Monday, 24 September 2018

On Muppets, French agitation, freak rallies and gold plots

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The Muppet-in-Chief, Jean-Claude Juncker, Luxembourg Prime Minister and Chairman of the Eurogroup since 2004 – how one man comes to be in that role for eight years escapes me – has outdone himself again.

Anthony Peters, SwissInvest Strategist

As many of the stresses in the eurozone markets have receded over the past few days he, along with many others, is already spouting triumphalist nonsense again.

Having assured us all that Spain and Greece are on a good path, the added ”Greece will stay within the euro area”. That is an easy assertion to make, as long as the price of achieving this goal is paid for by others and these others are not told how much it will cost.

To some extent I can sympathise with the likes of Antonis Samaras when he spurts that he sees Greece changing “from a symbol of a failed political system to a symbol of a spectacular comeback”, especially given that, as predicted, the Troika has all but closed its eyes to the country’s equally spectacular inability to meet any of the conditions it had had set for it.

As a joke, I once bought my father a t-shirt which had printed on it: “Fathers are bankers provided by God”. He laughed but I’m not sure he thought it to be funny at all. I think the rest of the eurozone might now have eighty one million similar ones printed with the word “fathers” replaced with “Germans”.

Mutti Merkel and Wolfgang Schaeuble must be beginning to feel like the polar bears on the ice floe drifting south.

Never say “Nein!”

Their position is not being helped by French President Francois Hollande who persists in agitating against Berlin. It might not be unreasonable for the Germans to expect a quid pro quo in the form of some concessions in the bank regulatory edifice but Hollande, still on his uniquely French high horse, isn’t having any of it.

There seems to be a pervasive belief that the Germans will ultimately never say “Nein!” and that all the resistance rhetoric is for domestic consumption only. That Merkel and Schäuble might actually mean what they say hasn’t appeared on French radar yet and that is, to be frank, entirely their own fault.

Its well over two years since I first appreciated that Mutti did not want to go down in history as the one who broke the euro but any attempts to sit back and watch what the others might care to do to help – other than to push Germany to commit more of its taxpayers’ money – would appear to have been futile.

However, for once the ratings agencies were in the authorities good books. Moody’s affirmed Spain yesterday at Baa3, albeit with a negative outlook. This means that benchmark funds will not be obliged to unload the credit between now and year-end which a downgrade to junk would have necessitated and a relief rally of significant proportions set in.

Guvvies rallied and Spanish, Italian and Portuguese bank credit tightened by as much as 50bps in some parts of the curve as real money buyers screamed in to cover underweight positions and it looks as though this might continue for another day or two.

However, investors should clearly remain aware that this is a purely technical move and not in any way a fundamental rally and that therefore the recommendation must be to use the opportunity to lighten up.


Meanwhile, in a Hollywood-like news story, the FBI has picked up a 21-year-old Bangladeshi who tried to blow up the New York Fed, home of the largest single pile of gold in the world. Undercover agents had his measure and sold him a half a ton of fake explosives which he duly parked outside 33 Liberty Street, only to be frustrated when he tried to trigger the bomb and nothing happened.

I’m not sure what the boy was thinking but much smarter brains have done all they can in concert to bring down the US financial system and have so far failed to do so. I have already been wondering who will be looking for the film rights and, more to the point, what the movie will be called.

Any suggestions?

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