For those who are curious why Tim Geithner has been invisible in the past 2 months, the answer is he has been manning the phones like a true patriot, and making sure nobody dares to rock the European boat ahead of the US election (as was already disclosed), in this case exemplified by Moody's just released announcement that the rating agency will not downgrade Spain to junk, soaring debt, collapsing GDP and laughable unemployment rate notwithstanding (unless of course the ECB fails in its mission to scare all shorts from approaching within 10 miles of an SPGB, and Spain loses private market access again, in which case Moody's would proceed with a "multiple notch downgrade"). At least not until the US election that is. After that... well, with the fiscal cliff, debt ceiling, Greece vs Troika, etc, etc, buy VIX.
The erstwhile 'developed' market of the Athens Stock Exchange has just suffered a major blow. Coca-Cola Hellenic Bottling Co (CCHBC), the world's second largest Coca-Cola bottler, will quit the exchange for London next year, cutting the value of equities listed in Athens to a mere $31bn - smaller than Vietnam's $35.2bn. CCHBC is Greece's largest company by market value and sets a rather ugly precedent in leaving the troubled nation. Accounting for 23% of the benchmark index weight, it is 50% larger than all four of Greece's major banks combined. A new company, headquartered in Switzerland, will make a share-exchange offer for CCHBC and seek a primary listing on the London Stock Exchange - which will mean around 10% of all trading volume on the Athens Stock Exchange will be lost. The decision to leave Greece was prompted by concerns over political and economic stability - so for the Greeks, Coke Is not It.
Hmmm… Bunds getting trashed by equities and Spailout; Spain getting a lift on the latter, but a break from Greek Troika news and German back pedalling.
Spain better, but had lost 20 bp just yesterday.
Equities stopping out and squeezing. Credit ripping tighter.
Risk On, but not everywhere. Wild...
What the Spanish rumor of a bailout lite (as a reminder, the full blown Spanish bailout has already been largely priced in, and today's action is a very confused market pricing in a second, bailout-lite) giveth, Greece taketh away.
Chatter is that Rajoy is waiting for conditions to get worse so he can garner easier terms for a Spanish Bailout and seek a compromise whereby he can take a rescue with honor intact has been found. But broadly speaking, confusion reigns in Europe as we wonder how the European Elites will fudge a third bailout for Greece and the fact that the IMF (as we noted here) have admitted that austerity doesn't work how they thought it should/would. But don't expect anything sudden to replace austerity – it remains the only option today, though the debate has begun. So what about something utterly radical such as Gavyn Davies in the FT yesterday where he wrote: “One radical option which is now being discussed is to cancel (or, in polite language, “restructure”) part of the government debt that has been acquired by the central banks as a consequence of quantitative easing (QE).” How will the central bank be recapitalised if it writes off its assets without money printing – why not when inflationary expectations are low? And what would it do to banks?
Forget Micro economists.
If yesterday it was Greece that the market was once again inexplicably enthused about, today it is Spain's turn, which is once again in the open-ended action crosshairs, following an unsourced (are there any other kind these days?) report by the FT, saying the country with the 25% unemployment is prepared for an imminent bailout request (contrary to a previous report by Reuters saying the ETA on this is November). That these are simply more bureaucratic tests to gauge the market's response is by now known to all - the truth is nobody knows what happens even if Spain finally requests a (long overdue and priced in) rescue. Because even with bond yields briefly sliding, they will only ramp right back up, even as the Spanish economic deterioration continues. But that bridge will be crossed only when Rajoy is prepared to hand in his resignation together with a signed MOU to a Troika boarding commission. In other news, Spain sold €3.4 billion in 1 year Bills at a yield of 2.823% compared to 2.835% last, and €1.46 billion in 18 month Bills at a yield of 3.022% versus 3.072% last. Since both of these are within the LTRO's maturity (whose 1 year anniversary, and potential partial repayments, is coming fast in January) the bond was a token exercise in optics. Elsewhere, German ZEW Economic Sentiment rose more than expected from -18.2 to -11.5 on expectations of a -14.9 print, despite the ZEW's Dick summarizing the current Eurozone situation simply as "bad", and adding that "downward risks are more pronounced than upward." Confirming his fears was a government official sited by Bild who said that 2013 growth has been reduced from 1.6% to 1.0%. In all this newsflow, the EURUSD has quietly managed to do its usual early am levitation, and was at overnight highs of 1.3015 at last check.
Just when the channel-stuffed world was hoping for some good news, European car registrations pop up to smack the dream back to reality. A 10.8% YoY decline, the biggest drop in two years, makes it 11 months-in-a-row of dropping YoY comps. Before the crisis began, car registrations had risen on average 1.7% YoY each month; in the 4.5 years since they have dropped on average 4.7% YoY each month. The Eurozone year-to-date is -10.5% with Cyprus (-19.4%), Greece (-42.5%), Italy (-20.5%), Portugal (-39.7%), and Spain -11.0%. However, Spain's very recent past has been extreme to say the least with a 36.8% YoY drop from last September. Interestingly, Land Rovers are up 42.3% YTD while Alfa Romeos are down 31.6% YTD (and Mercedes and BMW down around 1% YTD). But apart from that, Europe is doing great - just look at earnings expectations for Q4.
This summer Roger Bootle won Lord Wolfson's £250,000 prize for the best advice for a country leaving the European Monetary Union (one may assume that this advice is aimed at Greece). Despite his lengthy and repetitive prize submission, Mr. Bootle's recommendations can be summarized in this one sentence: In complete secrecy and with no prior discussion, redenominate all Greek euro-denominated bank accounts into drachma-denominated accounts and devalue the drachma. That's it! There is no need to cut public spending. Quite the contrary, because public spending adds to the Keynesian concept of aggregate demand, and aggregate demand cannot be allowed to fall. Dr. Philipp Bagus offered the truly liberal alternative. He proposed a long period of public discussion about alternatives to leaving the euro, which would allow ample time for Greeks to move their property out of the greedy reach of their own government, should they decide to do so. The currency crisis might be solved in this manner as Greek banks closed and the Greek government shut down its welfare and regulatory system for lack of funds. The Greek government could repeal legal-tender laws, which currently require Greek citizens to transact business in one currency only — always that issued by the state itself. Concomitantly it could reinstate the drachma as a strong currency backed by gold. Then good money would drive out bad, as people freely chose which currency to use.
European equities trying to decouple from EGBs and US equities, trying to trade “No news is good news”.
Low action day.
Short term trading strategy buy Spain on weekend bail-out hopes and resell rapidly might need to be deepened. Not much to chew on eventually.
Against a deflationary environment of austerity-driven wage and pension cuts combined with rising unemployment; food, commodity, and fuel prices continue to surge in Greece. The government has taken an unusual step - allowing the sale of expired food at lower prices. As Voz Populi reports, this act means the government has 'virtually admitted their inability to control prices" as the worst aspects of stagflation crush the Hellenic Republic. The regulation (allowing from one-week to one-month extensions of foods for sale post their eat-before-this-day-or-you'll-get-Salmonella date) has existed for many years, according to a ministerial decree and this action merely states that these foods must be sold at a lower price. Meat and dairy is excluded but this move is described as "an immoral act" as few believe prices will actually be reduced - since that is at the discretion of the merchant. As the National Food Agency notes: "This is also a moral dilemma, to divide consumers into two groups: those who can afford basic food and those who, because of poverty, are forced to resort to dubious quality food." We presume this will also reduce the drag on pension and healthcare costs as death rates will rise?
- Hilsenrath Humor du jour: Bernanke Advocates Stronger Currencies (WSJ)
- Auditors want two more years for Greece on deficit (Spiegel)
- More bluster: Schaeuble Rules Out Greek Default as Samaras, Troika Bargain (Bloomberg)
- And even more bluster: De Jager Says Greece Needs to Make Fiscal Reforms Immediately (Bloomberg)
- Global Economy Distress 3.0 Looms as Emerging Markets Falter (Bloomberg)
- Central bank governor stresses inflation control (China Daily)
- Greek Yields Reach Post Debt-Swap Low as Bunds Slip on Schaeuble (Bloomberg)
- Roth and Shapely win Nobel prize for economics (Reuters)
- Fed chief rounds on stimulus critics (FT)
- IMF Board Sees Biggest Power Shift Reshuffle in Two Decades (Bloomberg)
- EU Girds for Summit as Nobel’s Glow Fades on Crisis Response (Bloomberg)
- Japan security environment tougher than ever (Reuters)
After starting the overnight trading at its lows, the EURUSD has once again seen the now traditional overnight levitation, this time with absolutely no economic news, in the process raising equity futures across the Atlantic, even as unfounded Chinese optimism for more liquidity has waned leading to the SHCOMP closing down 0.3%. Perhaps the most notable event in the quiet trading session so far has been the surge in 10 year Greek debt whose yield has tumbled to post-restructuring lows, driven by more and more hedge funds piling in to piggyback on Dan Loeb's recent public GGB purchase announcement (strength into which he has long since sold), and hopes that Greece will somehow see an Official Sector Initiative (OSI) to make recovery prospects for Private Investors more attractive: a capital impairment the ECB has said would happen only over its dead body. But in the new normal, facts and rules are for chumps, and only exist to be broken. More on this amusing stupidity here. Amusingly, this comes just as Greece’s Staikouras says the economy’s downward spiral is not over yet. But, again, who cares about fundamentals.
A new week begins. Here are the major global market-moving events to look forward to for both the next week, and for the remainder of October and November.
The truth of the matter is that there is no such thing as a free lunch. The phony prosperity of monetary inflation is entirely illusory. You cannot get something for nothing. "So, whenever you see a criticism of austerity as fostering recession, you are reading a Keynesian. He may not call himself a Keynesian, but in this case, he is delusional. Only Keynesianism teaches that reduced national government spending (“austerity”) in a nation whose national government spends 40% of its GDP (Greece) will produce a recession." Keynesian economic pundits advance many fallacious arguments about government spending. Chief among them is the egregious notion that mortgaging your posterity with debt and deficits is somehow “virtuous.”