OK so it looks like agreement was reached. After Von Rumpoy’s utterly pointless announcement (really just what was that all about?!), agreement seems to have been reached for the establishment of the EFSF, Greek default and bank recapitalisation.
The announcement was made at about 4am European time, so I do wonder what some of the final details will look like, but in the meantime here is a brief overview,
- The rescue fund is €1trillion
- Greek bondholders will have to take losses of 50%
- Banks will be able to use the EFSF (which is new)
- Italy has made more promises for additional austerity (let’s see if that happens!)
Overall my prediction of a week or so ago was correct. The Germans had to give way and allow the EFSF to be enlargened, while the French had to accept greater losses. This was only ever going to be the outcome of this negotiation, so all the posturing and brinksmanship was utterly pointless and ultimately counter-productive.
I still don’t believe this is going to be a long term solution. I maintain the position that a debt crisis is not solved by more debt. Zerohedge provides an excellent critique of why this will probably not work in the long run, but in the meantime this still represents an extra $1.4trillion about to hit markets.
I closed out my position last night, banking a miniscule profit. The sell-off I was anticipating didn’t look like it was going to materialise and I felt I was on the wrong side of the line. Getting out was an easy decision, but the question is now what to do.
Markets have rallied hugely overnight so it looks like the rally will continue. I am going to let the dust settle slightly before deciding on what to do. I think it advisable to wait until Monday and see the reaction then. Let the market have the weekend to digest the details of the EFSF and see if the gains are held. If they are then equities could well be heading for new highs in the coming months.
I am giving a quick update on my position.
This market rally looks surprisingly strong and makes me wonder if the market even cares if agreement isn’t going to be reached tonight.
Based on these comments from Herman Von Rumpoy, it looks like European politicians have failed. Von Rumpoy is the European Council President in case you missed it!
I have decided to up the stops on my position to their original position, but I fear the market is about to shrug off the latest failure. I am trying to figure out why this might be, but if I am on the wrong side of the line I want to jump sides quickly. Continue reading
The biggest threat facing the eurozone is not a Greek default or ensuing contagion. It is not the threat of a banking crisis or even the collapse of the Europe.
By far and away Europe’s biggest challenge is the downright dishonesty of its leaders.
The Euro should be a great project, but it is being exceptionally poorly managed. Two weeks ago Luxembourg’s Prime Minister Jean-Claude Juncker let slip in an interview that a haircut of 60% was being discussed with respect to impending bondholder losses from Greece’s default. This was immediately denied. Apparently the real figure was only 21%.
Yesterday Juncker made the same claim in Zurich and there hasn’t been a peep. Possibly this is an example of expert expectation management, but I seriously doubt it. Continue reading
I was very rash on Friday night. I jumped into that trade a bit too readily. Although I said on Sunday night that I would let it run, I actually decided to close it on Monday morning and took a small loss. I thought I would have the opportunity to get in at a better point and was proved right.
Jumping in and out of positions could normally viewed as compounding an error but in this instance I had already made a more basic mistake. I didn’t look at the system.
I suppose I just need to get back into the proper mindset, but you can imagine how annoyed I was with myself when I saw the following chart.
It is too late to be up on a Sunday night. I had one last look at the FT and saw this.
If the write is accurate and this is how the EFSF will be constructed, then it will fail. This might not happen as quickly as suggested in the article, but it cannot work in the long run. It is incredible to think that this is actually the plan!
I could well refer back to this link!
I’ve been watching developments in Europe quite closely in the last few days. As ever positive noises are coming out of the latest crisis summit, but we have to wait until Wednesday before we can trust what we hear (and it might even be difficult to do that then!).
One thought I have had today concerns the ongoing commitment European politicians have towards encouraging the banks to accept voluntary losses. I’ll be honest I really don’t understand this position. I appreciate that I am not party to what is actually going on behind the scenes, but this mantra suggests to me the adoption of a placatory air.
If I am right about this, then why do European politicians feel they need to placate the banks? Continue reading
You may or may not remember (care?) that I went long in August on the Friday night before the US Debt Ceiling debacle reached its climax. Even though an agreement was reached, the market crashed not long after, thanks to the indecision and lack of credible plan.
Although I managed to take a small profit then, I was definitely on the wrong side of the line. This was a shame as it would have been an excellent chance to short the market; right at the top!
Well tonight I am going short, in potentially very similar circumstances. Although I am still on a tight budget, such has been the level of discord in Europe’s corridors of power as to how to deal with Greece, that I no longer expect a deal to be reached this weekend. Even if one is put together it is highly doubtful it will be that spectacular. Added to the fact that we have seen a huge spike, based on earnings, this afternoon prices look nice and high that any disappointment could trigger a large sell off. Continue reading
Current events leave me feeling so conflicted. On the one hand I am staggered at the petty squabbling that policymakers consistently get involved in when trying to devise solutions to the Credit Crisis. Then on the other hand I have usually been appalled at what they have been able to come up with, when they have found common ground.
The headlines on this morning’s FT provide ample sustenance for my burgeoning schizophrenia.
Watching European politicians bicker over the bailout in response to the inevitable Greek default almost makes me wish for those heady days in July when the Obama’s White House clashed with Boehner’s Congress over the Debt Ceiling. I suppose in that instance they had a firm deadline to work to as the US Treasury was on the verge of running out of money. However in the case of Europe it feels like this mess is going to be never-ending. Continue reading
I really don’t have time to write tonight, but I had to do a quick piece about inflation.
Today we heard that it stands at 5.2% in Britain.
Inflation looks like it is about to become the big issue plaguing us all. Whatever happens in Europe this will only make the situation worse. With at least $2trillion in “stimulus” flowing through the financial system this has been pushing up prices for two and a half years.
I just cannot believe the Bank of England really believes this situation will be brought under control during 2012. So much for their role as guardians of the economy.
It really is time for substantial change at the top.
Sorry today’s blog is a bit lazy, and is copied directly from this Yahoo! Finance link. Yesterday Jean-Claude Junker let slip that the Greek haircut might exceed 60%, today he has announced the following.
Which statement do you trust most?
1 – “(Release) the next tranche, if that’s possible”
2 – “Ascertain the sustainability of Greek debt, otherwise we have to think about other steps that we can only take if we have given thought to all the consequences of those steps — to those outside Europe as well.”
3 – “Strict continuation of course of budget consolidation, with automatic sanctions for repeated failures to meet budgets Continue reading
I’ve just finished reading a fantastic interview in Der Spiegel. I came across this through ZeroHedge, one of my favourite blog writers.
I now have a new political hero, none other than Richard Sulik, the Slovakian leader of the Freedom and Solidarity Party.
Mr Sulik is not going to be a popular man amongst many European Governments but he speaks absolute sense. A debt crisis is not solved with more debt. If conditions of default have been met then bankruptcy must follow. The rules of the Euro must be followed for the currency to have a future.
I am convinced that we will see more politicians, not in Government, preaching this message across Europe as it is intuitive and powerful. We are not stupid. We know how bad the Greek situation is. We also know that the proposed plans are not solutions but delaying tactics. Continue reading
Will you resign if QE doesn’t work?
In this interview you categorically state that this policy will solve the crisis. If it fails you must go.
I’ve woken up this morning feeling equally bemused as I was last night. Then I saw this on the BBC.
The practical application of King’s theory is deeply flawed. Pre-crisis and pre-stimuli we could have been forgiven for thinking that QE might succeed. By purchasing assets from financial institutions the expectation that this would act as a mechanism for stimulating growth might, at a stretch, have seemed reasonable.
However it is clear that King does not grasp the inherently greedy nature of the people running these organisations. They do not care one iota for the importance of their social function and are solely interested in pay themselves as much as they possibly can. Continue reading
It’s funny how things can sometimes turn out.
Just over a month ago I was going to write a congratulatory piece about the state of Britain. George Osborne had just been congratulated by the IMF for the Tories’ deficit reduction plan and it seemed that the Bank of England was going to hold firm and not pander to market demands for further QE. My view about the health of Britain was then tempered by yet another terrible inflation reading, putting the rate at 4.5%.
Yet even so, Monetary Policy Committee member Adam Posen was still calling for yet more Quantitative Easing. I just couldn’t believe this would be the case. Continue reading
As markets took yet another beating, the end of day rally was quite shocking in its strength. I haven’t been keeping a close eye on markets in the last few days as I have been busy with organising the rest of my life. Had I the money I would have been watching more closely and I certainly would have bought the Dow at about 10,450.
By now you will of course recognise this number. It is indeed the Dow’s Primary Value Zone, as exemplified in the chart below.