Anthony Peters, SwissInvest Strategist
I have just returned from a few days in and around France which is cranking up to its Presidential elections (of which more in due course) but I was largely cut off from the office and even with the benefits of mobile phones, iPad apps and heavens knows what other ritzy technology, being away is being away and not at all like being there.
And so, as has been the case for such a long time, the easy to find headlines read “Stocks set to open higher on optimism over Greece settlement” which would shortly thereafter be replaced by “Stocks closed lower on Greek woes”. After 30 years in bond markets, I have yet to work out whether it is the journos who are too dumb to think of anything sensible to add when markets go up and down or whether equity investors are the Muppets who buy and sell such fickle bits of news.
Alas, the war of words between Athens and Berlin continues with State President Karolos Papoulias taking a swipe at the German finance minister Wolfgang Schäuble for him continuing to question the wisdom of committing €130bn to rescuing a country which will realistically never be able to repay it, but of which he even doubts the sincerity of the empty promises to do so.
The late masters of the finest English humour, Donald Swann and Michael Flanders (father of that most excellent BBC correspondent, Stephanie Flanders) once coined the phrase “Always be sincere, whether you mean it or not….” – it would appear that there is no Greek translation of that immaculate piece of advice. Since George Papandreou issued the stark warning to the eurozone partners that if they did not bail him out he would default, it has been something of a game of “chicken” which is being played out in front of us on a daily basis.
Whither democracy?
A new element has now been introduced into the equation, namely the one of whither democracy? Do the Greeks determine their own future or are they to be treated like slaves who have to obey the master – Germany is really no more than a pars pro toto here – and accept that the price of maintaining a standard of living they can’t really afford is to give the rich uncle a say in how the company is to be run?
The difficulty in answering that question is proven by the fact that we are still looking for the solution. Europe is faced with Hobson’s choice and doesn’t like it.
All things French and Societe Generale
Alas, back to France which was as compelling as ever – I have a huge love of all things French but I work very hard on not letting it be known too widely – and where a brief opening to reality is taking place. The results coming from the banks are miserable – SocGen’s numbers missed every analyst’s forecast by a multiple – as they dig into the safe hidden within the safe which is hidden in the strong room and where they have traditionally been tacitly allowed to keep their worst lending secrets buried until more opportune moments arise for them to be aired.
However, even my cleaning lady knew that the French had silly exposure to Greece and that the hit would have had to be taken in the 2011 finals. What has astonished has been the size of the write-downs which evidently indicates either incomplete reporting of the size of the exposure (bad) or disingenuous marking of the books in the past (worse).
At a time when Germany is questioning the sincerity of Greek rhetoric on its fiscal intentions, finding buried and camouflaged time-bombs in French banks’ balance sheets is not good. Questions as to the true state of government finances cannot be far away.
Somewhere in the past few days, I saw an article flash past me which suggested that France is the next Italy unless some significant reforms are introduced in both labour law and government finance. However, I already heard gripes that the infrastructure of which we here have always been so envious is already creaking. I took some time out and swung by the Centre Pompidou, Richard Rogers’ test-bed for the Lloyd’s Building in London, and what a shock that was.
Centre Pompidou needs TLC
What was once the prestige project par excellence looks tired, uncared for and in dire need of a bit of TLC There is money for capex, but running maintenance is becoming something of a problem. One client I met up with noted that the local rail system around Paris which was once the envy of the world has deteriorated and that commuting is now no more fun than it would be here in London.
Sarko had better think about scrambling into the loft of the Elysee Palace in order to dust down the suitcases
There is also a high level of cynicism with respect to the putative flagship policies of the Presidential candidates – no one seems to expect them to keep anything they promise – which will determine that the least unpopular will win. Sarko had better think about scrambling into the loft of the Elysee Palace in order to dust down the suitcases.
US recovery…
Meanwhile, on the macro-release front, US January Industrial Production and Capacity Utilisation both disappointed by flying in the face of all the other trend indicators. Any sign that US recovery optimism might be misplaced will probably drag a strongish market reaction with it; if fear and greed are the main drivers, then the latter has been alone in the pilot’s seat for the past seven weeks and the risks of both a technical and fundamental reaction kicking in together is quite high. There is nothing to be said against taking a few chips off the table at this point in time.