Tuesday, 17 July 2018

Pondering eclipses, European history and demagogues

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  • Peters 475px June 2014

After this week we are still in the dark (and it might get darker)…

It’s been a funny old week and one which ends with a near total eclipse. Joking aside, it has been a week for the thinkers and writers more than it has for the movers and shakers.

The Fed has, in terms the timing of its first tightening move, not really helped us along the way. All we know is that it is coming but we’ve known that for a while. We’ve been told that it won’t be in April but we’ve also known that for a while. It has acknowledged that the velocity of economic growth is slowing. We’ve also known that for a while.

The Fed can’t afford to get its timing wrong and to tighten too soon. Although I have long favoured a speedy normalisation of the rates structure, I think the Fed missed what chances it might have had to do so in 2014 and now is not the time. Thus, I stick with my call that US key rates will at the end of this year still be where they are now.

History repeating itself?

There was recently a bit of a spat between the French and the Belgians over the latter’s striking of a coin to commemorate the impending bi-centenary of the Battle of Waterloo on June 18th. Today, March 20th, however, marks the 200th anniversary of the little Corsican triumphantly entering Paris and retaking his throne. How could it be, if one takes the time to wonder, that after the ruinous damage which Napoleon had done to France, its people and its economy during the endless wars which he fought after the breakdown of the Treaty of Amiens that he was received with such enthusiasm?

He had already be decisively defeated in October 1813 at Leipzig but it was not until April 1814 that he finally fell from power, abdicated and was sent to Elba. His triumphant return to France in February 1815, the ensuing “100 days” and his ultimate defeat at the hands of a rag-tag coalition army under the rather extraordinary leadership of Arthur Wellesley, 1st Duke of Wellington, is the matter of legend and one of the more exciting bits of history one learns about at school.

Why am I digging into this? Greece of course. Somewhere in liberal thinking, there is a blind spot which insists that the majority of a people will, as a collective, act rationally. There was nothing rational about the love for Napoleon – he totally bankrupted France and pretty much the rest of Europe too with his endless need to make war – but the desire of a defeated nation to re-find its sense of self-respect ended up carrying it into a second abyss. Germany’s equally total defeat in 1918 led to it embracing a man who promised it national resurrection. Elected in 1933 and with the help of Hjalmar Schacht, President of the Reichsbank, he created the mother and father of all Ponzi schemes. The outcome for Europe, adjusted for the massively increased power to industrially destroy, was similar.

The search for redemption

Greeks, too, are clamouring for national redemption and in the same way as France under Napoleon and Germany under Adolf were destined to crash and burn, so Greece is heading that way too. The anti-German rhetoric – it’s always somebody else’s fault – has gone beyond the funny and demand for post WWII reparations are fatuous demagoguery. I was highly entertained yesterday when I saw a note suggesting that some German wits are calling for Greece to be counter-sued for defrauding their way into the EU and the eurozone with faked up, fantasy statistics.

Today, supposedly, Prime Minister Tsipras and the creditor nations will strike an agreement of sorts. This can only postpone the crash and burn. Sure, much of the blame can be laid at the doors of the European partners who were prepared to believe anything they wanted to believe in order to further their pan-European dreams.

That the Greeks should have taken what was on offer with open arms is not unreasonable. What was unreasonable, however, was the rampant corruption in which everybody enthusiastically took part with impunity. I have already reported on friends in Athens who were accused of being total idiots for paying tax and now, when all is said and done, they have to humbly admit that they were, in the end, the fools. Greece’s tax-paying morale has not changed and will, in all probability, not change within a time-frame commensurate to the size of the fiscal black hole.

What is it amongst the European Panglossians that prevents them admitting defeat and from walking away? I’ll be interested to see what they come up with this time.

Further afield in the world of CDS indices, I received last night the closing comment from one trader which read: “You’d have expected the market to die when it was at the wides in 2009. To some extent it was needed then and had opportunities. Days like today show that actually it is slowly dying now at the tights, not only because of decreasing liquidity, lack of opportunities and concentration of positions but because as rules change and there is no need for it anymore or more accurately not in this current form and shape…. We shall see…. In the meantime we were wider today, stuff barely traded. Curves steeper. Roll tomorrow. After the Grexit, the Grexident joke…”

Charming, eh?


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. Tomorrow marks the end of the Six Nations and the final match will be a Twickenham at 5 o’clock between England and France. No prizes for guessing where I’ll be tomorrow at 5 o’clock. Remember Waterloo, chaps. Where you are and how you choose to spend your weekend is entirely up to you.

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