As you settle down this morning with your Starbucks and a Danish, please spare a thought for the people of Nepal. They were dealt a pretty crap hand, topographically, have had a Maoist insurgency to deal with, long after the home of Mao had given up on him and his rather crass ideology, have had to deal with the collective assassination of their royal family and have had a time, economically, which would make them dream of being as well off as the Greeks. And yet, they have soldiered on and have lived with half a country which can only be reached by foot. There is probably not much we can do other than to offer a financial donation to help this stoic people through a terribly tough time but let us do what we can.
It might be a cheap shot but we have our own earthquake building up here as the Eurogroup meeting on Friday failed to bring a solution the Greek dilemma much closer. The gridlock is now, near as dammit, total. What is telling is how now, under stress, there is growing disunity amongst the members of the single currency as to what to do next.
Slovenia’s minister of finance, Dusan Mramor, called for a “Plan B” to be contemplated, namely the one which is targeted at managing a possible “Grexit”. The proposal was dismissed. In response, the Italians through Economics Minister Pier Carlo Padual, declared that a Grexit would open the door to the impression that the single currency was reversible and the French, through Michel Sapin, stated categorically that “there is no Plan B, C, D or E”.
I see the big countries pulling rank – the French have always been good at committing other people’s money to in pursuit their own ideological orthodoxies – while the little guys are trying to work out how come they have struggled through, only to be penalised for having succeeded.
There is an old bon mot – not a very serious one – which suggests that a fine is a tax on getting it wrong while tax is a fine for getting it right. Who can blame the smaller economies such as the Slovenia or the Baltic States of Lithuania, Latvia and Estonia for wondering what it is that they did to deserve to be hit on to support a Greece which is stubborn, and truculent. What is that George Orwell said about all animals being equal…?
According to a recent poll, 72% of Greeks want to keep the euro but at the same time the Syriza alliance has a 15.2% lead. Err? Sure. Could the fat lady really be practicing her scales and warming up her vocal cords?
Grub first…
Meanwhile, the conflict between Russia, the Ukraine and the EU shows no signs of diminishing. The most recent development in Kiev was a stand-off between coal miners protesting for back-payment of wages which the government is making out to be funded by its enemies. There is no reason to believe that Moscow isn’t backing the protest but that does not detract for the lamentable state of the Ukrainian economy which cannot entirely be blamed on the military conflict in the East.
The country was an economic basket case going into the civil war and nothing has occurred which can detract from that fact. The EU is now in to this geo-political mess up to its ears to which a resolution will surely take a generation. It waded in, all guns blazing, at a time when it knew that it was faced with a major financial and ethical problem in its south eastern corner but, in typical EU fashion, it pressed ahead as though all was well in the garden. I can still see in my mind’s eye the pictures of Catherine Ashton, then the EU’s High Representative for Foreign Affairs and Security Policy, striding through Kiev as if she owned the place.
Europe is under siege. It has Ukraine in the East, it has the Mediterranean refugee crisis to the South, it has its own intervention in Libya and the corresponding after effects to deal with – one it can’t blame on the Americans – and it has growing internal divisions to cope with where it appears as though some of the smaller nations do not want to see the hard earned cash of their hardworking people being puffed away to satisfy the ideological dreams of some of the larger members. Bertold Brecht, a proud socialist and internationalist, coined the phrase “Grub first, then ethics”.
Doing the wrong thing for the right reasons…
Back in the world of daily trading, we still struggle with inconsistent numbers. US Durable Goods for March, released on Friday, were a case in point where the headline number at +4.0% blew the +0.6% forecast off the field but once aircraft orders were stripped out, the +0.3% forecast was missed significantly and reported in at -0.2%. If that doesn’t smack of inconsistency, what does? All that cannot detract from the Q1 quarterlies which still look okay and which are pushing stocks to new highs. That is ballsy stuff, especially given the coming FOMC meeting on Wednesday. The risk of the Fed tightening now are next to zero and although June 17 and July 29 are not off the table, the number of those believing that something might in fact happen at any of these next three meetings is diminishing.
The Eurodollar futures strip still looks ambivalent to me – I don’t like using forward rates as an indicator of what will happen as they are like a cushion in that they bear the imprint of the last arse that sat on them – and tells us nothing other than there are no rate cuts ahead. Well done those front-end traders. Front-end forward rates have been up and down like the proverbials since September which demonstrates that the market still doesn’t have much of a clue how to time the Fed. I’m not sure that Fed has much of a clue how to time itself either and I would be very surprised if we come out of Wednesday’s meeting with anything concrete.
Janet Yellen will surely speak of the now customary vigilance and data dependent action which is a circular argument which tells us nothing other than that they have nothing to tell us that all of us don’t already know and that although we know it, we are not quite sure what to make of it. On that basis, who can fault equity buyers for jumping on the default trade. Another case of finding it hard not to continue to do the wrong thing for the right reasons.
