Yes I got lost today. A nice simple 3 hour cycling sportive turned into 5 hours of misery, hill climbing and pumping the pedals into the wind. Statistically what have I got to show?. . . well first of all a pathetic average speed, but I do have 94k's and 2500 calories to the credit side. I also have 1500 meters of climbing and a strava suffer score rating of "extreme" (meaning I was in pain a lot).
|100m to go ... a view from Mt Saleve|
Firstly the week that was:
1. Greeks still have no government.
While lost in France I asked myself what would you have to give me to be a leader of a Greek political party? Honestly, I just can't imagine being in a position where you doom your people to EU servitude or you exit the union and stare a 10%+ contraction in your economy in the face. They have to leave, we all kind of know it. Some people say the real national debt of Greece is more than a trillion euro's (it's big no matter who you believe) ... there's no way they can ever pay it all back. If you were leading a Greek political party I reckon the people will burn you (figuratively I hope) either way.
2. France has no hope of getting it's budget within the 3% deficit limit set by the EU.
Hollande promised to spend like there's no tomorrow, thinking he actually can just print money. The fool doesn't realise that the French don't have a currency. The growth pact he goes on about is really an inflation pact. Classic Krugman-esque thinking .... inflate your way out. How can it happen? If the ECB etc. prints euro's to satisfy the French then it will be open house for the PIIGs to rebel. And what do the French think the German people are going to do?
3. J P Morgan out-smarts itself.
It's a mess and I think we now know the limits on Jamie Dimon's ability to manage the whole bank personally. I've said in this blog before that several ex-JPM guys I knew in Singapore had told me horror stories about the risk management systems the bank used leading up to the GFC. Maybe today it's different, but it looks more and more like a guy in London built a model that was wrong and he convinced the powers to be that it was right. I kind of want to give Dimon a break as there's no way he'd have the sophistication to check the model himself. Unfortunately he went around telling people that he was infallible .... whoops!
4. Chinese RRR sparks hope.
So apparently the Chinese cut to the RRR freed up 62bn dollars or so for loans. Sounds good - right? Well what if banks need to write off a lot of loans currently on their books? Do they a) inject some of this "new" capital to support existing loans or b) sit on it in case things get worse? About half way up the third climb of the day I had decided the answer was "b".
The week ahead:
|"Hey, don't you run the IMF?"|
1. Christine Lagarde is on the case.
I predict it will be a busy week for the well tanned head of the IMF after the Belgian central bank governor openly questioned the viability of the EU's ability to hold things together:
“We cannot solve the fundamental problems. We can only buy time, and there is a limit to how much time you can buy. One of the lessons we have learnt is that low interest rates for too long create new problems."
Mdm Lagarde is in a tough position. A lot of the funds she has been raising come with restrictions, mainly no bailing out the Eurozone. Now I guess the good news for the PIIGs is that if they leave the monetary union they can probably access these funds. Therefore look for the IMF to get out the slides and explain how much they have ready for the Greeks. This might help calm the market in the case of an exit.
2. Spanish banks need a plan soon. And the government needs to start explaining it this week.
Right now the Spanish are falling into the same trap that the Japanese had after they had property bubble burst. We're on the fourth version of property market reform and we're still questioning if 30% provisioning on developers and 45% on their loans is enough. I can tell you from my Japan experience it isn't. And just to emphasize the point the government in Madrid is talking about CB's as a way to recapitalise the banks. Classic! I'm guessing they've been sold this story by the same Goldman's guys that originated the strategy in respect to a number of the Japanese banks. We know what happened there . . . GS made out.
3. Greek government to be formed?
4. Latest FOMC minutes (Wednesday).
This will be all about the nuances of various phrasing by "the Bernank". Any hint of QE3 will be grabbed at by a worried market.