Greece And The Eu

[Malcolm Robinson]

Looks like Wile-e-Coyote has finally realised the effects of gravity. With markets tanking all over the world they are being forced to re-examine fundamentals. The bull markets we have seen over the last year or so might eventually be seen as them just breathing a sigh of relief that the financial Armageddon we stared in the face had been averted. If there isn't anything underpinning whatever there is only one way it can go..............

[Malcolm Robinson]

To add further comment on my last posting in a little more detail there are several factors which seem to have impacted on the market's consciousness. First the likely impact of politicians putting in further regulations. We can see the effect that has looking at what happened after Frau Merkel banned naked short selling. We can now add in the Senate vote on the IMF EMU bailout package and at 94-0 there would seem to be a clear massage! Also their reform package aimed at banks which in the main should be welcomed at the present moment in time could easily be counterproductive. Secondly the effects of these austerity packages which have to go hand in hand with any bailout package. These will undoubtedly lead to markets reconsidering their impact onto world trade and prosperity and by implication the austerity models will mean higher unemployed and reduced GDP of 'rescued' countries. We now see more German demands for tighter fiscal policies with some pretty draconian threats implied. Movements in currencies which seem to be accelerating as investors look for safe havens. The moral as well as straight financial implications of the more prudent countries having to rescue the more imprudent and that may well leave them open to recessionary influences themselves. Last but by no way least is what is happening in the savoir of western economies, China. This was the main economic driver which was supposed to pull us all out of recession but looking at the Chinese market it seems to be more bearish than bullish. They too have a housing bubble which needs pricking but as yet no one has dared to go near it with the pin!

So there are some real problems building in the system and what do we see, the political class so far out of their depth it is untrue! Their almost day to day pronouncements of this is the plan to save us all and my idea will work best is nothing more than hot air. In fact as they are forced almost hours later to either retract or vote in the complete opposite direction to what they had only just said I am beginning to wonder how they dare walk out of their house doors every morning! It may best be summed up by a quote from Albert Einstein which was mentioned in the FT,

''The definition of insanity is doing the same thing over and over again and expecting different results.''

As I have used one quote, I would like to post what an American economist has stated on a blog site we both use, the implication of which I couldn't agree more with.

What's the difference between Singapore and Zimbabwe?

Zimbabwe has rich natural resources and they were left a wonderful infrastructure by the Brits at the end of WWII. Singapore is a rock with no resources that was utterly destroyed in that war. Yet today Singapore contributes millions to help feed starving Zimbabweans. A nation's greatest resource is the people that inhabit it.

[Malcolm Robinson]

I have been away for almost 2 weeks and what has happened to the markets, well very little looking at the closing positions. The footsie is down but has rebounded a little and we see the main driver almost certainly the DOW even more so than usual as the dollar is still seen as a safe haven. Those US jobless figures released at the end of this week might overhang the start of next weeks trading as they left the DOW below 10,000 and that will probably mean triggered sales.

My main concern is still in the banking sector, both European and UK, and I believe we can now start and see the whole Euro bailout was more to do with saving banks rather than people's jobs! Without any worthwhile new regulation the banks are getting back into their old habits but using all that taxpayers' dosh to shore up their balance sheets. It is essentially heads you win, tails I loose because they now know if anything goes wrong they will be bailed out with tax payer's money! Applegarth, Fred the Shred, etc, they should all be in jail! I would have thought that someone who was so vocal in the pre election run up about wholesale change in UK banking and who is now in charge of delivering that would have had a plan ready and waiting to impose, yet Vince the Cable is so apparent by his silence now words have to be put into deeds!

We can see the European problem by looking at Spain and the mopping up going on there in her banking sector. The smaller largely savings and lending banks are having to be taken over by larger banks as their liabilities to bad debts becomes a real issue and one that threatens to destabilise any government action on their economy. At least Spain looks to be trying to be proactive, the rest of ClubMed seem intent on letting events overtake them and then relying on ECB help. Talking about the ECB we see Trichet openly admit to a QE programme yet the devil is in the detail once again as Germany voted against it. Yet another reason to presuppose a split in the Euro might well be on the cards!

Interesting plays at the moment are the LIBOR rates, sovereign ratings and associated Gov bond sales, gold price and market swings. LIBOR rates are especially interesting as it looks like the big money players are more willing to overnight the cash with the ECB than they are to lend to other banks. This sort of stuff precipitated the loss of confidence and crash last time! I don't think we are out of the wood yet by a long shot! As for gold prices I will let the Sage of Omaha give his view on gold.

"Gold gets dug out of the ground in Africa, or someplace,” he said. "Then we melt it down, dig another hole, bury it again and pay people to stand around guarding it. It has no utility. Anyone watching from Mars would be scratching their head.”

[Malcolm Robinson]

Could this fictional projection be on the cards?

Spain, a nation with 20% unemployment and $1.1 trillion in debt, which just announced yet another austerity package to assure the markets, which is enormously unpopular. Its then that a young, aspiring politician begins to question why bother paying the debts if we're already in a depression!! Within a month or so, he's attracting very large crowds of angry citizens who agree, and their parliament notices.. as do the markets. The cost of insuring Spanish debt reaches Greek levels; Spain becomes essentially unable to borrow on the open bond markets and the EU steps in.. but asks Spain to agree to another austerity package. The Spanish people, led by our young politician, explode with anger.. violent strikes paralyze Spain. Meanwhile, large marches take place in Berlin to protest Germany's part in the upcoming bailout, burning Spanish flags along the strasse. These scenarios on TV are too much for the Spanish Prime Minister, who has arrived at the Rubicon.. and he stops answering Sarkozy and Obama's phone calls and at a news conference announces that Spain will stop paying on it's debts and would like to begin negotiations on default with banks. By morning, European stock markets are in utter turmoil as a dozen very large banks are essentially insolvent. The Crash is on, and by 1pm the European governments have halted trading on their stock, bond and currency markets despite central bank intervention. The markets open up in New York, but don't stay open for long... worried that the trillions of credit default swaps written by American banks on the European banks will crash the American banking system, and by noon the markets halt trading as the chaos is complete. It is Thursday. All trading is halted throughout the weekend. The vast majority never saw it coming, and with the banks now on E200/day withdrawal limits, they are pretty angry and fearful.. and well they should be. ATM's stop working; prices soar (fuel in particular); some businesses simply close up shop rather than risk being paid in a currency that could soon be worthless. Petrol stations ration fuel purchases. Many are sent home from work for the last time. The very basic function of modern economy.. the exchange of currency for goods.. is in doubt.

Over the weekend, it becomes rather obvious that the heads of the governments and central banks cannot come up with a united front; the markets are again not allowed to open, thus ensuring that the entire system is doomed. At this moment a plan is brought up.. a plan to essentially reboot the entire system, with everyone's (people, government and companies) debt zero'd out. People own their homes, ensuring societal stability. Everyone's national debt is zero. But by the same token, anyone who owned stock and/or had money in the banks are wiped out. An international currency standard is agreed upon by major powers, based on a basket of commodities. The world is about to enter into a Depression. Overnight, unemployment in the US hits 20%, on it's way to better than 33%.. fully half of all adults are not working; taxes on those who are working are crushing. Such is the fate of nations who borrow from their children's future for a more prosperous present.

[Malcolm Robinson]

As I mentioned gold the other day it might be worth looking a little closer into the gold market to try and find its intrinsic worth. It is a rare and scarce metal and so as demand rises up goes its price, yes.......err no not exactly. Since 2002 total demand from gold 'users', goldsmiths, dentists, jewellers etc, has come to about 22,500 tonnes. Total gold which has come onto the market over the same period is about 29,000 tonnes which leaves an oversupply of around 6500 tonnes. Shouldn't that fact precipitate a fall in the gold price? It hasn't because of the gold speculators or people who see holding gold as a hedge against the loss of confidence or value in fiat money but because there are no real underlying economic reasons for the price rises we see then we are looking at a typical pyramid scheme or Ponzi scheme where rises only come through newer and more investors willing to get onto the bus before a wheel comes off. In effect the price of gold is now a classic bubble.

It would seem strange that at a time of rising gold prices central banks have been sellers but then again they had to get hold of some cash real money to buy their own sovereign bonds! The FT reported that last year central banks sold 246 tonnes of gold which is the lowest figure for years. These paragons of financial astuteness would seem intent on selling largesse into the market at times when it is becalmed and then not being able to take advantage of a rising market. I wonder if any of them understand the basics of supply and demand? Course their incompetence only costs us the respective tax payers money and again we see criminal incompetence insulated from any form of retribution!

It could therefore be assumed that the heady rise in gold pricing is in direct correlation to the breakdown of the rest of the financial system. I think we might as well be picking brightly coloured pebbles off the beach and using them!

[Malcolm Robinson]

There would seem to be a clear message coming out of the last G20 meeting. Gone are the 'Brownism's'......'unlimited fiscal stimulus will enable economic recovery' and we now see austerity and debt repayment as the latest way forward. No wonder the Polish Prime Minister immediately gave them what for, only last year he was told to expand the Polish economy as a way of avoiding recession, now he is being told to repay debts and the extra one incurred trying to follow their advice! This is either sheer hypocrisy or incompetence and no sign of humility from any of the G20 leaders! If we look at the April 2009 advice there was much back slapping concerning the $5 trillion fiscal stimulus the G20 world was embarked on which was supposed to raise economic output by 4%. Ah the heady days of our then Prime Minister saying he had saved the world! The latest G20 release, June, is all about.....'Sustainable public finances, fiscal stability, national circumstances reduce deficits in 2010 and strengthen fiscal frameworks and institutions.' This is the antithesis of their position of only a year earlier. Course it has to be pointed out that the UK has made itself broke trying to attain the previous position!

Those US jobless figures had such an effect because even Obama had been caught up in promoting the line that they would be better than what they turned out to be. Maybe he is learning the necessary lessons of high office!

We are now seeing a wider disparity between EU bonds with some countries obviously bearish for investors. It will only take a popular revolt in any one of them to spark a default and then the EMU crashes. About that cash held on deposit at the ECB by the other EU banks.......it's about 351B Euros and earns them 0.25% instead of the normal market rate of 0.33%, such a price comes safety! The ECB can be making a tidy profit as it 'invests' in say Geek bonds paying 8%+! Course if we then think about possible Greek debt defaults..........

[Malcolm Robinson]

We need to watch events unfolding at the IMF. The recent call for an increase in collateral by the IMF for its members would seem a bit strange, even at this present time, given that it hasn't really stretched its present limits by any means. This can only mean one of two things, either its remit is about to change or they know something the rest of us don't. Mr Ghali, the Egyptian Finance Minister and the first official from an emerging economy to head the IMF's International Monetary and Financial Committee said,

"If we are going to start including funds made available to Europe, then the IMF is not properly resourced,” he said. "We need to increase Special Drawing Rights very significantly. But we also need to shift the structure of resources from mostly borrowing and some Special Drawing Rights to mostly Special Drawing Rights,” he continued, adding that members had been talking about a doubling of the Special Drawing Rights allocation.''

This would seem to suggest that either they have used up their present financial allocation or they see a large increase in take up by countries of this SDR. They have about $110B available as of now and the largest ever loan was made to Greece and that was $30B so there should be around $80B available, why the call to increase? They are gold sellers at the moment and have sold about $6B worth of their gold reserves. They have around 3005 tonnes of the stuff! They have also negotiated loan arrangements for themselves within the G20 membership. So a pretty expansionist policy seems to be taking place and we have to wonder why? With a possible draw down facility of up to $1000B from a mix of streams the IMF would seem to have enough in reserves to meet most likely obligations going forward unless as I say they know something we don't!

[Malcolm Robinson]

Trichet's got some answering to do today as he tries to explain ECB actions over the last few weeks and months. Might be helpful if we get to learn just how much the ECB has spent on ClubMed debt or in reality how much the ECB QE programme has cost and is going to cost!

We have to look at what Germany is doing when considering the EMU members if not the whole of the EU. Being the paymasters of the whole EMU Germany does seem to have a right to start and dictate just how things progress? That would seem the path going forward as we consider the statement made by Wolfgang Schauble, German finance minister, who said there would be no bailout of Greece or any other EMU member if they could not sort their domestic finances out and indeed would face expulsion from the EMU! It may have been an overtly political ploy but he who pays the piper..........

What seems to have happened is that the cheap credit the Euro gave its members has been used in completely different ways between those same member countries. Germany used it to bed down the doubling of its population and invested in technical and economic infrastructure which is insulating it from the worst excesses of recession. ClubMed, as well as the UK!, seems to have used it to borrow and produce a ballooning public sector with associated benefits for that workforce. Quite a divergence, if only we had copied the German model and I can remember writing on this site years ago we should be watching the German model closely as the Wall came down and that population doubled overnight! With almost no other EMU member state now being able to compete with German technical and/or labour costs no wonder the Germans are finding their voices and starting to dictate the way the EU moves. Germany might not have a military expansionary policy now but it certainly has an economic one and probably owns most of the national debts hamstringing it neighbours! It is not unthinkable that we will see the northern EU member states using a new Deutsche Mark in the not too distant future!

[Malcolm Robinson]

There would seem to be one more thing to consider regarding my last post and the German ascendency within the EU. The UK has been a natural buffer zone between Franco-German aspirations for the EU but now we see the UK concentrating introspectively on its own problems leaving the EU to follow the path with the strongest voice. Given the current situation and financial climate that will inevitability be the German way!

The eastern members of the EU seem to be crumbling daily with Hungary and Bulgaria to the fore and this is after 2 years of IMF intervention in Hungary! No wonder Trichet wants to inflate the whole region with paper!

[Monsta®]

greece crap ecomony crap at football! 2-0 to south korea!

[Malcolm Robinson]

Right to the nub of the matter as normal monsta! I think the English 'All Stars' can only expect a result when they play the likes of Greece, going off last night's game! Give Lampard his return ticket now!

Anyway back on track it might be worth looking at GGG's inflation building in the economy. Every single month of this year the 'official' figure has been over the targeted one and yet we still get the BoE and MPC saying inflation is only a blip? I wonder what they understand as long or medium term? Interestingly Barclays has done its own expectations for UK inflation and their report has just been published. In fact they have done this since 1986 so they do have previous! Their assessment is that we will see an inflation figure of 3.4% next May and 3.8% in two years. These figures whilst not outrageous are still well above the BoE target. Their 5 year projection is for an inflation figure of 4.1% so we see a rising trend in their assessment. The BoE's projections for next year were for 2.5%, which they published in Feb this year, however even their own latest figures suggest a rate of around 3.3% which they have only just published.

One thing driving these figures are the input and output producer price figures and we have already seen the recent trends there with input figures of 10.5% and 13.1% for March and April this year and factory gate prices rising 5.7%. There can be no doubt inflationary factors are building in our economy and our exchange rate fluctuations and the likes of oil prices don't help! The MPC seem to be holding onto their 'output gap theory 'as a means of justifying their actions in 'looking through' temporary statistics. Time will tell if they are correct on that one but that in itself presupposes a larger unemployment figure and so a reduction in GDP! Anyone wanting to look further into this might like to look up 'Hedonics' and see just how manipulative Governments are being with their figures!

There is one subtle factor to consider as well. Anyone else notice that some of our purchases, especially in food lines, are becoming smaller? That is to say manufacturers are reducing the size of their products yet retaining the price levels. That may be good for our waistlines and general health but it is in fact inflationary!

[Brett]

greece crap ecomony crap at football! 2-0 to south korea!

Maybe if they can cheat their way to the semi's like they did in the Euro's the economy could benefit from people spending some of their worthless cash...

[Monsta®]

Right to the nub of the matter as normal monsta! I think the English 'All Stars' can only expect a result when they play the likes of Greece, going off last night's game! Give Lampard his return ticket now!

USA did beat spain! so a 1-1 draw aint to shabby! as for lampard he should stay and give the ticket to heskey. out of the whole of england thats the best strikers we got rooney, heskey, defoe and crotch please!

they'll definitly get through if algeria and slovenia are going to play like that!

as for the Green goof! it could of happened to anyone!

[Brett]

Get Jo Hart in, he was world class for a young'in for Brum all season. Give him the chance, not gonna do any worse really!!

[Malcolm Robinson]

Just been reading up on an area which I think is one of the most dangerous to our public finances, public sector pensions. I think the liabilities we have in them will come back to haunt us going forward. NCC has over £400M worth of deficit in this area! The State of New York needed $6B for its annual payment into their public sector pension pot and legislated that it could borrow that figure instead of tax payers picking up the tab directly. Now who have they borrowed the money from, the same pension fund that they will pay the money into??? This is too far fetched for a Brian Fix farce!

[Malcolm Robinson]

As for the footie, can someone please squat that bluebottle which is making all that buzzzzing every time a match is on!

[Monsta®]

As for the footie, can someone please squat that bluebottle which is making all that buzzzzing every time a match is on!

that would probably be him...........

should of went to spec savers!

[Malcolm Robinson]

I thought it was this.........

[Malcolm Robinson]

What's this I read about the Germans having access to the World Cup new ball before anyone else!!!!!!!

Now that's schadenfreude GGG!

[Malcolm Robinson]

There have been many movements over the last week or two concerning the markets and the UK fiscal position. The new OBR came out with a report which on the one hand looked better than expected but on the other didn't include what it said it was going to. Osborne then came out with an extra hit on local authority spending to the tune of £1.165B, with the NCC share around £10M. Worth remembering this is on top of the £14-15M NCC has just cut out of this year's budget! The budget next Tuesday might well be more bloody than needed in an attempt to 'Ironise' the present Chancellor but if VAT is going up this will be the time when it comes into the open! The figures would seem to support Darling's case of a slight recovery in public finances........?

Speaking of Darling I think history might well record a much better 'attempted' track record for him that his predecessor!

Looking across the water it would seem that Greece is entering the end game. With most of the EMU ministers briefing that Greece and her bailout package would be OK it was left to the Russian finance minster to blow that facade away when he said it is now only a matter of time for Greece to restructure its debts! Greece is now issuing IOUs for government purchases so in effect there are now two currencies at play within Greece, how long before we see one failing? Spain looks to be paying the price the markets dictate as her bond yields go ever higher. How long before the Spanish bonds are rated alongside the Greek ones as junk status? The Germans are starting to rattle cages and even had Sarkozy retracting what he said only a month or so ago and bow to German pressure that EMU members could have punitive measures taken against them for failing to maintain EMU convergence criteria. I wonder if anyone pointed out that Germany is in fact in contravention to some of those criteria!

Merve the Swerve added to his lacklustre performance of late with a statement saying that the BoE has always had the 2% inflation target in its sights and would do whatever is necessary to get the economy back on track. The fact that inflation has been above that figure for most of the last 3 years............. He also went on to say the BoE wanted to withdraw the fiscal stimulus ASAP and a rise in interest rates would be the indicator. If we are to believe the economy is in the recovery position is this the best time to start raising interest rates? The markets reacted immediately to that tit bit and long dated UK bonds went up 2.65%! Course having access to credit lines by business is the real issue not really one or two points of interest! It would seem Merve and his cronies whilst they enacted the QE programme have no real plan to exit the strategy!

[Malcolm Robinson]

I know this is off topic slightly but I am getting really pXXXXd at the Yanks and the BP debacle! Yes it is a tragedy both in a humanitarian manner, due to the loss of life, and an ecological disaster but does that really allow for the overt Brit bashing we see from the likes of Congress and even the President? Yes they have to find a scapegoat but anyone with a gram of common sense would realise the last thing BP wanted was to see millions of gallons of its oil spewing out into the Gulf!

One recent attack at that congressional hearing really stuck in my craw, as the Chair of BP was, by any sensible measure, accused of killing Americans! At the end of the day this was an unfortunate accident and I have one question.............

How many Brits have been killed by premeditated 'friendly fire' from the Yanks?

Maybe Haywood should have had George Galloway sitting next to him!

[Malcolm Robinson]

There would seem to be one or two sleights of hand which might not have been picked up by everyone in yesterday's budget. The main one being the change from RPI to CPI indexing. At a stroke of a pen any increases in welfare benefits, pensions and tax credits will now go up by the LOWEST government figure measuring inflation. The difference is around 2%! Considering RPI would probably rise much more as soon as we start to get away from a theoretical base rate of 0.5% this move not only saves money straightaway it also caps rises to a criteria already, in my opinion, corrupted by overtly political moves as the last government changed the basket of goods weighed in the CPI figures! I hope everyone knows the meaning of obfuscation! This move disproves any claim our new government has in claiming to protect the poorest members of our society and their claim the budget is tough but fair for everyone, as Vince the Cable is finding out, is only lip service. It was claimed state pensions will be protected but they too will be affected by these measures!

[Malcolm Robinson]

How will our region fare..............

[Malcolm Robinson]

Just how long ago was it that we were being told Mr B had saved the western world by a quasi Keynesian trick of fiscal stimulus? We now see nations rushing to implement more and more austerity measures and I would imagine that will be the focus of the up coming G20 meeting. Ah the heady days of being able to borrow what you liked, spend it on what you liked and defer the first payment until the cows come home!

The Greek problem is a lesson and one we should learn with haste. Her bond issues are now yielding 10.49% , if they ever get repaid, good job the ECB will take them off anyone's hands! Portugal's bonds have edged higher by a full 1% in her recent auction too but there is a more ludicrous part of the system to consider. Portugal has to take part in the EMU bailout of Greece and lend at a nominal 5% rate. As her bonds are now 5.89% that will make a loss of 0.89% on every euro! BTW Germany at the same time will be lending at 5% and raising money at around 2.35%, can mere mortals get a bit of that action please!!!!!

The ECB are now directly supporting the EMU banking sector, there is no more hiding behind talk of saving nation states! The increase in their lending to banks is way above any possible flim flam of political clap trap! Interbank lending is frozen and the ECB have stepped in to take the strain. The latest figure of E815B is almost double the last one of E480B with most going to Spain, Greece, Ireland and Portugal. This is in direct contravention of the ECB stated aim of reducing monetary stimulus! Trichet is going to need a spin doctor par excellence very soon!

There is a very important date coming up, July 1st. This should be when the ECB dissolve its Long Term Refinancing Operation (LTRO) which was instigated at the height of the crisis to provide liquidity. It has pumped about E442B into the system to increase liquidity and said this would end on July 1st 2010. As there is a 3 month note ready to go I would hazard a guess that might not happen!

We might feel we have been, or going to be, hit pretty hard in Osborne's budget, things could have been, or maybe still might be, a whole lot worse. The light at the end of the tunnel is a long way off!

[Malcolm Robinson]

There would seem to be some interesting murmurings concerning public sector pensions, an area I have long since held as the real elephant in the room! On the face of it these look as if the claimants have put the scheme together and in many ways they have! They are certainly out of sync compared with current private sector schemes where final salary schemes have either been stopped or members have increased premiums dramatically. It would seem the government want to use these very generous schemes to get savings in other areas? It looks very likely that if unions accept public sector redundancies and members pay in a little more these schemes will be continued. So that's around 9/10ths final salary index linked for life, sweet! We now have to consider the real costs and take into account the explosion in public sector employees over the last 10 years and not only that but the associated salaries as well! Gone are the days when public sector employees could claim they earn less during their working lives and see generous pensions as mitigation and as a reward for public service. I will qualify that statement however by saying the least paid in the public sector do have a legitimate gripe, but anyone above that level seems to have a pretty good comparable salary! I know there have been changes recently and that is why we have just seen a mass exodus of the great and good at NCC so they could claim enhanced packages but there are still some very real concerns.

This is of huge concern to ratepayers in our county as almost half of all jobs in our county are in the public sector and the largest employer is NCC! With a pension deficit of over £430M just for our county, or over £3,000 for each household considering just the NCC figures, this is quite a burden for local tax payers to have to endure especially as we will see cuts in our services and no doubt rises in rates bills! Looking at the latest budget NCC only just got through and the £14-15M of cuts, now followed by an extra £10M imposed by central Government for this financial year, this will bring the aim of budget savings over this and the following 3 years to around £100M! This year we saw rates increases which amounted to about £2.5M and cuts which took us up to those totals and what happened to the NCC pension pot, we paid in £5M, or about twice what was raised in rates increases, so in effect we are having cuts in our services to pay for pensions in the public sector!

Like charity, austerity begins at home!