I’m not sure whether it is just a bon-mot or a quote, but if it is, I can’t say who hatched this pearl of wisdom but here we go: “If I owe a million, I have a problem. If I owe a billion, you have a problem.”
Greek Finance Minister Yanis Varoufakis is pushing the latter half to the limit. Having acknowledged that if he doesn’t find something better to say than “We won’t pay you back unless you tell us that we don’t have to” and that the Troika still has the power to shutter his country, he is looking for new ways out without breaking every election promise which brought Syriza to power.
The latest option which he aired in London was the suggestion to swap bonds which he has no intention of paying for notes which he will leave to the next administration not to pay. I suppose there has to be somebody out there who is pointing out to him that the same population which democratically chose not to suffer any further austerity is the same one which chose, democratically if you wish, not to pay taxes either.
Meanwhile, Alexis Tsipras is on grand tour, seemingly visiting every socialist government in Europe while trying to drum up support for his old rope for new money idea. This is the most divisive of policies in that he seems to have decided that splitting the eurozone and undermining consensus, in as much as there is such a thing, is the best way for him to go.
My view is that if he wants to go, he should go, but would he please be kind enough not to break up the rest of the Union in the process. Perhaps he should take a lesson in decorum from the late Captain Oates.
Enough, but as a parting thought, is Varoufakis’ proposal anything more than another dodgy gift borne by an even dodgier Greek?
Grains of uncertainty
My thanks to my commodity gurus, Piers Harden (another old dog who has been round the block a few times) and Simon Evans for some pretty original thinking. They write in their daily flash note on commodities, very aptly titled “Against the Grain”:
“So much has happened in January in the geo-political and economic sphere; the ECB changed the face of EU monetary policy; India, Canada and Russia, reacting to the changing situation, all sprung surprise interest rate moves; the Greek anti-austerity party romped home with a little help; inflation in many areas has turned to deflation; while in our sector commodity prices have indeed tanked; and as it is fashionable to do so add in China; that we question whether the month’s PMI data should not just be consigned to history. They speak of a bygone era, when the global economy led by the US was gradually getting itself to higher ground, away from the rising waters of uncertainty. Now, especially in Europe, attention has moved to a new set of uncertainties and their impact on the global standing.”
They go on to list a string of recent PMI releases from around the globe and conclude, “It is only a snap shot, not a scientific survey, with rises out-numbering falls by a factor of two, but the general picture is one of mediocrity.”
This was backed up overnight by the Reserve Bank of Australia which cut rates by a quarter point to 2¼%. RBA Governor, Glen Stevens, was quite clear when he said in the accompanying statement that growth would be weaker for longer and the jobless peak higher than previously expected. As a commodity exporter, Oz has suffered quite badly under the recent decline in prices, especially in iron ore. It has, however, also been hit by the latest round of competitive devaluations and was beginning to look a little lonely. Stevens would like to see the Aussie trading at US$0.75. As recently as early July it was at US$0.95 but as Piers and Simon noted above, the world has changed a lot in the past month and everyone has to adapt to the new paradigm in which weakness is better than strength and in any reason to join the race to the bottom will do.
Consensus remains that the Fed is in tightening mode and that all we have to do is to wait for the word “patient” to be removed from the post FOMC meeting statement before whacking the bid from all ends. A 1.68% redemption yield – as at this morning – on the 10-year note seems to me not to be exactly redolent of a market setting itself up for interest rate Armageddon. On the assumption that neither traders nor investors in the rates markets are exactly spotty-nosed geeks who believe everything they read in investment banks’ research pieces – which are as often as not penned by just such spotty-nosed geeks – I am happy to go with a market which prices treasuries just 29bp above the July 2012 all-time low of 1.39%. Could it be, perish the thought, the market ahead of the curve and the Fed at risk of falling behind it? The guessing game continues but let’s see first what Friday’s jobs report has to say for itself.
