Skip to main content

Is the EMU failing?

Have the European governments waited too long to take decisive action in the PIIGS problem?  It would seem to be the case!  Despite the Euro 120 billion package announced Sunday the 2nd of May, it seems that the credit markets don’t believe this will work, in Greece or elsewhere.



Above are the top five CDS price movments on Tuesday the 4th of May, between 10% and 19% movement in the price of insuring "Club Med" countries debt...

As other commentators have made clear recently, why are we bailing out investors who invested in a patently bad economy (Greece) for a few extra basis point of yield.  Why are we bailing our DB, SocGen and their friends?

Cheating a bit from my vow to discuss only Canadian events I want to talk about what is occurring in Europe:  It is a sense of outrage that forces me to make a statement here.  For years Greece has been screwing-up by massive overspending and tax evasion on a scale hard to imagine – now they have to pay the pipe!  This correction should and it will hurt, but there’s no way bond investors should be made whole, they too bear responsibilities here, especially since they were pros (which is maybe why they will get away with murder).   

I too would love to be a hedge fund (or a big European bank bond desk), having bought Greece debt at a discount from a pension fund (once Greece was downgraded they had too sell) and looking to make a killing by being paid out at par.  This is simply unacceptable.  The moral of the story:  As an investor (especially if you are a pro) you should buy the stinkiest bond in the world, and look for some schlep to make you whole.

Socialize the losses and Privatize the profits!

Now the Europeans are looking at a trillion Euro bail out for the rest of “Club Med”.  I can foresee one change soon; Germany is going to get downgraded by Moodys and S&P – that would actually be somewhat funny, the one guy in the room that acted responsibly is going to get hit with higher borrowing costs!  Serves them right for making an economic alliance of a bunch of douche bags!

The EMU was always going to fail; it was generally pre-ordained since there are no budget control devices (especially since France in ’02 broke the budget deficit limit – with no consequences).  

As a side note the direct impact of failure of the EMU would be limited – there is always contagions risk, furthermore the failure of the EMU will create a dramatic economic dislocation in Europe which is certain to have repercussions on the price of commodities…Europe is Canada’s 5th largest trade partner (less than 4%).

Comments

Post a Comment

Popular posts from this blog

what people get wrong about tariffs

 The issue is simple. What percentage of the economy is dependent on tariff goods? The truth, is that the US economy is far more closed than people understand. People genuinely believe that all manufacturing has ceased to exist in the United States all given to China on the altar of woke policy the truth can be further from That statement. Only about 15% of US GDP is related to foreign trade. Of that amount, slightly more than half is from Canada in Mexico. And half of that is energy. What that means, is that about 7% of US GDP is tariff dependent. The proof in the pudding, is how little money tariff generates. People think that 30 or 50 billion is a lot it’s not in an economy that has $3 trillion. The impact on the US economy will be less visible but not absent. Inflation hasn’t occurred yet first because tests have hardly started to bite, but more importantly it’s such a small percent of the economy. Now certain things are critical. The rare earth metals from China were critical....
Post a Comment
Read more

The end of Tesla?

 it takes a special kind of idiot, to think that he can antagonize his entire customer base, and think that it will not impact his business. When Elon Musk went to work for Donald Trump, and created the doge department, he antagonized every liberal, and these people represent 90% of his client base.That’s not a brilliant move. Now Elon Musk is worth hundreds of billions of dollar, so he shouldn’t care a great deal, however, he needs to care because of several other issues. The cyber truck has been a disaster, most have had to be recalled because of defective glue, it’s not a truck, it’s not a car, it’s noisy, relatively uncomfortable, but great as a development platform. What Tesla has learned in making car manufacturing more seamless is truly amazing. The problem was that Elon Musk was so pissed with the Democrats, and with Joe Biden, in particular because of some slight, which were just plain stupid too. By the way, that he decided to support with hundreds of millions of dollar, ...
Post a Comment
Read more

Demographics

 I am preparing a kind of family tree for our children so that they know where they came from.  In my family I am the only survivor, although my brother and sister died recently they were both in their seventies (a story I told already).    It was a fun process, but it provided more than that.  First, I married relatively young I was 26 when I married and nearly 30 when our first child was born.   I was looking at my ancestors.  On my mother's side, she had 6 siblings, Four died before the age of 30, two in war, and two from illnesses.  Only she and a single sister survived.   The two boys had a child each but they died in WWII, and the other sister died as an infant.   what is interesting is that every one of my mother's siblings had children in their early 20s.   I know that my mom was hardly 20 when my brother was born.    What is remarkable is that among our friends, we are the only ones to have fou...
Post a Comment
Read more