Greece

Marc To Market's picture

An overview of the key factors and events that are shaping the investment climate in the week ahead.  It looks at some emerging market developments as well.  These are the main talking points and considerations that ought to be on your radar screen as investors or pundits.  

Why Cyprus Is Big Enough To Cause Trouble

Cyprus is the euro area’s third-smallest economy in GDP terms, accounting for less than 0.2% of the region’s output. Yet, we believe it is big enough to cause trouble. The country urgently needs external funding and applied for an EU/IMF/ECB (in short: troika) program last summer. However, the conditionality that comes with this program does not go down well with the current Cypriot government, whereas politicians in core eurozone countries have started to point fingers at the small economy’s low-tax, soft banking regulation business model. What emerges is the threat of another deadlock, in which a small country pulls the eurozone’s consistency per se into question. So despite the small size of the economy, Cyprus therefore has the potential, in our view, to become a catalyst that may eventually end the complacency brought about by the ‘Draghi plan’ in H2 last year. If this proves correct, it would likely mean that peripheral spreads widen and risk assets could turn more volatile, especially in view of Italy’s election and Spain’s funding needs.

clokey's picture

Over the past few months, the perception has been that the risk of a meltdown in Europe (characterized by the loss of market access for Spain and Italy) has grown increasingly remote. The relative calm comes courtesy of the ECB which conventional wisdom has it, began acting "like a real central bank" in September when it announced it was willing to throw eurozone taxpayers' wallets behind theoretically unlimited purchases of Spanish and/or Italian bonds. This promise of course, was meant to discourage so-called "bond vigilantes" (otherwise known as investors who know a bad deal when they see it) from "speculating" on rising periphery bond yields. As it turns out, the effect of the as yet untested Draghi put has been dramatic. Spanish and Italian 10s have tightened by a ridiculous 240 basis points since late July. 

The World Is In Trouble

We make more than we’ve ever made, we owe more than we’ve ever owed, and we have less than we've had in decades which is distributed to those that did not earn the money. This is a working definition of Trouble. The stock market is at an all-time high while the financial condition of the country has seriously deteriorated. The world is in a gigantic bubble and it is going to get pricked. You cannot keep printing money without consequences and when absolute and intrinsic valuations replace relative valuations then the game is afoot. When the survival of the State puts its people in dire straits then, eventually, the citizens will rebel as the nation has forgotten just who composes its constituents. The people and institutions that have the capital will only go along quietly for so long when nations try to take what they have earned and dispossess it for others. The rich will become poorer and the poor will become poorer and when those with the capital have been deprived of it so that everyone is worse off then the Lords of Chaos will be in control once again.

IMF Sees Greek Funding Gap Up To €9.5 Billion in 2014

All commentary at this point on the infinite monetary sinkhole of Southern Bavaria, f/k/a Greece (whose lack of privatization efforts have angered Mother Merkel, who is now demanding more Greek assets be sold to "willing buyers") is now worthless:

  • IMF SEES GREECE NEEDING EXTRA EU5.5-9.5 BILLION IN 2015-16
  • GREEK GDP TO SHRINK 4.2% THIS YEAR, GROW 0.6% IN 2014, IMF SAYS
  • IMF RECOMMENDS HAIRCUTS ON BILATERAL GREEK LOANS FROM EUROPE
  • IMF RECOMMENDS RATES `CLOSE TO ZERO' ON BILATERAL GREEK LOANS

Has the IMF hired Armstrong yet?

Mark Grant Explains The Art And Science Of Blowing Magic Bubbles

Sometimes people, a vast majority of people, just don’t get it and so the present tense of the world goes on for a while until reality pops up or is forced upon them. It is rather like momentum which proceeds until the fuel runs out. Sometimes it is like living on Earth; the lack of recognition that hydrogen and oxygen surrounds you does not negate the fact that these two gases are present even though you cannot see them; you are still alive and breathing afterall. What we are used to, what we look for, are bubbles that reflect one asset class or another. In the past it has been Real Estate or dot.com or high tech or equities or bonds so that the search is constantly defined by some sector. Present conditions, however, dictate something entirely different, in my opinion, which is not one asset class or another as defined by relative valuation but all of the world’s asset classes as defined by global policies set by the world’s central banks acting in collusion. We are living in a gas house bubble.

Backed Into A Corner Of Our Own Making

It is neither pessimism nor optimism but a squaring up with the facts and, when done, it is the inescapable conclusion that we have backed ourselves into a corner of our own making and that to escape this dark and dangerous place will be a painful experience. The scheme rests upon various feet; Central Banks acting in collusion to lower yields and provide capital as an off-set to the government in America and the governments on the Continent who cannot bear, for political reasons, to do what should be done and that is to cut expenditures. The entire world’s financial system encased in a bubble and nowhere to go, nowhere to hide and nowhere to be safe. The worry then is how does it all end, what do you do in the meantime and how and what do you do when the bubble is pricked.

Frontrunning: January 17

  • Obama's Gun Curbs Face a Slog in Congress (BBG)
  • Euro Area Seen Stalling as Draghi’s Pessimism Shared (BBG)
  • China Begins to Lose Edge as World's Factory Floor (WSJ)
  • EU Car Sales Slump (WSJ)
  • Fed Concerned About Overheated Markets Amid Record Bond-Buying (BBG)
  • Australia Posts Worst Back-to-Back Job Growth Since ’97 (BBG)
  • Abe Currency Policy Stokes Gaffe Risk as Amari Roils Yen (BBG)
  • Japan Opposition Party Won’t Back BOJ Officials for Governor (BBG)
  • Fed Reports Point to Subdued Economic Growth (WSJ)
  • China Set to Exit Slowdown by Boosting Infrastructure (BBG)
  • Greece not out of woods, must stick to reforms: finance minister (Reuters)
  • Russian Rate Debate Flares Up as Cabinet Seeks Growth (BBG)

Guest Post: The Really, Really Big Picture

There has been a very strong and concerted public-relations effort to spin the recent shale energy plays of the U.S. as complete game-changers for the world energy outlook.  These efforts do not square up well with the data and are creating a vast misperception about the current risks and future opportunities among the general populace and energy organizations alike.  The world remains quite hopelessly addicted to petroleum, and the future will be shaped by scarcity – not abundance, as some have claimed.

Pictet's Four Horsemen Of The Euro-pocalypse

Euro area industrial production decreased in November, for the third month running, and reached its lowest since April 2010. Pictet notes that, in terms of country, the industrial production figures were mixed with 8 out of 12 countries experiencing negative m-o-m growth. It is worth noting that all periphery countries recorded a sharp monthly decrease and while recent 'surveys' have confirmed a stabilization (albeit in negative territory), this week's data (as shown in the following 4 charts) suggests that current optimism may be challenged. The bottom line - despite hope of an improvement in activity in Q1 2013, the overall picture remains very gloomy, especially for the periphery countries. Without external help (ECB unorthodox measures, fiscal federalism, etc.) these countries are likely to remain entrenched in recession.

Forget Previous Bubbles, This Is The Big Lebowski

2012 was an odd year in many senses. The Fed and the ECB are both verging on $4 trillion balance sheets, the total for all of the world’s central banks is $14 trillion and these small pieces of paper float around in the breeze and are plucked at will to feed the fires of Wall Street. When all of the central banks on the planet work in concert then, without off-world bourses, there is no place else left to go and the spatial restraints of our planet are the same boundaries for the investment of money. Here then we find the explanation of 2012. It is not a dot-com bubble or a real estate bubble or a specific bubble of any type at all or any we have ever seen but the Big Lebowski, the giant squid, the mother of all Blue Whales and the days of living in some place that we have never occupied before. Those that bet with the central banks have prospered, made fortunes, become vastly richer but how long does this game go on and is there a way out that is devoid of the usual pain to be found in contractions. The bet of last year was to place your money with the bankers-at-large but will that be the correct bet of this year as the plastic is stretched so thin now that a misstep, the politics of nationalism either of the funding or the funded bursts the balloon and sends it cascading around the room in some wildly gyrating manner.

Overnight Sentiment: First Leg Of German Recession Now Official, As Yen Collapse Ends

And so the consequences for Europe of accommodating the US, and the rest of the world, in having the EUR soar following ECB intervention while everyone else's currency is diluted to death, comes to the fore, following today's announcement of German 2012 GDP which came below expectations of 0.8%, printing at 0.7%, with government adding a substantial 1.0% to this number, while plant and machinery investment tumbled by a whopping -4.4%. And while the specific Q4 data was not actually broken out, a subsequent report by the German stat office indicated that Q4 GDP likely shrank by 0.5% in Q4. All that is needed is one more quarter of sub zero GDP, which will almost certainly happen in Q1 absent a massive surge in government spending which however will not happen in tapped out Germany, whose resources are focused on keeping the periphery afloat, and thus the EURUSD high, and Germany's exports weak. Confirming this was a Bild report which stated that the government now sees 2013 GDP growth of a paltry 0.4%, which assumes growth in H2. One wonders just how much longer Germany will opt for a currency regime that punishes its primary GDP-driver: net exports, at the expense of nothing beneficial but making tourist trips to Greece far more expensive than under the Drachma.