A post-Greece bounce, rollovers and "the changing of Lagarde"
US stocks had another strong day on Tuesday and it might surprise many that, despite all the volatility throughout the whole of June, the S&P is only down around 18 points on the month. With the right outcome in Athens, June could prove to be an up month which it certainly will not have felt like to most players.
Meanwhile, the banks seem to be moving forward towards something approaching a rollover. It is unclear whether it will have been only the loans which will be rolled over or whether it could be concluded that the banks have been too.
There now seems to be an inevitability about everybody backing down in the last minute. If the banks roll over, then the ratings agencies will likely have to do the same and we will have created Frankenstein’s monster — a world in which my word is no longer my bond, a world in which rules of borrowing and lending which have stood the test of time since the age of Hammurabi are no longer valid. First principles of business will be sacrificed on the altar of the Eurozone Project.
There can be little doubt that, had the founding fathers of the currency not been so brutally overambitious, we would not be facing the problems we are now. However, we cannot turn the clock back and the only credible solution will likely be to drive the project further forward.
Perhaps the single European economy beckons. However, what will not change will be the continuation of wealth transfer from the North to the South. Irrespective of what it is called, the Germans end up paying. This will lead to them playing with political fire but that is a subject for another day and maybe another forum. I refer to the works of Professor Sir Ian Kershaw, my tutor and mentor all those years ago.
Alas, half-year end is nearly upon us. I can’t think of too many traders or money managers who would have H1/2011 down in their books as one of their favourites but we have all survived it. We can only hope that H2 brings what we were all positioned for at the beginning of H1.
I would hate to be the headline writer who has to resist the desire to pen “The Changing of La Garde” this morning. I would like congratulate Mme Lagarde on her appointment as MD of the IMF. However, I was struck by the fact that in defeating Augistin Carstens she attracted the support of all four BRIC nations. This race had been billed as some sort of face off between the traditional leadership of the West and the emerging nations. If that had been the case, then one would have expected at least on of the BRICs to vote with the Mexican central banker and against the French lawyer. But they didn’t.
I suspect that Mme Lagarde will be succeeded by a non-European but the fight which was supposed to take place didn’t. I find myself asking whether the time has come to take the BRICs out of the EM portfolio, but then I think of the slums of Rio or Calcutta and know what the answer is. Nevertheless, I salute the BRICs for having put the need to deal with the European sovereign crisis ahead of political correctness. Anyhow, the gain for the IMF is the loss for France. One must wonder whether Mme Lagarde is using this unique opportunity to leave the sinking Sarkosy ship and is in the process taking out a free option to re-enter the French domestic political scene at some future date.