Wednesday, 20 March 2013

Bubble, bubble . . .

My favourite tweet today comes from the back of a cab in Cyprus. Faisal Islam is an economics reporter from Channel 4 TV in the UK and he's very smart and perhaps wittier than I thought:

Our Taxi driver: "Every single person I've picked up at Larnaca airport has been a Russian flying into get their money out of banks" #cyprus (@faisalislam )

I'm waiting for his new book: "Tiptoeing along The Default Line" to be published this year because I'm sure it will have some great insights into the last 5 years of Euro-mess. Cyprus is the other side of what I used to see in Geneva, endless lines of well off Greeks heading to the major private banks to open new accounts. I didn't realise just how much foreign money has been hiding in Cyprus.

The rejection of the bailout plan is surely understandable. As I said yesterday, people are being dragged into a non-existant capital structure. This in a way is very similar to a bank collapse and just because Cyprus sits on the European periphery is no excuse. What next? Is there a plan B? My own thinking is that this will require the usual weekend negotiations and associated leaks. 

The Ft is now reporting that the Cypriots are going to ask Russia for help. Perhaps the idea is to protect some of the shadier Russian money from coming to light? One thing I learnt from commodity trading friends in Geneva was not to mess with the Russians. Taking Russian money into your fund was a risky business even for the best compliance teams in the hedge fund world. Get it wrong and you were likely to get an early morning visit from your investors associates. I guess this is similar. 

Meanwhile back in the UK where Russian money has kept the top end of the London property somewhat buoyant the Chancellors team has started to leak the details of the forthcoming budget. There's an extra £2.5bn in cuts this year, which means that all those areas that are dominated by civil service employment are about to have the life sucked out of them. For years now the Scottish and Welsh economies have relied on more than 50% of their jobs to come from government. The insane thing is that the biggest employer in the UK the NHS is likely to escape the carnage. It seems somewhat criminal looking back on history the way the Blair-Brown government pumped civil servants into the economy with barely a thought for balancing the structure of the regions. Good luck to the Scots if they vote to leave the UK because there are a lot of civil service jobs based on servicing theSouth Eat of England that will likely go.

More reports are now surfacing of shorting of bonds in the US. As I said yesterday the FOMC's meeting this week is crucial. It would seem that quite a few investors are betting against Bernanke to hold the team together as he did last month. The theory now is that we can expect rate rises before the end of the year. This is a huge bubble and some commentators and investors are already trying to calm the markets by saying that a 2% long bond rate is not the end of the world. Well I guess it's not if you're long cash, but over 50% of US homes have less than $25,000 in savings and they aren't likely to get much benefit.

The action in cycling has now moved to the Volta a Catalunya where there is only one rider everyone is watching. Brad Wiggins has been training on Tenerife away from the other Giro favourites with a select group of team mates. I tuned in yesterday to watch the action on a fairly flat stage. Clearly it's hard to tell much on days like that and so we're really waiting for the peloton to climb into the mountains to see how Sky's Giro squad are performing.

I managed another couple of hours testing the Cannondale after yesterday's adjustments. My confidence in the running gear is coming back fast. I went past my usual stopping point today in favour of a lunchtime bite at one of the cyclist friendly cafes in Sydney's Kings Cross. I was the only man in lycra there, but I was comfortable in the autumn sun and the very reasonable 25ºC temperature. My next bike purchase is now going to be a new helmet as the liner of my trusted Rudy Project is about to fall apart. I'll do some research and report on my decision.


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