Monthly Archives: March 2013

26th March 2013 – Is Jeroen Dijsselbloem high?

Throughout the Cypriot shambles I have wondered time and again whether or not Jeroen Dijsselbloem is high.

I’m not suggesting this just because he is Dutch but rather because of the incredible statements attributed to him over the last week or so. 

As President of the Euro Group, one would have hoped he had learned from his predecessor, Jean-Claude Juncker, about the damage ill advised statements can cause.  Remember Juncker was credited with the extremely revealing “when it becomes serious you have to lie” quote at the height of the Greek crisis.

Often contradictory, Mr Dijsselbloem’s position has changed time and again since the Cypriot measures were first announced.  He’s apparently swung from trying to calm fraught nerves, saying the action in Cyprus is unique, to advocating widespread wealth confiscation. 

However today he has outdone himself. 

This interview with the FT has to be read to be believed.  Continue reading

25th March 2013 – Do two thefts make a right?

Whatever happened in Cyprus was going to be shitty.

The cack handed attempts of the Cypriot authorities in implementing their proposed forced bail-in has been a sight to behold.  It would be amusing if the consequences for the Cypriot people weren’t so serious.

As things stand it looks like depositors with less than €100,000 savings will be saved the forced bail-in, while it is anyone’s guess how long the banks will remain closed or the capital controls will remain in force.  Announcing such a radical move as taxing all depositors, without having the necessary support in place to force the measure through looks more and more like policy stupidity of the highest order.  Yes it is true it is easy to be critical from a distance, but I would love to know the decision making process that was in place before last weekend’s announcement.

To compound matters I think the authorities are making a grievous error targeting Russian depositors.  I have seen figures quoted that Russians hold as much as €31billion in Cyprus’ banks.  There are obvious concerns about the origins of much of this money.

Apparently this has been the German insistence that depositors get taxed via the bail-in.  However I wonder if anyone has asked the question whether or not it is morally right to steal money, much of which appears to have been stolen in the first place from the Russian people? Continue reading

21st March 2013 – A win/win for Europe

This has been a most dramatic week in Europe.  The Greek crisis unfolded over a year, so by its (short term) conclusion we were all a bit inured to it. 

Cyprus has been an entirely different matter.  We’ve all been aware that Cyprus had problems, but the sudden deterioration of the situation has taken everyone by surprise.  The tax on savings has caught most attention, but what is perhaps more telling has been the hard line stance taken by the ECB.

After moving heaven and earth to keep Greece in the Euro, the Cypriots are being given the hard shoulderAnd then some!

No doubt there is much confusion in Nicosia at the perceived double standard, but my hope is that the ECB has learned from its mistakes with Greece and is sending the strongest possible message to Spain and Italy to get their houses in order.  The pending German election will also have been influential.

Apart from the widespread shock and loathing at the prospect of a tax savings, there is also a feeling that Europe is playing a dangerous game.  I’m not so sure. Continue reading

March 17th 2013 – Confiscation; the future of wealth taxation, but it might be fair…

News this weekend that Cyprus is forcing a “bail-in” to save the nation’s banks on savers by taxing deposits saved in banks has caused uproar.  For many this has come as a massive shock, but regular readers of Zerohedge will be familiar with this report by the Boston Consulting Group from 2011.

The severity of the bail-in has taken everyone by surprise.  Even depositors with less than €100,000 are being taxed 6.75%.  OK it is true that those affected are being “compensated” with shares in the banks being saved, but let’s face it those “investments” are most likely going to be shoddy at best.

Over the course of the day, the fury this proposal has elicited obviously shocked the politicians.  There was meant to be a debate and presidential announcement today, which was put off until tomorrow and I’ve just read that tomorrow’s bank holiday has been extended to Tuesday. 

A run on Cypriot banks now seems guaranteed no matter what happens.  The political leadership is just desperately stalling for time.  This move was always going to crush confidence and cause panic, but what was the alternative?

From what I’ve read so far it seems that bondholders are getting off extremely lightly.  Continue reading

14th March 2013 – Kyle Bass; Japan is circling the drain

Kyle Bass was the hedge fund manager who made his name and fortune correctly predicting and trading against subprime mortgages.  He now believes Japan is 18 months away from a major sovereign default.

This video presentation is a must watch.  

In summary Mr Bass delivers a damning indictment of the state of Japanese public finances.  This isn’t a personal attack.  It is based on the numbers and as he says the numbers don’t lie.

How this will all play out is of course anyone’s guess.  Consider the extraordinary responses of policy makers across the overly indebted OECD-nations in the last five years.  By rights the financial system should have collapsed, the Euro probably should have failed and the world would be a very different place.  This is not to say this won’t still happen.  I believe much of it will (though the Euro will probably survive). 

Among the many excellent points of this presentation one has really struck me.  Discussing the widely held view that Japanese nationalism and predilection for expressing patriotic pride through the holding of bonds is the saving grace of Japan’s vastly unsustainable debt to GDP ratio, Mr Bass cuts right through this.  He believes that when the crisis point is reached human instinct will trump cultural norms.  In other words expect to see a stampede for the exit as Japanese money managers desperately rush to move from Yen-denominated assets to whatever they can get their hands on abroad.

If this happens it will be violent, savage and quick.

Mr Bass is asked how retail investors can position themselves to profit from this.  He is very cagey in his response and basically says they can’t.  I can’t believe this is true and will be looking for opportunities as I agree with the assessment.  In the meantime I will pay heed to his overarching advice; buy gold, sell the yen and go to sleep!

I am very happy to be long gold at the moment.

 

***UPDATE***

I came across this article which is a rebuttal of the idea that Japan will default.  Make of it what you will, but it is an interesting counter argument.

12th March 2013 – Dissonance Theory; why we act against our own beliefs

I’ve just read this fascinating article on the BBC website about Dissonance Theory.  It is a succinct explanation of how people are able to act in ways contrary to their beliefs.

Say for example you aggressively pursue policies to flood a financial system with liquidity, saving it, allowing it to continue gorging itself on wildly excessive bonuses, even though you know much of what this financial system represents is the worst kind of unrestrained and socially corrosive behaviour…

That would be an interesting case study.

8th March 2013 – A partial explanation for US consumers’ reliance on credit

This chart helps explain why people have become dependent on credit to fund daily expenditure.

The divergence between productivity and real hourly wages is a topic not given enough attention.  In the real economy increasing price pressure on domestic budgets exacerbates this problem.  I don’t trust official inflation statistics that much.  All one need do is go to the local supermarket to see firsthand the rising cost of food.  

I’ll be keeping an eye on this set of statistics for signs of future worsening or improvement.  Sadly I still feel things are going to get much worse before they can get better.

6th March 2013 – Is the FSA Market Abuse Team fit for purpose?

For the last 18 months I have mainly been investing in AIM stocks.  Well I say investing, AIM is more about speculating and the market has been dreadful for most of the last year.  It is especially galling considering I am so close to having the full working trading system and have missed out on most of the latest Bull Run, which has no doubt made a lot of people a lot of money.

There is little point now worrying about this as my fairly heavy involvement in AIM has proven to be one hell of a learning experience.

At some point I will no doubt write a “rigged game” blog about AIM.  So much of what I have witnessed on this market has been contrary to the interests of realising genuine shareholder value.  When I first started speculating on AIM, I’ll admit I was much more naive than I am now.

Even so the actions of one particular company I have put money into have really gone beyond the pale.  I won’t say the company’s name or reveal any specific details, but I have been so outraged at their misleading RNS announcements, that I actually phoned the FSA’s Market Abuse Helpline to report them.

Bear in mind this is a company I have been following closely for a long time.  I had compiled a lot of information to support my claims, including itemised details of specific announcements I believe this company made that misled the market.

I spoke to a nice enough, but ineffectual, chap for about 45 minutes telling him my story.  I made some pretty serious allegations, but couldn’t help escape the feeling I was being fobbed off. Continue reading

3rd March 2013 – Statistics we cannot ignore; the inevitable debt crisis

I closed my position in the Dow. I was lucky to exit almost at the day’s low on Friday lunchtime, for a welcome profit.  I felt quite pleased with myself as the index went on to rally strongly from the lows, but the truth is I was lucky.  I read this piece in the morning.  It talked about the muted market reaction to the pending sequester.  The point that jumped out at me (and I simply cannot believe I hadn’t spotted this before) was that the planned $85billion monthly sequester cuts to public spending just so happens to be the same amount that the Fed has agreed to purchase each month in its asset purchase programme.  What a happy coincidence this is.

It’s no wonder the market doesn’t seem to care about what is going to happen to the real economy.  It doesn’t matter, for as long as Ben Bernanke keeps the floodgates open.  I reported last week Scott Minerd’s update in which he wondered how long the music can go on.

 At the moment the situation doesn’t appear acute.  Markets are rallying strongly, bond yields are towards record lows and unemployment is apparently under control (though still far from desirable).  Much of the talk is of recovery and new optimism.

However scratch beneath the surface and there is a lurking crisis of epic proportions.

While researching an article I recently wrote I came across this report by the McKinsey Global Institute.  It is just over a year old, but I would strongly advise reading it.  The figures are staggering. Continue reading