Thank the Lord that it’s Tuesday because Monday wasn’t a day worth remembering. Sure, there was a certain amount of “quelconque” business going through with, amongst other, issuance from my old friends at Trafigura and a very, very plain vanilla US$2bn 10-year lower Tier-2 deal for Morgan Stanley but most of this could have happened on any other day of any other week.
Most of the time was spent, if not sitting around doing not very much, by watching screens and talking to other members of the investment community on the twin headline subjects of either China and Greece or Greece and China
Greece itself is now a matter of high farce with the government knocking on the doors of it local authorities and sequestering all funds not required by them to meet liabilities falling due within the next two weeks. I have no doubt that this act has nothing at all to do with government needing a spot of bridge finance – however much they might be able to round up will still only be a drop in the ocean – but it is a case of pure drama (Drama, the home of theatre is, incidentally, a small town in northern Greece) which Alexis Tsipras and Yanis Varoufakis are quite evidently staging more for the benefit of the spectators than in order to get their country out of shtuck.
There were all kinds of headlines popping up throughout the day, the best of which came from an unnamed (at the time) Brussels official who is supposed to have said that there was no reason why Greece should not be able to default without being forced to exit the euro. Actually, that’s not entirely crazy. I recall asking that very question in the early days of the first phase of the Hellenic debt crisis when wondering whether California, another region with significant fiscal challenges, would be forced give up the US dollar if, for its part, it were to default on its debts. I’m not sure anybody picked up on the question at the time but Greece is faced with pay or default, in or out dilemma which could possibly, I suppose, be reconsidered.
If, however, Greece were to default and not be ejected from the single currency, it would still be left with the problem of a deeply uncompetitive economy. You don’t cure a cold by amputating the patient’s nose.
For the best part of four years now the can has again and again been kicked down the road; we all knew it, we all laughed about it but we chose to buy into the notion that somehow a solution would be found. It had to be. Since World War Three did not break out over the Cuban Missile Crisis in October 1962, we have lived in the belief that the worst will not happen to us in the West that somehow someone will make sure it all turns out according to plan. This has caused complacency and some species of inability to handle crises.
ECB President Draghi has spent all of that time and more warning that he can create a favourable environment for reforms to be developed and implemented but he cannot deliver them himself. He will build the road but the politicians will have to drive down it. Huge strides have been made in Portugal and Spain which are structurally, if not perfect, a lot better than they were. Greece might have wanted to improve itself but it was in all probability too far gone to revive. The vanity of the Brussels Eurorati will surely prove in the fullness of time to have made things worse rather than better.
Greece has nowhere to go and the suggestion that if no agreement can be struck that the Siriza administration will call new elections is another piece of headline grabbing junk. Greece doesn’t need a new government; it needs a fresh start. It is this fresh start that Brussels seems determined not to grant it.
Chinese can kicking
China is, in its own way, not all that dissimilar. Yesterday’s cut in the minimum reserve requirement is of itself also nothing other than a can-kicking exercise. The deflation of the once bullet-proof property market has been pushing funds into equities which are now going into bubble mode. The unbiased observer can see that there are some chunky structural problems there as well but the wide-spread confidence that here to the worst will not be allowed to happen pushes markets to new highs.
Sure, there will be technical corrections from time to time but in the end they seem to prove to have been better buying opportunities. Thus, after a sharp down day on Monday, we find ourselves with the Hang Seng up by over 2% and the Shenzen by an eye-watering 3.85%.
Life is great but perish the thought that anybody should let reality spoil the party.
