Anthony Peters, SwissInvest Strategist
I admit to be slightly shaken by the way in which the Greek bailout package seems to be coming together all of a sudden. If it is implemented and if Greece does avoid default – well, default under the new definition which will have been created by the European authorities which is default in all but name…
I see yet another case of European reality suppression and problem postponed rather than problem resolved. If the country survives, then it will be more due to the rest of the eurozone closing its eyes for fear of what might or might not follow than for reasons of sound economic management.
The Greek economy is currently contracting at an annualised rate of 7% and without the ability to devalue in order to stabilise the decline, the country’s problems are set to increase rather than to decline. As Alpesh Patel, never one to mince his words, pointed out on the BBC this morning, the grand target for debt/GDP reduction set for 2020 is nothing better than where it was three years ago.
In other words, the aim is to spend the next eight years reversing the decline of the past three years which still leaves the country with a debt burden of 120% of – and this is where I struggle – a notional GDP of which we have no clue of what it is as it is still shrinking rapidly. Economic competitiveness will not have been improved and I see no outcome other than letting the country fall into deeper decline. More to the point, if gives all but the poorest and least educated Greeks extra time to pull their assets out and to lock their wealth up elsewhere. Keep an eye on the development of North London and Central London property prices – and I am not joking.
If Greece survives, then it will be more due to the rest of the eurozone closing its eyes for fear of what might or might not follow than for reasons of sound economic management
Alas, European risk assets recovered sharply during the course of Thursday’s trading day. Having started in self-immolation mode in the morning, the newsflow reversed the initial sell-off and by the close of business all was well again in the garden.
In the early morning the iTraxx Crossover index was trading around 650, having been trading at 593 just 24 hours earlier. By the close yesterday, the index was back to 618 and this morning opens at 588. The demand for risk does swing around a lot and probably not least of all as investors seek to escape the paltry yield levels provided by lower risking assets. John Maynard Keynes lost a significant fortune in the Crash of ’29 and subsequently opined that one makes money not by picking investments which are cheap, but by picking ones which are going to prove popular.
Although we are still dealing with significant economic uncertainty and risk assets would normally be a no-no for prudent investors, they are performing brilliantly. Inflows into high-yield funds remain strong as do those to related ETF products. Whether those who are committing cash to these investment products actually understand the risks or not is neither here nor there – if they promise to pay a nice return, investors will be found. Should that second, final Greek bailout truly come about next week, then all we need to do is to remember what happened after the first and final rescue.
On Cameron’s visit to the North
Meanwhile, on a more parochial level, David “Call me Dave” Cameron took a flight North yesterday in order to launch the Unionist campaign in Scotland. He looked as lost as a mathematician who has been asked to provide proof of an axiom while Alex Salmond was busily announcing that Scotland needed Glasgow Rangers which is in administration and, no doubt, he will soon be accusing the tax demands against it which have pushed it over the edge as being an English conspiracy to down a Scottish icon.
In an interview with David Frost on Al Jazeera, he said: “Obviously HMRC have got to pursue, in the public interest, taxation”. Very perceptive.
He went on to say “Equally, they’ve got to have cognisance of the fact that we’re talking about a huge institution, part of the fabric of the Scottish nation, as well as Scottish football, and everybody realises that.” Really? Why hasn’t he suggested that that other mighty Scottish institution and part of the fabric of the Scottish nation, the Royal Bank of Scotland, acquires it on behalf of the people – or would the limit on salaries and the fight against bonuses for failure cause upset? Today, Cameron is in Paris seeing Sarko. A much easier trip, no doubt, and a much better lunch too – no fried Mars bars there.
Today, Cameron is in Paris seeing Sarko. A much easier trip, no doubt, and a much better lunch too – no fried Mars bars there
Alas, it is that time of the week again. All that remains is for me to wish you and yours a happy and peaceful weekend. May it be warm enough not to have to salt the drive again, but not warm enough to have to wash the car yet. Just take it easy, relax and sod the Sunday papers’ attempt to explain what is happening in Greece and why; on second thoughts, maybe washing the car isn’t such a bad option after all.