.

America is in the middle of a Ebola crisis mid term election cycle.  If the GOP is successful in taking over the Senate they have a real chance at miring what is left of Obama's presidency into irrelevance. More Bengazi enquiries more votes to defund the ACA (ObamaCare to the rest of the word).  Overall drive the economy down.  Just watching Fox News (GOP propaganda organ) its clear that the mission of the right's media outlet is to cause mayhem and fear in the heart of all Americans.  In other words, the usual politicking before a critical election -- that may shut down the US government over the next two years (not that much has been achieve of late anyway). 

Back to Europe, things could still work out for savers (temporarily anyway) if Dragi decides (with the help of Germany and France) that they need to push the correction into the future.  The question is how long can they afford to to this?  In the end, its a question of will on the part of Germany and France to make the ride continue.  There no elections for either Germany or France within the next 18 months (that matter) and it may be a good (as any) time to allow for correction to occur.  Despite's Dragi's very public statement that everything is fine in Europe, he is fully aware that Europe's economy is not well.  



Comments

Popular posts from this blog

Trucker shortage? No a plan to allow driverless rigs

There are still articles on how America is running out of truckers -- and that its a huge problem, except its not a problem, if it was a problem salaries would rise to so that demand would clear. Trucking is one of those industry where the vast majority of participants are owner/operators and therefore free agents.

Salaries and cost are extremely well know, "industry" complains that there are not enough truckers, yet wages continue to fall... Therefore there are still too many truckers around, for if there was a shortage of supply prices would rise, and they don't.

What there is though is something different; there is a push to allow automatic rigs to "operate across the US", so to encourage the various authorities to allow self driving rigs you talk shortage and hope that politicians decided that "Well if people don't want to work, lets get robots to do the work" or words to that effect.

This has nothing to do with shortage of drivers, but every…

Every punter says oil prices are on the rise: Oil hits $48/bbl -- lowest since September 2016

What the hell?

How could this be, punters, advisors, investment bankers all agreed commodity prices  in general and oil prices in particular are on the rise...its a brave new era for producers and exporters -- finally the world is back and demand is going through the roof, except not so much!

What happened?  Well energy is complicated, the world operates in a balance -- 30 days of physical reserves is about all we've got (seriously) this is a just in time business.  So the long term trend always gets hit by short term variations.

Global production over the past 12 months has risen by somewhat less than 1.5% per annum.  As the world market changes production becomes less energy intensive (maybe), but the reality is that the world is growing more slowly -- America Q4 GDP growth was around 1.9% (annualized) Europe is going nowhere fast (the GDP growth in Germany is overshadowed by the lack of growth in France, Italy, Spain (lets say 27 Euro members generated a total GDP growth of 1.2…

Paying for research

This morning I was reading that CLSA -- since 2013 proudly owned by CITIC -- was shutting down its American equity research department -- 90 people will be affected!

Now the value of a lot of research is limited, that is not to say that all research is bad. In fact, I remember that GS's Asia Aerospace research was considered the bible for the sector.  Granted, there was little you could do with the research since the "buy" was for Chinese airlines...that were state owned.  Still it was a vey valuable tool in understanding the local dynamics.  It seems that the US has introduced new legislation that forces brokers to "sell" their research services!  Figures of $10,000 an hour have been mentioned...

Now, research can be sold many times; if GS has 5000/6000 clients they may sell the same research 300x or 400x (I exaggerate) but this is the key -- Those who buy the research are, I presume, prohibited from giving it away or selling it, at the same time the same rese…