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Tuesday, 24 October 2017

On Greek myths and Russian flirting

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Anthony Peters looks at examples of deception, decline and deflation.

January draws to an end and with it one of the more unusual months I have experienced in terms of price action and news flow.

In Europe, despite everything, and not entirely without the pretty aggressive help of the ECB, we go out with strong equities, strong credit and even stronger bond markets. The currency, on the other hand, looks sick but that is what the intention was, so I suppose we’d have to call that a success too. Parity on the way? Surely not against the yen!

It is of course stating the bleedin’ obvious when observing that Greece remains the joker in the pack. Three years after the first acknowledgement by investors that being a member of the eurozone did not of itself lead to growth and prosperity unless it was funded on the credit card, and that card was imbued with a joint and several guarantee from the other members of the single currency club.

That the terms of membership proved to be unclear was as much the fault of those who wrote them as it was of those who abused them. The question is whether the abusers did so in the knowledge that they were overstepping the mark. Was the actus reus accompanied by a mens rea?

If one casts one’s mind back and remembers the works of fiction which Greece’s economic statistics proved to be, then the answer is clear – lies, darned lies and even more darned lies. Under the eagle eye of the Troika much has been done on that front but I still wonder. We work hard on our analysis of the whats and the hows when it comes to trying to find a path to the outcome which we regard as being the desirable one.

Imagine being a property owner who bought a strip of land and built on it, only to find that you don’t have good title on the land, that the dream home you built is therefore illegal and that you are proud owner an asset which is worth nothing unless sold back for next to nothing to the party who sold it to you in the first place.

Imagine you are a Greek businessman – I am speaking of an old family friend here – who received a visit by the tax authorities. The tax official made it perfectly clear that the bigger the bribe, the smaller the tax bill. Had he not refused to pay up, he would now most probably be retired due to excess wealth. Instead he stood by his principles and those of his father and is today paying the price.

Let me put it this way: anyone who can convince themselves that recession and economic uncertainty lead to a reduction in low to medium level corruption would be well advised to review what they are smoking and probably turn themselves in. Narcotics Anonymous is open to all comers.

To Russia, with love?

Should the new possible love-in between the Athens and Moscow have us worried? During the Cyprus debt crisis it looked strongly as though Russia was going to fill the vacuum left behind by the Troika. In the event, it all came to nothing in the same way in which Russian overtures to a bankrupt Iceland never progressed beyond the rhetoric.

Moscow might be flag-waving at the new left-wing administration in Athens but it has no more the power to offer financial support to the Greeks than it has to stem the decline in the global oil price which, incidentally, settled yesterday at US$44.53, just 8 cents above the low hit the day before. Today the weakness persists. In other words, if any of the members of the Tsipras administration think they might have a white knight to the north-east, they might find that they have another thing coming. It’s Brussels of bust.

On a more practical note, deflation has now taken hold of pretty much all of the eurozone. The merchants of doom have told us that it is game over on the basis that all investment and consumption decisions will now go on hold. Is this just macroeconomic lore or is it a macroeconomic law? I would love to know if there is evidence to this effect and whether this was gathered in the 1930s, 1950s, 1990s and whether people believe that it still holds water in the “I want it and I want it now” consumption-driven environment of the early 21st century. Any suggestions?

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Alas, it is that time of the week again and all that remains is for me to wish you and yours a happy and peaceful week-end. This is the last week-end before the beginning of the Six Nations which kicks off with the clash between England and Wales in Cardiff next Friday. In other words, this represents the last opportunity you will get to finish all those jobs around the house which got postponed at the beginning of the Six Nations in February last year. Do yourself and your other half a favour…

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