More empty words
Sep. 25th, 2011 09:50 am![[personal profile]](https://www.dreamwidth.org/img/silk/identity/user.png){kind=small}
peterbirksThe G20 and IMF have been wittering away at the weekend. The IMF began its communiqué with the phrase "Today we agreed to act decisively".
Now, call me a cynic, but I reckon that, if anyone is going to act decisively, the one thing that they don't do is put out two very long statements about how they are going to act decisively. What they do is, er, act decisively.
I've been short euro-dollar for about a month now. It looked a bit hairy to begin with, but I've moved comfortably into profit. I'm targeting $1.25/€1.00.
The weekend announcements just seemed to be more of the same. The only thing of note is that Christine Lagarde said that the €440bn in the European Financial Stability Facility might not be enough.
Now, you may recall that when this EFSF was enlarged to €440bn, everyone, including me, said "blimey, that's a bloody big number". But now they are accepting that it might be insufficient. Frightening.
Philip Aldrick and Jeremy Warner had an excellent piece in yesterday's Daily Telegraph ("Multi-trillion plan to save the eurozone being prepared") which gave some interesting details on what Germany and France look to be planning. It's interesting because it tries to use the same trick that was used for the €440bn announcement. You declare a very large sum of money is available, and hope to hell that this means you will never have to call on it.
Because both Germany and France (particularly Germany) know that they might have problems pushing through their parliaments any euro-number rescue that has "trillions" attached to it, the plan is one of fiendish complexity.
It looks as if Greece, Ireland and Portugal would be allowed to go to the wall. The EFSF wouldn't push them to the wall, but it wouldn't break its back to save them. The "firebreak" is very much Spain and Italy.
First, banks would be recapitalized, either privately, through the relative states, or through the EFSF. This would (they hope) stop runs on these banks if and when Greece/Portugal default. Second (and this is the fiendish bit), the EFSF provides a 20% loss-bearing equity tranche of some €2trn of any bail-out fund. This, as you can see, still equals €400bn -- so, no need to go back to respective parliaments for a vote. It appears to me that what would happen here is that the €440bn EFSF moves from "we might need it as a last resort" to "we are certainly going to need it, so we might as well use all of it more efficiently". Or, in another sense, the idea is (as with the old AIG credit default swaps), although the sovereign debts are underwater, they aren't 100% underwater. So, if they are only 20% underwater (an optimistic assessment in the case of Greece), this means that any central bolstering is really worth five times as much when it comes to the underlying bonds being guaranteed. The remainng 80% goes to the ECB, in the belief that eventually it would be repaid. Well, that's how I read it.
As I said, smoke and mirrors.
Greece would then enter a 50% managed default (Greece is only 3.5% of the eurozone, so this doesn't contradict the 80:20 leverage plan for the EFSF) and would stay in the eurozone.
One has to assume that, if Portugal is to be abandoned, this would see a run on the Portuguese banks anyway. But the plan is that Italy, Spain (and, let it be whispered, France and Belgium) would be saved.
Anyhoo, that looks like the plan for the November summit in Cannes (funny how these summits are always held in desireable places to visit, isn't it?), with the main questions being -- can Greece make it through until then and, what will happen to the euro in the meantime?
As far as I can see, the only thing stopping a continued euro-slide against the dollar is something going badly wrong with the US. This genuinely is a "Who is the most ugly?" contest. However, the big paradox there is that, if things look really terrible globally (including for the US), money still floods to the dollar as a "safe haven". If the global economy calms down (and things look slightly better for the US), then the dollar starts to fall back.
I think we are in for a panicky six weeks. If I had to gamble, I'd say that cash was the place to be. Not even gold or oil. Certainly not commodities.
Fundamentally speaking, this is an insane occidental-world view of matters. Half of the global economy in terms of GDP is still growing apace. In China, India and Brazil the worry is inflation, not lack of growth. A falling-off of demand in the west can be counterbalanced by an increase in demand at home. There will be no global depression. If a depression comes, it will be in the west.
So, after a few months of panic, when some more QE will presumably be announced, it will be right to get back into equities, particularly those with interests in the BRICS.
__________
Now, call me a cynic, but I reckon that, if anyone is going to act decisively, the one thing that they don't do is put out two very long statements about how they are going to act decisively. What they do is, er, act decisively.
I've been short euro-dollar for about a month now. It looked a bit hairy to begin with, but I've moved comfortably into profit. I'm targeting $1.25/€1.00.
The weekend announcements just seemed to be more of the same. The only thing of note is that Christine Lagarde said that the €440bn in the European Financial Stability Facility might not be enough.
Now, you may recall that when this EFSF was enlarged to €440bn, everyone, including me, said "blimey, that's a bloody big number". But now they are accepting that it might be insufficient. Frightening.
Philip Aldrick and Jeremy Warner had an excellent piece in yesterday's Daily Telegraph ("Multi-trillion plan to save the eurozone being prepared") which gave some interesting details on what Germany and France look to be planning. It's interesting because it tries to use the same trick that was used for the €440bn announcement. You declare a very large sum of money is available, and hope to hell that this means you will never have to call on it.
Because both Germany and France (particularly Germany) know that they might have problems pushing through their parliaments any euro-number rescue that has "trillions" attached to it, the plan is one of fiendish complexity.
It looks as if Greece, Ireland and Portugal would be allowed to go to the wall. The EFSF wouldn't push them to the wall, but it wouldn't break its back to save them. The "firebreak" is very much Spain and Italy.
First, banks would be recapitalized, either privately, through the relative states, or through the EFSF. This would (they hope) stop runs on these banks if and when Greece/Portugal default. Second (and this is the fiendish bit), the EFSF provides a 20% loss-bearing equity tranche of some €2trn of any bail-out fund. This, as you can see, still equals €400bn -- so, no need to go back to respective parliaments for a vote. It appears to me that what would happen here is that the €440bn EFSF moves from "we might need it as a last resort" to "we are certainly going to need it, so we might as well use all of it more efficiently". Or, in another sense, the idea is (as with the old AIG credit default swaps), although the sovereign debts are underwater, they aren't 100% underwater. So, if they are only 20% underwater (an optimistic assessment in the case of Greece), this means that any central bolstering is really worth five times as much when it comes to the underlying bonds being guaranteed. The remainng 80% goes to the ECB, in the belief that eventually it would be repaid. Well, that's how I read it.
As I said, smoke and mirrors.
Greece would then enter a 50% managed default (Greece is only 3.5% of the eurozone, so this doesn't contradict the 80:20 leverage plan for the EFSF) and would stay in the eurozone.
One has to assume that, if Portugal is to be abandoned, this would see a run on the Portuguese banks anyway. But the plan is that Italy, Spain (and, let it be whispered, France and Belgium) would be saved.
Anyhoo, that looks like the plan for the November summit in Cannes (funny how these summits are always held in desireable places to visit, isn't it?), with the main questions being -- can Greece make it through until then and, what will happen to the euro in the meantime?
As far as I can see, the only thing stopping a continued euro-slide against the dollar is something going badly wrong with the US. This genuinely is a "Who is the most ugly?" contest. However, the big paradox there is that, if things look really terrible globally (including for the US), money still floods to the dollar as a "safe haven". If the global economy calms down (and things look slightly better for the US), then the dollar starts to fall back.
I think we are in for a panicky six weeks. If I had to gamble, I'd say that cash was the place to be. Not even gold or oil. Certainly not commodities.
Fundamentally speaking, this is an insane occidental-world view of matters. Half of the global economy in terms of GDP is still growing apace. In China, India and Brazil the worry is inflation, not lack of growth. A falling-off of demand in the west can be counterbalanced by an increase in demand at home. There will be no global depression. If a depression comes, it will be in the west.
So, after a few months of panic, when some more QE will presumably be announced, it will be right to get back into equities, particularly those with interests in the BRICS.
__________
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I had a silly dream
Date: 2011-09-25 03:46 pm (UTC)Finland and Slovakia (as you say, eek!) are a lost cause and a blockage. Sarkozy is Sarkozy and Merkel is out on a limb. And a trillion or two is going to be difficult, even though it's intended to be an imaginary trillion.
And here's the silly dream. Osborne announces a further round of QE, but this time the "assets" involved are EU government bonds, purchased after relevant discussions with the Euro bods who cannot force this stuff through their domestic parliaments. (And apparently there is no urgency involved. Not only were none of these legislative bodies called up during their summer holidays; as far as I am aware, not a single one has actually got the thing in motion.)
At a stroke, you cut the otherwise marginal Finnish and Slovakian contributions out of the equation. You also win massive points when dealing with deadlocked political systems like France, Germany and Italy.
'Course, you'd have to take an instant haircut of 20% or so, but then again, this is the country that brought you Trident, the centralised NHS computer system, the ID Card, PFI, and who knows what else.
There is a certain amount of political capital to be spent here.
(Incidentally, you are wrong. In 2008-9, €440bn was a bloody big number. At the point where it was announced, it was at best an irrelevancy.)
no subject
Date: 2011-09-25 03:50 pm (UTC)That would certainly cost less than €440bn, by a factor of about eight, I would think. There might even be some money left over for Spain and that stupid Belgian fiasco.
Given the fact that both countries have spent two years or more spinning coverage for throwing money at a doomed cause, this one might actually be a runner.
no subject
Date: 2011-09-25 03:54 pm (UTC)It's not that you can't believe in the existence of a grey swan. It's more that you're not sure about the timing when one turns up.