Monday, 6 August 2012

Perhaps it's not the end of the world, but maybe the end of the experiment . . .

I want to start on a slightly comic note today. It was reported over the weekend that Theodoros Pantalakis, former CEO Greece’s Agricultural Bank (ATE bank) had transferred his savings out of Greece in 2011 and bought London property. Legally he had done nothing wrong, but morally, well as we know morality departed long ago. The FT tried to contact him:

 “I’m on holiday and I don’t plan to say anything more until I come back to Athens,” Mr Pantalakis told the FT from his villa on the Aegean island of Paros.

I hope next time I'm in London I can share a Coffee in Hampstead with Mr. Pantalakis.

The great thing about the internet is the ability to source information in any language and quickly translate it into your chosen tongue. Thank you Google.

Today I was directed to an article in German daily Frankfurter Allegemine. The article makes the point that the 7% long term bond rates that have become the bogey man in the eyes of many euro-crats are in fact merely representative of a bubble market (PIIGS bonds) beginning to burst. The problem today is not the rates, but the output of the economies themselves. For the moment higher interest rates should not matter as much because most of the government debt was issued when rates were much lower.  The Keynesians would say that economies need to borrow more in order to stimulate growth and therefore raise output. The problem with that thinking is that many of the embedded inefficiencies that got us to this point eat up this fresh capital before it can be used. You therefore could borrow at 0% rates and still not get growth as is evidenced by Japan over the last 20 years.

Governments need to adjust their economies structurally which calls for all sorts of unpalatable labor market reforms. Europeans have now tasted the good life and understandably don't want to give it up. Look for example at France where one of Hollande's first actions on assuming power was to turn back the retirement ages in certain public utility sectors. This sent the wrong signal not only to the French but also to the PIIGS who now have precedence for their own acquiescence towards structural problems. Taking retirement ages from 60 to 62 should not have been such a great impost given the upward trajectory in life expectancy, but has been made so by this perception that it was a right to retire early by all and not just the most productive. Hollande argued at the time that he was "undoing a great injustice", but surely the igger injustice was to allow people believe that the state could magically support everyone for the last 30 years or so of their lives without itself increasing output.

So where are we today. Well, as I said yesterday most of Europe has already left the decision making centers for the beach. Vague proposals abound regarding the ability of the ECB to magically create the ability to buy unlimited amounts of PIIGS bonds. We shall see.

When I last visted Australia 2 years ago online shopping was still taking off. The same went for Europe. I'm not surprised that as the recession/slowdown takes its toll consumers in Europe are turning more and more to the internet to get value for their money. In Geneva the shopping experience was either too expensive or too limited. You can have all the luxury outlets you like, but in such a small market choice and size are limited and they often asked you to order things and wait the usual 3 - 6 weeks. Given this online shopping is continuing to grow - online retail sales are set to increase about 12% annually in European Union countries in the next five years, according to Forrester Research. It's shame the little local shops are going to suffer, but thats just the way of things. 15 years ago the French were proud that McDonalds seemed to have no foothold in their country, now though, thanks to menu localization France is one of the fastest growing sales centers for the ubiquitous restaurant chain.

Recently a number of bike brands (including Cannondale) have prohibited retailers from selling their high end products across boarders in an attempt to get selling prices to be more "sticky". It's an interesting strategy, but one I think in a place like Europe is doomed to fail as I know that I can just go for the weekend to a discount bike shop across the boarder and load it into a car and take it home. I know the Swiss would have tried to charge me duty, but let's face it they really can't protect every boarder. Not that I'd advocate such action to a law abiding Swiss citizen or resident.

The 2012 Vuelta a España starts on August 21st. It will be shame that Wiggins and Froome are unlikely to return for a rematch against defending champion Juanjo Cobo. I personally found last years race to be enthralling, especially with the emergence of Froome. I'll never forget an afternnon camped in front of the TV watching Cobo destroy Sky on his own on the fierce slope of the Alto de L'Angliru. Wonderful stuff.


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