Three weeks off campus and what did I miss? That might be the question to which the answer is, “Loads!”. If I asked the question, however, as to what has really changed, the reply would surely have to be, “Not a lot, really.”
Has Greece been saved? From where I was sitting – internet connectivity on my little beach was the worst it has been in years and to suggest that it was “intermittent” would be offering it an undeserved compliment – it looked more like a case of handing the alcoholic another bottle in order to buy time before devising a recovery plan. Greece is today as bust as it was on February 6th.
I do respect the Syriza administration’s commitment to collect the taxes due and I wish it luck, but it must deal with a society which treats paying tax as a sign of failure. Even if successful, if you’re sitting at the bottom of a deep hole, changing a large shovel for a small shovel doesn’t do much to get you back out again.
Tsipras and Varoufakis have known all along the “political will” in Brussels would always win out over fiscal common sense in Frankfurt, so although it looked as though they were base-jumping without a parachute, they could do so with confidence that there was going to be a safety net down there somewhere. The fact that Spain and Portugal might be busily trying to cut holes in it didn’t particularly worry them.
Now, with their four-month extension in hand, they can play to the domestic gallery again. The rest of Europe is now beginning to feel betrayed. Jeroen Dijsselbloem tried to play hardball, as did German Finance Minister Wolfgang Schaeuble, but they found themselves derided and eventually overridden. Thus, to the question, what has changed, I can rest assured that the answer is, “Not a lot”.
Sputtering Chinese engine
Greece doesn’t make up too much of the world but China does. The PBOC undertook the second set of rate cuts on Saturday taking the one-year deposit rate down by 25bp to 2.5%, and the one-year lending rate by 25bp to 5.35%. This is another one of those “Not a lot” moments as the slowing of Chinese GDP growth continues. It’s not easy to tackle a property price boom, excessive local government borrowing and a rampant shadow banking sector without the economy losing some of the bubble momentum, but the administration finds itself between a rock and a hard place on this front.
The West – or at least parts of it – is beginning to see some light at the end of the tunnel after what was deemed to have been a seven year period of adjustment at the end of a debt-fuelled bubble. China is frantically trying to find a way of escaping the effects of an over-leveraged growth pattern without suffering the concomitant bust. I wish it luck, although I won’t be putting any of my money on its chances of success.
Janet Yellen and her merry men continue to pull markets one way and then the other with their opaque rhetoric of a tightening of monetary policy being close, but maybe not all that close. Although they never really admit to watching what is going on outside of the USA, they are as aware as the rest of us are that China is as much the engine pulling the world economy as is the States. Thus, to a greater extent than at any point in all our working life-times, America is as much effect on the global scene as it is cause.
Output in China is falling, albeit not precipitously, but at 7.3% GDP growth is, with exception of a six-month dip below that level during the depth of GFC, at its lowest since Q4 2001.
Whilst on holiday I ran into other travellers, many with a background in banking and finance, some of them now retired (lucky sods) who only have scant interest in day to day activity in markets but I found that to a man they had noted the McKinsey report on global indebtedness and all of them seemed much more concerned than live markets reflect, but does anybody sitting in the City or on Wall Street care? All around equities are on fire with one market after another making new highs following a principle of the more parlous the economic state, the more the stock market rallies.
Thus it is that Portugal’s principal index is up over 18% YTD, Italy is up 17½% and so on and even Greece’s ASE General index is 6.57% to the good, YTD. The Shenzhen Composite is up 17½% too – is that telling us that the economy is about to fall off a cliff or what?
I’d love to say it’s good to be back but my Mummy told me that it’s naughty not to tell the truth.
