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HomeWhen Will Euro-PIGS Fly?
Posted by Larry Doyle on February 5th, 2010 10:56 AM |
Wall Street has more than bulls and bears. Trading desk banter often refers to the presence of ‘pigs’ in the market. Years removed, I can still hear traders saying, “this market’s a pig,” “this bond’s a pig,” and “that account is a pig.” Well, with my morning coffee I saw a new utilization of this famed reference. I chuckled but also realized the seriousness of the new pig reference in regard to the increasingly dire fiscal situation in the European Union.
What are the PIGS across the pond? Portugal, Italy, Greece, and Spain.
The Wall Street Journal highlights the disastrous fiscal situation in these countries in writing, Sovereign Risk Meets Sovereign Reality:
After months of shrugging off debt problems in Dubai, Greece and other smaller economies, markets yesterday seemed suddenly aware of the risks of sovereign default. (more…)
Europe Sneezes, Asia Gets A Cold
Posted by Larry Doyle on May 18th, 2009 5:00 AM |
The European Union reported a 2.5% decline in 1st quarter GDP the end of last week. Market pundits claim that this report and quarter will represent the trough for the recession in Europe. I personally do not see any meaningful evidence to support that assertion. Europe has been slow to address the massive capital shortfalls in its banking system. The EU has reluctantly adopted measures of quantitative easing and has been slow to drop its overnight lending rate.
What have been the ramifications of the EU’s tardiness on the monetary and fiscal stimulus fronts? RTT News reports, Euro Moves Lower Versus Rivals After GDP Report. 1st quarter output in Europe plummeted and economic growth revisions across individual countries showed greater declines.
I have always viewed eastern Europe as being The Weakest Link in our global economy. The EU’s enormous exposure to eastern Europe is a MAJOR drag on its financial institutions and, in turn, its economy. The 1st quarter GDP report is a clear indication of the impact that the Weakest Link Is Weakening, much as I had written a few months ago.
Can this European weakness be contained? Can stronger economies pull Europe out of the economic ditch? Weren’t these the same questions we posed in regard to the rising delinquencies and resultant foreclosures in sub-prime mortgages?
The immediate reaction to the European weakness in Asian markets is a swift selloff. Japanese equities are down almost 3% overnight (10pm EST) due primarily to the weakness in Europe. As Bloomberg highlights, Japanese Stocks Slump on Panasonic Loss Forecast, Europe GDP. Bloomberg asserts:
“Europe’s spending less on stimulus, so their ability to recover from the recession is weaker than the rest of the world.”
Additionally, Bloomberg provides further European color:
Gross domestic product in the 16-member euro region fell 2.5 percent from the fourth quarter, the biggest decline since the data were first compiled in 1995, the European Union’s statistics office in Luxembourg said on May 15. That exceeded the 2 percent contraction economists expected in a Bloomberg survey and followed a 1.6 percent drop in the prior three months.
“Concerns are building about the health of Europe,” said Ryuta Otsuka, a strategist at Toyo Securities Co. in Tokyo. “That’s having an effect on the currency market and creating a headwind for export companies.”
Why isn’t Europe more swift and aggressive in providing fiscal and monetary stimulus? Germany’s hyperinflation during the post World War I era has left an indelible scar upon that country. I found the insights into Germany’s period of hyperinflation provided in an excerpt of Paper Money by ‘Adam Smith’ (George J.W. Goodman) to be highly informative.
In pausing to review the depth and magnitude of these economic issues, it is readily apparent that our global economy is connected not only across borders but also across historical eras.
LD
G-20: Commitments, Comments, Questions!!
Posted by Larry Doyle on April 2nd, 2009 1:14 PM |
British Prime Minister Gordon Brown just delivered a statement highlighting the results of the G-20 conference in London. There must have been a lot of work done behind the scenes over the last few months because it’s hard to imagine there was a lot of debate over issues within a 36 hour time frame at this conference. I will grant the world’s political leaders their due as it is most important at times like these to convey a strong, uniform front.
Let’s review the objectives and commitments, each followed by questions and/or comments that I have:
1. Address countries providing tax havens.
My question: who will police?
2. Develop a Financial Accounting Stability Board to regulate currently unregulated financial entities, primarily hedge funds.
My questions: how will it be staffed, operated, and judgments adjudicated? (I don’t like FASB as the acronym to be confused with Federal Accounting Standards Board)
3. Develop global policies and outline to address compensation
My questions: who and how will this be implemented? how will it be regulated? will there be punishments for those not participating?
4. Develop a global systemic risk oversight body.
My Question: who and how? (more…)
Confidence
Posted by Larry Doyle on March 21st, 2009 10:07 AM |
Our economy, markets, and global finance are impacted by a wide array of factors. While various analysts will focus on the differing magnitudes of a variety of these factors, I know of nobody who would not say that ultimately the greatest factor of all is “confidence”. While there is a monthly Consumer Confidence Survey generated by the University of Michigan, confidence is not measured by hard data.
Regrettably, we are currently suffering a crisis of confidence. The crowd in Washington has not helped instill confidence with its scattered approach to legislation and policy.
Over and above the problems in Washington, our global economy is suffering from increasing protectionist measures. Our current administration may talk about free trade and open markets, but their actions speak otherwise. Those actions impact global confidence. Other countries and regions are equally guilty of the same issues. (more…)
Let’s Revisit Europe: The Weakest Link
Posted by Larry Doyle on March 17th, 2009 5:15 AM |
I thank our loyal reader in Michigan, Mr. Fiscal Liberal, for sharing with us a piece written by Simon Johnson, the former chief economist of the International Monetary Fund, a professor at the MIT Sloan School of Management, and a senior fellow at the Peterson Institute for International Economics.
Mr. Johnson writes about the growing problems in Europe. I am hard pressed to see how the European situation, both in the East and West, can not end badly. There are too many economies that are effectively insolvent or on the brink of insolvency. I believe this is the region of the world which will experience increased economic strife leading to social unrest and political change. Can the problems in Europe be contained given the massively interconnected world of global finance?
Thank you again FL for sharing this very enlightening piece from Simon Johnson!!
G-20s Real Agenda Should be Saving Europe from Itself
By Simon Johnson
Last Updated: 10:28AM GMT 16 Mar 2009The media coverage of the G20 finance ministers meeting this weekend was dominated by the apparent battle between those who support more fiscal stimulus and those who want to impose more regulations on the financial system.
This, we are led to believe, is the big debate facing the full G20 heads of government summit early next month: the US is pushing for a bigger global fiscal stimulus (2pc extra government spending from everyone, to be monitored by the IMF), while the continental Europeans are holding out for greater regulation. Gordon Brown is trying hard to cast himself as the broker for any apparent deal. (more…)
Fed Releases Names of AIG’s Creditors
Posted by Larry Doyle on March 6th, 2009 9:03 PM |
Under pressure from Congress this week to release the names of AIG’s creditors, the Federal Reserve’s Vice Chairman Donald Kohn clearly got the message. The Fed has acquiesced in releasing that Top U.S., European Banks Got $50 Billion in AIG AID.
My immediate reaction to this news is how interesting that the bulk of these institutions are European. What does that tell me? These European banks were getting plowed by Wall Street with a lot of sub-prime backed CDOs and when the dam was breaking they wanted to hedge their position. Market speculation is that European institutions own twice the amount of toxic assets as U.S. based institutions. That exposure on top of their delinquent loans in eastern Europe is crushing a number of western European banks. Who are they? Start by looking at the list, included in the above-referenced article, of AIG creditors.
In providing the hedge – which is the insurance – AIG received a fat premium but has been paying for it ever since. Actually, AIG only truly paid for it up until last September . . . the American taxpayer has been and will continue to be paying for it for a long time. Where were the regulators when we really needed them?
LD
Why is George Soros Short the Euro? MUST READ!
Posted by Larry Doyle on March 3rd, 2009 6:10 AM |
In very short order, I have gained a deep respect and regard for our Economic All-Star, John Mauldin. I have come to appreciate that Mauldin and I view the market through the same lens focused on the global economy. While many media outlets focus on the day to day, if not hour to hour trading activity, I believe they are truly missing the forest for the trees.
While I have written twice over the last week about eastern Europe being the weakest link in the world of global finance, Mauldin and his colleague Niels Jensen of Absolute Return Partners provided insights and analysis that is numbing.
Why is George Soros short the euro? Let me provide a synopsis of Mauldin’s and Jensen’s “Europe On the Ropes.” Assuming those visiting Sense on Cents have an interest in the markets and economy, this piece is somewhat lengthy, but a MUST READ!! A link is provided at the end of my review. (more…)
The Weakest Link is Weakening
Posted by Larry Doyle on March 2nd, 2009 6:00 AM |
The other day I highlighted the fact that 12 eastern European countries would solicit a bailout from the European Union over the weekend in Brussels. I defined this bloc of eastern European countries as currently the Weakest Link in the global economy. Well, if they were the weakest link then they just got weaker as they were rebuffed in their request for aid.
The dynamic at work in the weekend’s emergency meeting held in Brussels is a play on beggar-thy-neighbor policies implemented during times of economic stress.
There are actually a number of factors influencing the European Union’s refusal to provide bailout money to these eastern European nations. Included in these factors are the following: (more…)
