Wednesday, 26 September 2018

On Greeks, grease and polls

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Anthony Peters takes a look at the holiday-shortened week ahead.

A four-day week ahead in the UK and many other parts of Europe and, many might agree, not a minute too soon. It also coincides with the end of the first quarter and, in Japan, year-end. The first three months of 2015 have been pretty bruising with some fairy random and unpredictable volatility as the two economic behemoths of the United Stated and Europe are for the first time in a century on totally divergent paths, as Japan falls back into its customary torpor and as China leaves us guessing.

Sure, the Europeans and the Yanks haven’t been in step for three or four years now but rather than beginning to realign, they seem to be drifting further apart. Mind you, if one takes the comments from the respective central banks for full, then Europe is recovering at the same time as the US is losing momentum in which case the correct trade to be playing would be that of convergence. I’m not too sure on that one. And you?

The eurozone is still trying to work out how come it is so deeply traumatized by finding that the mouse in the room has turned out to be an elephant. Today, Greece is scheduled to submit its latest reform proposals which would unlock a much needed €7.2bn funding tranche.

For years now, we have watched one set of unachievable promises by successive Athens governments follow the other They know they can’t deliver. We know they can’t deliver and the guys in Frankfurt, Berlin and Brussels know they can’t deliver and yet, time after time, they are granted the benefit of the doubt.

Why anything should be different this time around escapes me. Thus, I suggest, there will be just enough putative positives in whatever Alexis Tsipras and Yanis Varoufakis have to propose for E.Z. Moneybags Esq to agree to pursue, once again, the path of least resistance.

As far as Greece is concerned, we’re all just passengers now and cannot but sit back and wait to see what the high and mighty can cook up. Other than a few courageous portfolio managers who have taken some PA positions on Greece, I don’t see to many people with primary risk on their books although the fall-out, if something were to go wrong, is impossible to predict and despite the brave face which eurozone banking authorities have put on, will take us deeply into the realm of black swans.

Sooner or later Greece will have to be let go but I don’t have a strong sense that this is the time yet.

Greasing the markets

Meanwhile, the jump in oil at the back end of last week is beginning to fade again and having peaked at something just north of US$51.00 on Friday, it has been drifting back down again. At the time of writing, it had just broken back below US$48.00. That is, in mathematical terms, still 15% above it recent intra-day low of US$42.03 which it hit 12 days ago but in the greater scheme it remains pretty cheap. This should help to break the dismal run in equities although both the Dow and the S&P 500 closed in positive territory on Friday, not least of all because, surprise, surprise, the price of WTI had begun to slide again.

The greasy poll

Here in the UK the Prime Monster, David “call me Dave” Cameron, will today take a trip to Buckingham Palace to meet the Queen and to request that she dissolve Parliament. With that, the campaign for the General Election on May 7 officially begins although it has, de facto, been in full swing since the New Year. The sense is that despite all the jobs created and the rather clever looking recovery from the deep post 2008 recession, the two coalition partners have failed to gain significant momentum.

That said, I recall the early summer of 2010 when the press pack was baying for the coalition to collapse like a house of cards within 3 months, then 6 months, then a year and so on. You’d probably have got some pretty good odds on a bet that the coalition would see out its full term. If the Tories are wondering why it is that they have failed to benefit from their success, save a thought for the Liberal Democrats who will most probably follow their German counterparts into political oblivion. The idealism of the Yellow vote has been sacrificed on the altar of reality of government. The root-cause of the Liberals’ downfall will have been that they actually rose to high office only to find that a country can’t run on good intentions and moral rectitude alone. How sad is that?

The centre right in this country fervently fears a Labour victory and expects a Miliband-led administration to charge down the road which has brought on the near catastrophic failure to the Hollande led French left in both rounds of the local government elections.

For the uninitiated, the key difference between Labour and Conservatives deals with deficit and debt. The Tories will try to balance the budget as a whole, not that they ever will. Labour, on the other hand, wishes to balance the budget but excludes from that borrowings which are deemed to be for investment purposes. Their last leader and the previous occupant of 10, Downing Street, the invisible Scotsman who abolished the boom and bust cycle and who saved the world, dreamt up the idea of defining any spending which suited the cause as investment. We no longer spent on healthcare and education, we invested in them. On that basis, Miliboy could go down the same route and define pretty much everything other than military ordnance as an investment. That’s the scary bit. Apart from that, most of the election rhetoric is as hollow and full of the same wishful thinking as it has been for the past 100 years.

As Lt. General Brian Horrocks, played by Edward Fox in A Bridge Too Far is (accurately) quoted as having pronounced while briefing officers ahead of Operation Market Garden in 1944: “Gentlemen, this is a story that you shall tell your grandchildren, and mightily bored they’ll be.”

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