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Distortions
Dec. 13th, 2011 12:54 pmAn easy few quid yesterday on a euro decline, closed out last night. Although making money by trading currencies is easy, what is hard is constantly making money on currency trades (i.e., it's a nice sideline, but if you try to do it every day, the rake will destroy you). At least nine-tenths of the time that I look at currency rates I have no idea what way they will go. And even when I am fairly convinced that I DO know the way that they will go, I'm likely to be wrong, at least in the short term, about 30% of the time. Looking back, what surprises me is that I've never actually been wrong in the long term. I called the rise in sterling from $1.60 to $1.90 (in fact it reached $2.10) and I called the fall in the dollar from ¥122 (although I would have called it a day at ¥90, well ahead of the current level of ¥76).
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It's been a nice relaxing return to six-tabling, as well. A couple of days of an hour here, a half-hour there, and I'm in front for the month. This semi-retirment is serving me well, although the Pokerstars strategy still works. I admit feeling resentment that my lower status causes my play not only to get fewer FPPs outright, but even fewer FPPs relatively. One-fifth the number of hands played results in one-tenth the number of FPPs awarded.
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I'm still ill, and it's getting a bit annoying. Now I seem to have a bit of a cold, separate from my prvious illness but probably related to a generally destroyed immune system from antibiotics and illness and hurt ribs and plane flights and so on and so on. I feel as if I am getting better, slowly, but slowly is the operative word.
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I've not written anything about the Cameron debacle because, TBH, I don't think that it's all that important. Jonathan Powell's witterings (see, for example http://www.ft.com/cms/s/0/f5f2631a-2415-11e1-bbe6-00144feabdc0.html#axzz1gPvlhVOw )
appear to imply that Cameron's actions threw away 200 years of history. The Guardian ran scare stories about the threat of a "two-speed Europe".
Well, sorry to disillusion the pair, but (a) Cameron's action wasn't that important, even for the UK, in the grand scheme of things, and (b) we are already in a two-speed Europe. If you aren't in the euro and you aren't part of the Schengen agreement, what else would you call it?
What's worrying, therefore, is that this has jumped to the top of the headlines in both the UK and in Europe, when what really matters is slipping under the radar. As Stephen King (no, not THAT Stephen King -- but the chief economist at HSBC) observes in today's FT, the whole "solution" being put forward is not a solution at all -- it's a quart in a pint pot solution where only one side of the equation is being looked at. As King puts it:
Germany was the sick man of Europe after reunification. It recovered by working hard, consuming less and exporting more. It seems to imagine that greece and Portugal and italy can recover by doing the same. But this argument is fallacious. Germany exported more by lending the money to the purchasers (Greece, Portugal, etc). If it handn't lent that money, Greece would not have been able to afford to buy those nice german Mercedes and BMWs. The German people could have worked as hard as they liked and consumed as little as anything, but the German recovery would still have needed that last part of the jigsaw -- Greek buyers.
It's therefore blatantly obvious to anyone bar a fool or a German politician that the German solution cannot be applied to the eurozone writ large. For even if "the southern European nations head down the path of fiscal righteousness", who will be the buyers?
King actually raises an even more frightening prospect. To finance its own exports, germany obtained lots of foreign debt - euro-denominated but Portugal and greece (and Italy and Spain)-backed government debt. If those countries become fiscally responsible, they will stop issuing so much debt. If Germany continues to run a surplus with the rest of the eurozone (and I've seen no mention by Merkel about this not happening in future), it will have to buy something else with that surplus. This could mean that german money will head into other "safe" investments like collateralized debt obligations. These could be insured with other companies via credit default swaps. What could possibly go wrong?
The answer, for those of you now way ahead of me, is, of course, everything. And it already has, because this is what nearly brought down the US financial system in 2008.
So, as King observes, there can be no solution to the current eurozone crisis because Germany insists on looking at only one side of the balance sheet. It wants to change one side without changing the other, and yet for the two sides still to balance. That can't happen. Germany's response is that it doesn't want to hear this. So it ignores it.
We see such blatant ignorance of simple mathematics in all walks of political life. A blatant example is cases of rape. Although one can say that one particular case of rape is "particularly serious", one cannot say that any case of rape is less serious than any other -- all rape is equally bad. When Ken Clarke made the simple mathematical point that if one case of rape is more serious than most, by definition those other cases were less serious than the one that was more serious, he was villified. But this is not a moral judgement. People get relativism confused with absolutism. Just becaose something is "less serious" doesn't mean that you are saying that it is "not serious".
Let's return to the less emotive area of economics. If you want the previously "bad" bits of the EU to become responsible, to consume only as much as they produce, then by definition the "good" bits of the EU will have to either consume more or produce less. But germany can't see this. It wants to carry on producing more than it consumes within the eurozone, while all of the other countries only consume as much as they produce. Clearly that's impossible.
No-one is even looking at this issue. Because all of the "solutions" have been piecemeal, so one is saying "but what will Germany do with its surplus if it can't lend it to the Greeks and the Portuguese?"
As such, every single pronouncement that we have seen by the likes of Barroso, Merkel, Sarkozy, Draghi et al just doesn't even address the fundamental issue, and I suspect the reason why the fundamen tal issue is not being addressed is because at least three of these people know that the fundamental issue is insoluble. You just can't get a quart into a pint pot, no matter how much you juggle the liquid around before trying to get it in there.
__________
+++++++
It's been a nice relaxing return to six-tabling, as well. A couple of days of an hour here, a half-hour there, and I'm in front for the month. This semi-retirment is serving me well, although the Pokerstars strategy still works. I admit feeling resentment that my lower status causes my play not only to get fewer FPPs outright, but even fewer FPPs relatively. One-fifth the number of hands played results in one-tenth the number of FPPs awarded.
+++++++
I'm still ill, and it's getting a bit annoying. Now I seem to have a bit of a cold, separate from my prvious illness but probably related to a generally destroyed immune system from antibiotics and illness and hurt ribs and plane flights and so on and so on. I feel as if I am getting better, slowly, but slowly is the operative word.
++++++++
I've not written anything about the Cameron debacle because, TBH, I don't think that it's all that important. Jonathan Powell's witterings (see, for example http://www.ft.com/cms/s/0/f5f2631a-2415-11e1-bbe6-00144feabdc0.html#axzz1gPvlhVOw )
appear to imply that Cameron's actions threw away 200 years of history. The Guardian ran scare stories about the threat of a "two-speed Europe".
Well, sorry to disillusion the pair, but (a) Cameron's action wasn't that important, even for the UK, in the grand scheme of things, and (b) we are already in a two-speed Europe. If you aren't in the euro and you aren't part of the Schengen agreement, what else would you call it?
What's worrying, therefore, is that this has jumped to the top of the headlines in both the UK and in Europe, when what really matters is slipping under the radar. As Stephen King (no, not THAT Stephen King -- but the chief economist at HSBC) observes in today's FT, the whole "solution" being put forward is not a solution at all -- it's a quart in a pint pot solution where only one side of the equation is being looked at. As King puts it:
.
"The eurozone deal will fail because it offers no explanation of how the German current account surplus will be recycled if the southern European nations head down the path of fiscal righteousness"
Germany was the sick man of Europe after reunification. It recovered by working hard, consuming less and exporting more. It seems to imagine that greece and Portugal and italy can recover by doing the same. But this argument is fallacious. Germany exported more by lending the money to the purchasers (Greece, Portugal, etc). If it handn't lent that money, Greece would not have been able to afford to buy those nice german Mercedes and BMWs. The German people could have worked as hard as they liked and consumed as little as anything, but the German recovery would still have needed that last part of the jigsaw -- Greek buyers.
It's therefore blatantly obvious to anyone bar a fool or a German politician that the German solution cannot be applied to the eurozone writ large. For even if "the southern European nations head down the path of fiscal righteousness", who will be the buyers?
King actually raises an even more frightening prospect. To finance its own exports, germany obtained lots of foreign debt - euro-denominated but Portugal and greece (and Italy and Spain)-backed government debt. If those countries become fiscally responsible, they will stop issuing so much debt. If Germany continues to run a surplus with the rest of the eurozone (and I've seen no mention by Merkel about this not happening in future), it will have to buy something else with that surplus. This could mean that german money will head into other "safe" investments like collateralized debt obligations. These could be insured with other companies via credit default swaps. What could possibly go wrong?
The answer, for those of you now way ahead of me, is, of course, everything. And it already has, because this is what nearly brought down the US financial system in 2008.
So, as King observes, there can be no solution to the current eurozone crisis because Germany insists on looking at only one side of the balance sheet. It wants to change one side without changing the other, and yet for the two sides still to balance. That can't happen. Germany's response is that it doesn't want to hear this. So it ignores it.
We see such blatant ignorance of simple mathematics in all walks of political life. A blatant example is cases of rape. Although one can say that one particular case of rape is "particularly serious", one cannot say that any case of rape is less serious than any other -- all rape is equally bad. When Ken Clarke made the simple mathematical point that if one case of rape is more serious than most, by definition those other cases were less serious than the one that was more serious, he was villified. But this is not a moral judgement. People get relativism confused with absolutism. Just becaose something is "less serious" doesn't mean that you are saying that it is "not serious".
Let's return to the less emotive area of economics. If you want the previously "bad" bits of the EU to become responsible, to consume only as much as they produce, then by definition the "good" bits of the EU will have to either consume more or produce less. But germany can't see this. It wants to carry on producing more than it consumes within the eurozone, while all of the other countries only consume as much as they produce. Clearly that's impossible.
No-one is even looking at this issue. Because all of the "solutions" have been piecemeal, so one is saying "but what will Germany do with its surplus if it can't lend it to the Greeks and the Portuguese?"
As such, every single pronouncement that we have seen by the likes of Barroso, Merkel, Sarkozy, Draghi et al just doesn't even address the fundamental issue, and I suspect the reason why the fundamen tal issue is not being addressed is because at least three of these people know that the fundamental issue is insoluble. You just can't get a quart into a pint pot, no matter how much you juggle the liquid around before trying to get it in there.
__________
