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European Weekly Digest, Straight From Chiswick
Chiswick's (and, of course, Goldman's) very own European permabull, Erik Nielsen, who just like his other N-11 permabullish colleague is sorely lamenting the Hand of Clod, is back to discuss the merits of flying transatlantic coach, the wonderfully sound economic edifice that is Europe, and the "overblown" concerns over the Swiss National Bank building up an FX reserve position that is approaching one half of Swiss GDP. As Erik observes: "now there is someone – appropriately – not worrying about their balance sheet!" - indeed, why worry. When the time to really worry comes, it will be far too late.
Europe this week
Happy Sunday,
I am just back from a fabulous week in the US (more below), and completely jetlagged; that’s what happens when you sit right in front of a lovely, but very noisy, baby on the flight home, preventing you from getting any sleep. So with the risk of seeing everything in a somewhat hazy light, here’s my view of Europe on “father’s day”:
- In the ongoing battle between the economic recovery and markets, the former is up another set; good macro numbers this past week and markets are starting to respond.
- Loads of other events last week that might have contributed to the better markets.
- US investors who I met with last week are starting - on balance – to turn slightly less bearish on everything European – long way still to go, for sure!
- The highlight of this coming week will be the European Summit on Thursday-Friday; future policy coordination (and the SPV) will be on the agenda (along with many other things).
- The summit will also be a de facto hand-over of the EU presidency from Spain to Belgium; the latter without a government and rising debt and debt service ratios – needs to be watched carefully.
- Spain is expected to decree labour market reforms on Wednesday; good news although there is a risk that they wont go far enough at this stage.
- The Euro-zone will print good IP numbers for April, and further (slightly) deteriorating labour markets.
- The UK is set this week to print inflation (slightly lower), housing data, and much better retail numbers.
- ·In Switzerland the SNB’s quarterly Monetary Policy Assessment is on Thursday; interesting following their explosive FX-interventions.
1 As I have discussed on several occasions since the Greek package was approved, its like a huge battle has emerged between, on the one side, the Euro-zone’s real economy’s still somewhat fragile recovery, and on the other side, financial markets gripped by all sorts of anxieties; some of them real, many of them exaggerated, and some bordering (in my opinion) on unrealistic assumptions married with insufficient understanding of European policy determination and abilities. In this battle, the real economy got the upper hand in recent days: Industrial production rose handsomely throughout most of the Euro-zone in April, and real numbers right outside the Euro-zone periphery – from Scandinavia to Central Europe to Switzerland – continue to print even better growth numbers; a phenomenon highly unlikely to square with an imminent collapse of the Euro-zone economy. (That said I was a bit disappointed with the composition of Q1 GDP which had more inventory build-up than we had expected.) Meanwhile, markets started responding around mid-week; led by Spanish banks, the FTSE Eurofirst ended the week up 2%, EUR/USD was up 1.2% on the week and sovereign spreads stabilised. The interbank market still looks deeply stressed, of course.
2 Apart from the pretty good macro numbers, there were several other things last week that might have helped calm markets: (a) The IMF published a well-balanced “Concluding Statement” for the Euro-zone on Monday; (b) in spite of the general nervousness, Spain delivered a decent auction on Wednesday; (c) we held our big annual equity conference in Madrid, providing an important platform for many companies to tell their story to an important audience (when I asked investors in the US what drove the equity market stronger Wednesday and Thursday, the conference was mentioned several times, particularly with respect to the Spanish banks); (d) the ECB’s press conference on Thursday was uplifting, particularly compared with the previous one; it was good to see Trichet back on the high road after recent mud-fights with some of the journalists; (e) the German Constitutional Court’s decision later on Thursday not to impose an injunction on Germany’s participation in the SPV was good news; and (f) Moody’s own stress test of 30 (unnamed) banks in ten Euro-zone countries on Friday concluded that the banks can handle losses even under some pretty severe economic circumstances. Incidentally, on the stress tests: So obvious that it should be done, and yet so practically and politically complicated. But it was good to see Spanish finance minister Salgado promising in today’s El Pais that the restructuring of Spain’s financial system will be complete by the end of the June, and then “all the remaining entities are sufficiently solvent, they meet all the criteria, they face a relaxed situation in terms of capital, and so that’s done;” she might have gotten a little carried away there, but no doubt in my mind that they are aggressively pursuing their bank work-out now.
3 In spite of it all, it is of course still too early to declare victory for the real sector and conclude that the financial stress is subsiding, but I do think the pendulum may have started to swing back towards some (new) level of normality. Specifically, last week in the US I had a very large number of meetings with (traditionally) wonderfully Europe-sceptical investors on the East Coast, and while there definitely is still a lot of scepticism out there – including outright hostility – towards European assets in general, I also met an increasing number of people (compared with my last trip a month ago) who took a more balanced view of the European future; be it in terms of the positive growth effects of the weaker Euro, a better appreciation of the adjustment process already under way, and/or of the policy determination to fight back. It’s fair to say that the “decisively Europe-negative investors” (for lack of a better term) still form a majority of those I met with last week, but the proportion was clearly smaller than a month ago. Maybe we could even get to break-even between the two categories before the summer break!
Turning to this coming week:
4 The most important event of this coming week will be the European Summit on Thursday-Friday in Brussels. Merkel and Sarkozy meet tomorrow, Monday, in Berlin in their usual attempt to coordinate their positions ahead of summits. There are a host of items on the agenda, including formal approval of Estonia’s accession to the Euro-zone from January, discussion of regulation of derivative markets, preparation for G20 on June 26-27 and the crisis between Israel ands Turkey. But the key item on the agenda will be “economic governance”, i.e. the future policy coordination, not only among the 16 (soon to be 17) Euro-zone members, but for all 27 EU members. The Commission has already outlined the framework for the coordination, so now it’ll be about the tough part of enforcement. A group of countries, led by Germany, will be calling for ways to take enforcement beyond peer pressure and name-and-shame, to include, for example, the temporary loss of voting rights and/or loss of transfers and subsidies. I suspect that legal experts are busy right now deciding how far you can push this envelop within the existing treaty (in spite of the many interesting proposals out there, there is no appetite for a new treaty.) The Summit is also likely to approve the SPV (next will then be the appointment of a CEO; the press has suggested that Klaus Regling is the leading candidate – excellent choice, if confirmed.)
5 The Summit will be the last under the Spanish presidency after which it’ll be handed over to Belgium. However, if history is any guide then Belgium (and hence the EU) will be run by a caretaker government for possibly several months, following today’s national elections in Belgium. Because of the great degree of de-centralised decision making, it almost feels like Belgians don’t really care that much about their national government. And this time there is additional uncertainty because of the strong showing in the opinion polls by the separatist New Flemish Alliance. For us in the market, this is an increasing concern that needs to be watched carefully. Belgium’s public net debt is likely to go through 100% of GDP within the next year or so, and their financing requirements are among the largest in Europe this year and next.
6 On the more uplifting side, Wednesday will see labour markets reforms in Spain. Trade unions and employers failed to reach agreement by the deadline of last Friday, so the government will now introduce a series of changes by degree. As Javier Perez de Azpillaga has argued, the reforms are likely to include lower dismissal costs, the promotion of permanent (vs. temporary) jobs, flexibility (reduction of working hours instead of outright dismissal), some elements of Scandinavia’s “flexicurity” system (for example, companies would pay only part of the dismissal costs) and a more flexible collective agreement framework in which individual firms can opt out more easily from geographic/sector agreements. The issue of a more flexible collective bargaining system is crucial, in our view.
7 On the data front, we’ll get Euro-zone industrial production for April tomorrow, Monday, (EMEA-MAP 5). Based on the individual country numbers so far, we estimate that IP in the Euro-zone as a whole was up by a robust +0.6%mom non-annualised (after 1.5% in March). Then on Tuesday we’ll get the Q1 employment report. Although various countries have already reported their labour market numbers based on their national methodologies, the harmonised statistics will provide a unified picture of employment developments in the early part of this year. Employment in the Euro-zone contracted 0.3%qoq in Q4, and thus far, only the German labour market has shown any significant signs of improvement. We therefore expect employment to have fallen a further 0.3% in Q1. Also, the full CPI breakdown is out on Wednesday. Headline CPI ticked up from 1.5%yoy to 1.6% in May according to the flash estimate released last week. This increase mainly reflected a small energy-related base effect, and country data suggests core inflation continued to ease. The full breakdown on Wednesday should provide further insight into the key drivers of these recent developments. Finally, the ECB’s bulletin for June will be released on Thursday; always a good read.
8 In the UK a pretty long list of data releases starts on Tuesday with May inflation releases; we expect CPI to ease marginally to 3.6%yoy and RPI to ease to 5.1% (from 5.3%). Tuesday will also see the RICS housing market survey for May and DCLG house prices for April. On Wednesday we’ll get important unemployment numbers (- ILO definition, 3-months to April; EMEA-Map relevance 4 where we expect unchanged unemployment at 8.0%, and claimants for May unchanged at 4.7%. Before Wednesday is over we also have earnings numbers, and then on Thursday it is the pretty important retail numbers for May (EMEA-Map 3); we expect an acceleration to 0.3%mom (from 0.1% in April); 3.8%yoy. Finally Friday morning we’ll get PSNB and PSNCR for May; we see both broadly doubling from April to £19bn and £22bn, respectively.
9 The highlight of this coming week in Switzerland will be the SNB’s quarterly Monetary Policy Assessment on Thursday. We expect no change in rates and also no change in the language on FX interventions (recent months’ intervention has boosted fx-reserves to some CHF 232bn from their usual level of around CHF 60bn; now there is someone – appropriately – not worrying about their balance sheet!)
… and that’s the way Europe looks right now from beautiful Chiswick. Off to the High Street for a caffeine infusion so I can stay awake for a few more hours.
Tomorrow, the Red and Whites are expected to demolish the Orange …. If only.
Best
Erik F. Nielsen
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Ghostwritten by Leo the K.
You mean all the swiss are now investing in solars?
Did anyone read that????
We all know the Witches of Chiswick agenda. Thank You Robert Rankin for dragging this heinous group into the light.
One always needs a good chuckle (or even guffaw) during a rainy weekend just prior to TEOLAWKI. Ah, Entropy, I know your face when I gaze upon it.
Debtor's prison is back:
http://www.startribune.com/investigators/95692619.html?page=1&c=y
If anyone had any doubts that the bankers have taken over society, read the above article. Police and court resources are now being used to round up debtors and place them in jail until they cough up the money they allegedly owe. I cannot think of anything more distasteful this fine, sunny afternoon.
And that people go so willingly, and do not put up a fight (at least not the schlubs that this article mentions) is sick. People are so conditioned to respect government (and their creditors) or else that they simply go along with whatever any one in "authority" tells them to do.
What a pathetic and worthless country I live in.
I am Chumbawamba.
So, chumba, if the court system and its enforcement mechanisms don't function to enforce private contracts (and collect debts), how do suppose the private contracts will get enforced?
Here's a hint: There is a lot of paranoia, theft, death, and mayhem amongst participants in the illegal drug business because the law doesn't enforce contracts amongst participants. They in fact perform what enforcement there is, themselves, with the results we can read about in the paper.
So, informed now by my hint, how do you suppose the entire rest of business world would function without effective monopoly enforcement of private contracts by the courts and police?
That's something I would expect a shill for Israel to say; defend the indefensible.
Notice, the word "allegedly". I should have put it in italics, perhaps in bold for the dimwitted amongst us, and then perhaps you might have clued in properly.
But no, I have to spell it out for you. That's OK. I understand. Spreading Israeli hasbara (propaganda for the goyim) is scientifically proven to kill brain cells, and shills for Israel are known to have few to begin with.
The court system is being used to collect debt. That means public funds are being used to provide free services for private entities. The setting of the bail amounts is tacit proof of the scheme. And before you blow off telling me that the private entities are also entitled to the same public services as anyone else, these junk debt buyers are usually located out of state, certainly out of the jurisdiction in which the courts and police are expending public resources at the behest of out of area private interests.
It is not the purview of the courts to collect on debt. Their only purpose is to hear complaints and adjudicate. Private parties may ask permission from the court to go after someone for a debt, but there are private services for hire to carry out the collection. The courts and police are not supposed to carry out the collection effort.
Notwithstanding the fact in many cases default judgements against the debtor are usually granted when the debtor doesn't show for court, and whatever amount the creditor says is owed is accepted by the court. You can't excuse the debtor for not showing, but as the article mentioned, in some cases the debtor is not properly served. So you are not only defending the indefensible, you further demonstrate your total and utter devotion to the State at the expense of the People.
So next time, before you go shooting off at the mouth like a typically ingorant shill for Israel, realize who you're talking to, avert you gaze, tuck your tail between your legs, and skulk away.
I am Chumbawamba.
Hey chumly, look behind you...there's a Jooooo!
Boo.
Hey Shittard, look behind you...there's a Tewwowist!
Boo.
Or how about this one:
Hey Sphinctercake, look behind you..there's a Turkish Peace Activist!
Boo.
Oh oh, here's a good one:
Hey Asstwinkie, look behind you...there's an American Sympathetic to the Palestinians!
Boo.
BTW, there's a guy on here who actually goes by the name "chumly", so don't blindly disparage other people in your petty attempts to win brownie (as in "someone's making brownies") points for Israel.
Oh, and look behind you...there's the Troooooth!
Boo.
I am Chumbawamba.
You're so emotional.
But so boldly out there.
Hooray! An encore performance by Tweedle Dum and Tweedle Dummer. To what do I owe this pleasure?
Actually, I'm not sure if you realize this but it's pretty obvious that you "two" are the same douchebag. You always work in tandem and your accounts were created at basically the same time. You hasbara commandos don't even really try anymore, do you?
I am Chumbawamba
Again with your hasbara fixation.
You basically believe that anyone who disagrees with you was sent here to do so by Jooos.
Boooo!
Again with your hasbara fixation.
You basically believe that anyone who disagrees with you was sent here to do so by Jooos.
Boooo!
Not sure what this had to do with Israel or the meaning of the word "allegedly."
Anywhoo...I didn't see either where you start to answer the question as to what kind of world we would live in if courts didn't enforce private contracts??? My point of course is, not many people want to live in a world where lots of physically threatening, kneecapping, leg breaking, murder, and naps amongs the fishes are a regular part of doing business.
Your howler above about debtors not showing to their court dates because they didn't know because they weren't properly served, might occur occasionally, i.e. rarely.
Most of the time the debtor doesn't show for their hearing because that would cost them that much more time and money to go to court and lose in person, with or without paying a lawyer on top of that.
The great majority of the time debtors have been harangued with letters and calls for a long while before the lender will spend the money to sue to recover the debt.
Because just because a court grants a motion does not mean it's factual. A default judgement is just that. I could file a civil lawsuit against you, file paperwork to the effect that I served you, wait for the prerequisite period, then file a motion for summary judgement. That's what "allegedly" means.
And as I explained, it doesn't surprise me that someone who would defend torture, collective punishmemt, the use of human shields, indiscriminate bombing of civilians and civilian infrastructure using banned weapons, nuclear wepaons smuggling, and other general human rights violations and state sponsored terrorism would also support the completely outmoded and barbaric concept of debtor's prisons. And not only that, but come to the defense of banks and credit card companies (i.e. recipients of TBTF extortion money).
Finally, the reason I didn't address your question is because 1) I'll ask the questions around here, and 2) nonsequitur, though I did address the issue implicitly in my response, which obviously flew entirely over your combed-over head.
I am Chumbawamba.
"I could file a civil lawsuit against you, file paperwork to the effect that I served you, wait for the prerequisite period, then file a motion for summary judgement. "
So you would affirm a falsehood to the court, and sign a statement affirming that this falsehood is true?
Q) Again, do you prefer to be countersued for amounts that will launch this out of small claims court into the real thing, or do you prefer the kneecapping?
I've sued two former customers in two states in the last several years, in small claims court, for way way past due amounts totalling around 5 grand each, and won default judgements after the principals were properly served and didn't show in court. This is FYI, in case you think you are dealing with someone who doesn't know squat about such things.
Q) For the whole Israel vs the savages thing you seem to be obsessed about, maybe you can tell us how this sort of unpaid small debts issue is typically handled in Gaza (versus in the modern prosperous pluralistic multicultural state of Israel)? You seem to know a lot about Israel and particulary in what ways they do everthing better in Gaza.
Yes, you naive gutter monkey, people do lie in court all the time. Leave it to an idiot to take that to mean that people do it in every case.
I appreciate your having the integrity to properly serve your adversaries. Now, if that integrity only extended to those who have had their entire lives stolen from them, and are not simply owed a petit amount of cash over a sour business deal.
I am Chumbawamba.
Chumba, the festering mess you are worried about is about twenty times bigger than it would be if the UN hadn't turned the few refugees that existed at the beginning into a much much larger number of pathetic, dependent, unproductive, useless-to-themselves psychos through their continuous giving. The Israelis didn't take away their humanity or even much in the way of property. The U.N. did, and the refugees cooperated fully in their self-destruction along the way.
You are a complete horse's ass and you have not even a basic understanding of the history of the causes of the Palestinian refugees. Not one iota of your so-called knowledge of the Middle East generally and Palestine in particular has any basis in reality, fact, or even basic logic.
I don't think you've even been alive long enough to compare to the amount of time that I've put into studying and researching the Middle East, notwithstanding the fact that I am Arabic and have close ties to lots of family back there and follow press in the Middle East, etc. What do you do? You read one or two papers by Alan Douchewitz and somehow you're a fucking expert?
Are you even Jewish? If not, why the fuck do you even care? Why don't you just go and be an ignorant American like all the rest, have whatever feelings you have about Palestine but just shut your pie hole and don't say anything because it shouldn't concern you in the least, other than the tax dollars your government wastes on it.
If you are Jewish, that explains the sheer arrogance and obnoxious hubris, not to mention the dual account , which is so obvious, like your comb-over, that you try to cover with your kipah. You make yourself out to be the negative stereotypical Jew.
Just admit that you're outclassed. Admit here and now that you are no intellectual match for me and I will leave you alone. Don't do this for me, do it for yourself. Because if you don't, I will destroy you over and over again and it will become a curse that will follow your empty soul for the rest of your pathetic and meaningless existence on this ball of dirt wandering aimlessly through black emptiness. Admit you are a faceless coward and you will be spared.
If not, plan for suffering.
I am Chumbawamba.
That's a very aggressive post.
Then again, you think he's a Jooooo so it's all fair, right?
Just who is supposed to be impressed by the amount of time you claim you've been studying anti-Semitic war against Israel?
Nope. You have no Joooo issues at all.
None.
*lulz*
Yes.
Yes he would.
He's said so.
I suggest TBT, that you research the reasons why civilized societies eventually outlawed debtors prisons. Start with Charles Dickens, "Little Dorrit", and also read why Debtors’ prison were abolished in the US, and bankruptcy law was liberalized.
Hint: because Americans came to see that most people who fall into debt are victims of the business cycle, and not of fate or divine retribution. Also I recall reading somewhere in some rather obscure document a law that prohibited cruel and unusual punishment. Besides, we are better with debtors working off their debts, instead of costing taxpayers money for their incarceration.
"Besides, we are better with debtors working off their debts"
Except when they are clearly able to pay a debt and clearly intend never to do so. Those people are sociopaths who are likely to continue causing such damage, and other damage in other categories, as sociopaths are known to do.
Gawd, what a disgrace! Gee, I don't see Turbotax Geithner in jail for forgetting how to file taxes. Nor have I heard of the former head of Fannie Mae shacking up with a new bunkmate in the iron bar hotel. Yes, the Obamanoid has brought us change we can we can believe in: hammer the weak, bow to the strong, suck the ass of the well connected. Happy face fascism lives in Amerika.
Hmm. Are these industrial production announcements awaited by all, or are they already priced in? Just wondering about my EUO, like anyone else.
Refute the Goldstone Report.
You have an unlimited number of words and there is no time limit.
Go.
What a great sales job you are doing there! So far I'm not convinced that even reading "the Goldstone Report", nay..even googling to find out what the hell you are on about, holds any interest for me or anyone, nevermind "refuting" it, whatever it is.
Officially known as the United Nations Fact Finding Mission on the Gaza Conflict, the "Goldstone Report" determined that Israel committed war crimes in its brutal assault on Gaza in late December 2008 through January 2009.
http://en.wikipedia.org/wiki/Goldstone_report
Aside from the graphic and disturbing findings in the report, the UN mission that developed it is noteworthy for having been headed by an ardent Zionist and defender of Israel, Richard Goldstone, a former judge of the Constitutional Court in South Africa.
Nice try, dipshit.
I am Chumbawamba.
It is generally a good call to ignore documents from United Nations "fact finding" commissions. The U.N. is a famously corrupt club for the executive branches of the world's various governments, most of which are dictatorships and kleptocracies, a state of affairs which permits the worst psychostates and dictators to have a say in..."human rights" bodies of that organisation. I'm thinking of Sudan or Iran, or even Turkey for that matter, carrying on about human rights violations by modern western states. You need to have a sense of humour to not be sickened by it.
Leave Syria out of this. It pisses her off.
This is parody, right? Like The Onion or National Fucking Lampoon, right?
All he needs to do is sign on with "Ahoy, palloi!" and the picture is complete.
And on the other side of the globe, we have this:
http://www.thejakartaglobe.com/national/teenager-passes-out-marrying-cow...
I didn't know whether to laugh or cry, so I laughed myself to tears.
I am Chumbawamba.
Look, it's ok, because the cow
"had wooed him with flattering compliments."
GS is calling him now about joining its Regulatory Compliance department.
Hayek's The Road to Serfdom is #1 on Amazon's best-seller list.
Nice.
You like me! You really like me!!
Apparently Glen Beck praised it on his radio show, according to Instapundit, a very high traffic libertarian flavored blog.
Glenn Beck also praised Israel's assault on a flotilla of peace activists trying to deliver humanitarian goods and aid to Gaza, which is under occupation and siege by Israel.
Go figure.
I am Chumbawamba.
Yeah yeah, the fauxtilla carried something on the order of FIVE HUNDRED "peace activists" but only about one quarter of one day worth of humanitarian supplies, measured versus the flow of non-weapons supplies that flow into Gaza every day through Israel's checkpoints with Gaza.
And then there is the fact that fauxtilla was offered by Israel to unload at a dock (which is a lot easier than unloading via beachhead, dear idiot) onto trucks which Israel would supply to bring the aid into Gaza the same way the rest of the aid flows. They refused, because the point was not to bring aid, it was to provoke, and prod, and hopefully win an end to the maritime control of Gaza, so that weapons could be shipped there. Gaza has no "humanitarian crisis" or hunger issue due to Israel's (and Egypt's) tight control of its entry points. Au contraire, the large population found there has lived largely off of uninterrupted aid for decades on end, paid for by Europeans' and American's tax contribution to the Useless Nitwits that keep the festering mess festering.
Do they offer a version of the Road to Serfdom for Teleprompter Readers? I know a few people who could benefit, starting with the presidential sock puppet.
Chiswick reminds me of the guy at the amphitheatre in the Life of Brian Film. He's just so cheerful. Would that be a crucifixion ? ok join the queue on your left.
Thrown to the lions? ok , just join the queue on your right. lovely.
Would that be a Belgian Budget Default ? Lovely
Would that be a crisis of debt repayment in Spain, with a chain reaction throughout Europes banks? Thats nice
have a nice day!
DOW chart warns of a rally :
http://stockmarket618.wordpress.com
http://www.zerohedge.com/forum/latest-market-outlook-1