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Sunday, 22 October 2017

Re-profiling Greece

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Anthony Peters on the risk and euphemisms of the latest Greek salvation.

So I find myself at the end of my first week back in the saddle. What I have heard most during the week was “Welcome back. How are you doing? You didn’t miss much…” which only distinguished itself from the conversations I had after my long holidays in February by the addition of “How are you doing?”

Joking aside, the themes remain the same which, despite the passage of time and the shifts in the positioning, barely seem to be any closer to being fully resolved, whether that has to do with putting Greece to bed, really understanding what’s happening in China or coming any closer to a normally functioning bond market.

I found in my inbox this morning a comment written by a buy-side trader which once again bemoaned the difficulty of either buying or selling. Sure, we are in the dog days of August, even if the weather might make a visiting Martian believe it to be October, but I do have to agree that there comes a point when salespeople’s assurances that “the main trader is on holiday and his back-up is off the desk”, when heard for the sixteenth time, begins to wear a bit thin – especially when the one “off the desk” seems to have been missing in action since 9:30 in the morning and it’s going on 4 o’clock.

It looks as though Syriza is going to break asunder over the bail-out package and the Spliterati will be setting up their own party. But all that is of little consequence as the opposition backed the deal and with the bits of the Syriza block which backed Prime Minister Tsipras, it was a done deal.

The Eurogroup will assemble this afternoon and, as I have already noted, the bail-out will be waved through. You know it’s wrong, I know it’s wrong, the IMF knows it’s wrong, as do most of the countries who will find themselves responsible for providing the €85 billion. I’m not sure markets will be too keen to participate in the financing again as they were in July of last year when Greece issued €2 billion 3-year notes. Things might change but as we stand, I have yet to find a single real money investor who is prepared to give Hellenic risk another go.

Things might of course change as double-digit yields do have their attractions, although I struggle to find the first mover. Those 3-year notes, the GGB 3⅜ 2017, were trading a year ago today at 99½. Since then, they have traded down into the low 60s and are marked today at 83⅞. If you’d have sold them at the top and bought them back at the bottom, you’d have made a tidy fortune. Simples! Buy? Sell? Hold? Avoid!

I was charmed this morning when I heard that Michel Sapin, another one of those Enarcs who hops in and out and who is currently acting as France’s Minister of Finance declaring that Greece’s debt needs to be “re-profiled”. Don’t you just love that? Re-profiled? What’s wrong with “written off”? I guess growing old will need to re-profiled too and redefined as “de-youthed” or something nonsensical along those lines. Please, do me a favour.

 

Pumped up

Meanwhile, the oil market is as unpleasant a place to be as any other. The decline in prices has been as straight-line as it gets since the end of June when we were printing at US$60pbb for West Texas Intermediate. Last night, WTI settled on NYMEX at US$41.95 which has it trading through both the January and the March lows.

Do you remember being told just two or three years ago that we wouldn’t see it trade below US$100.00 in our lifetimes? I do and, quite honestly, I believed it too. All and sundry appear to be pumping their little heads off, even though the Saudis are calling loudly for OPEC members to let discretion rule. The IEA forecasts the glut, currently at a 17-year high, to continue as both Iraq and Iran seem hell-bent on making up for lost time. All this is going on just at a time when it looks as though China’s endless appetite for energy might not be quite so endless.

I have watched this competitive game of prices falling due to sinking demand being met by increased output by those who sorely need every penny several times in the past decades and thus have strong memories of the mid-1980 when one could buy a barrel of oil for a smidgen above US$10.00. The emergence of China as a major force on the demand side has increased the volatility which is seen equally in most other commodity markets.

I continue to believe that one of the market’s biggest problems, when it comes to forecasting anything other than lunch-time, is that research departments are working with the same models they have been for decades. The rise of China has, however, totally changed the dynamics but the systems we use try to treat it as just another, larger us which it isn’t. No matter how powerful your motor-bike, it will never be suitable for towing a caravan….if you get my drift.

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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. A-level results are out and please let me congratulate those whose progeny got the results they wanted. For the rest, you have the best part of three to four weeks before the rubber hits the road again during which the foot-shuffling of seeking a suitable university place for Junior can and must take priority.

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