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Monday, 18 December 2017

Papandreou, a chip off the old block

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Anthony Peters, SwissInvest Strategist

Trying to trade or to find value yesterday was tantamount to pinning the tail on the donkey with the Dax declining by 5% on the nose, the MIB by 6.8% and the iTraxx Crossover spinning out by 70 bps to close at 730bps. I would expect a reversal today in some shape or form and would be surprised if that Xover were not back below 700 by the close. George Papandreou’s shock announcement of his proposal for a referendum truly pulled the rug from under the recovery in morale and in asset prices.

Whatever victory speech Papa Sarkozy had had prepared for him to give at the Cannes G20 meeting, he can tear that one up. Nevertheless, the shock will be fading and given the levels of recent volatility, yesterday’s moves should not stick out in a crowd.

The best which Papandreou can offer them is a choice as to which side they wish to be stuffed from.

I was rather taken by a comment on the situation which came out of Jefferies & Co in New York and which was clearly penned by an American: “…It is basically another Greek blackmail scheme. The Greeks, led by Papandreou’s father, executed a blackmail scheme back in 1985 when they withheld a vote for Spanish and Portuguese membership in the EEC. Ultimately they received 30bn in EU funds for a yes vote. This type of action is very typical of Greek political leaders – like father, like son.”

I am not sure that I  wholly agree that the Prime Minister – he is still that today but in light of the impending confidence motion may no longer be so, come the weekend – is trying to blackmail the eurozone, for it has no more money to give but he may be blackmailing his own people. A case of death by BoBo?

However, it does remind us of the opportunistic nature of the Papandreous for I am just about old enough to remember George Papandreou Snr. being in power in Athens and can affirm that it is a case of like grandfather, like father, like son. Let’s face it, the people of Greece are, for lack of a fine academic term, stuffed. The best which Papandreou can offer them is a choice as to which side they wish to be stuffed from.

Meanwhile, back in the South of France, the G20 will be meeting with five European representatives, namely Britain, France, Germany, Italy and a delegation under Herman van Rumpypumpy and Jose-Manuel Barroso representing the rest of the EU collective.

Britain will continue to discreetly wash its hands of the eurozone crisis, Italy will be advised to keep its trap shut, the EU guys will have to be very careful because they are NOT representing the eurozone but the entire rest of the EU which leaves it to France and Germany to bat alone for the eurozone – and I feel that they have now lost control of whatever they might at one point have had control of. The image which springs to mind is of a team of people trying to find a way to cover a ten square metre hole with nine square metres of cloth. No matter how imaginatively you cut it and stitch it, you can never quite get there.

MF Global fallout

In the matter of MF Global, I understand that lawyers for the company have declared that all client funds are accounted for and that the rumour claiming that up to US$1bn could be missing is unfounded.

Many comparisons to the demise of Lehman Brothers were being drawn but I must say that I am more drawn to seek similarities to the collapse of Long Term Capital Management where it was the mark-to-market on leveraged government bond risk which brought the firm to its knees. You might recall – if you are over 35, that is – that the banks which came to the rescue by and large made good money on their investments.

Also, the myth that Lehman Brothers was not rescued in 2008 because it had not participated in the LTCM bail-out is false. Lehman was in, albeit in a smaller amount than many, and it was Bear Stearns which passed. Finally, for the memory bank, it was Jon Corzine’s close involvement with LTCM which helped Hank Paulson oust his Goldman Sachs co-chairman from the company – only for the former to pitch up you know where. I suspect that whoever acquires MF’s eurozone sovereign debt book, and who can absorb the mark to market, will do as well as did the firms which at the time stepped into the LTCM breach.

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