Saturday, 22 September 2018

So much for principles...

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Anthony Peters on the capricious prime minister of Greece.

Today, Thursday, is sort of Friday with the US out tomorrow to take the day off in compensation for July 4 holiday falling on a Saturday. That makes today a short day too despite the shift forward by one day of the monthly Payroll Report so, if the figures were to sharply diverge from the general consensus figure of a 233,000 increase in the Nonfarm Payroll, it all could be a bit fast and furious.

That said, Wednesday was fast and furious enough as the chicken insisted on trying to instruct the fox on how it wished to be killed. Alexis Tsipras, backed into a corner, decided to come back to the lenders with something which looked not unlike a total capitulation in terms of concessions. If anyone had ever suspected that he might not be quite the man of principles who he had been trying to portray, yesterday offered up the irrefutable truth. There was even chittering that he had brought the referendum into play as a bargaining chip.

Thus, the grand rhetoric of democratic choice, calling on the people to decide and respecting the will of the majority went out of the window without, seemingly, a second thought. I think most will know the George Bernard Shaw anecdote in which he approaches a lady and asks “If I gave you a million pounds (I’m not sure it was a million), would you sleep with me?” She affirms. He then asks whether, if he gave her just one pound, she would also sleep with him. She supposedly retorts “Of course not! What do you think I am?” to which Shaw is said to have replied “Madame, that we have already established; all we are doing is arguing about the price….”

That Mutti Merkel and Wolfgang Schaeuble turned their backs on him and walked away – in Schaeuble’s case, rolled – is not surprising. Tsipras has been trying to and, in some cases, succeeding in holding some 330 million people in the other 18 eurozone countries to ransom for the past six months. Now, all of a sudden, he thinks that he can simply pop into a meeting room and say “Sorry chaps, I didn’t really mean it….”

Markets, meanwhile, don’t know what to make of it. We were brought up 30 odd years ago with the principle of “If in doubt, stay out” and if we failed to heed the rule we risked a proper old clip around the ears by the bosses. That has all changed and a climate of “If in doubt, buy the living daylights out of it…” prevails.

Markets are controlled by a generation of traders and investors – it is said in academia at least that people do their best and most imaginative work in their 30s – which has grown up and learnt the trade in a world where the central banks have always been there to make sure that Murphy’s Law no longer applies and that whatever can happen, doesn’t.

I hear one suggestion yesterday that the reason the Athens government is stalling is so that it might have a time window in order to print some drachma paper notes for distribution and use from next Monday. There is no question that the situation for Greece is deteriorating by the day. Lest we forget, if the country retains the euro as a currency and remains within the eurozone, it becomes the hated, blackmailing, unprincipled contrarian with the same uncompetitive economy which it had going into the crisis.

No way back

Tsipras might now be promising the moon and the stars but he has driven such a deep wedge between himself, his country and those who have been providing the funding that there is, in my opinion, no way back. If an agreement were now to be reached, the rest of the European population – it being the collective of taxpayers who are, who have been and who will continue to be those who’s cash has been – is being and will continue to be pumped into a ship with a hull like a Swiss cheese.

Whatever, risk markets were on fire yesterday with the DAX putting on 235 points or 2.15% after peaking over 100 points higher in the early afternoon. In fact, all equity markets did well with even the main laggard, the FTSE, putting on 1.34% which took it back into year-to-date profit. Even the iTraxx S23 Xover had a decent day closing at 310.25 after having been out at 338.20 at Monday’s close.

Inevitably, with this rally in risk assets, core bonds weakened again but the Bund, at 0.85% closed bang on the average level it had been at through the entire month of June. Panic, therefore, is apparently in the volatility around a fairly consistent core valuation of assets. The same, incidentally, goes for most stock markets.

The books will, however, show a nice positive start to the new quarter and that is something nobody will be arguing over.

If we were to see an agreement which keeps Greece in the fold, it will another example of what they say about a second marriage, namely that it is a triumph of hope over experience. If it were a choice between marrying again or keeping Greece in, I know which one I’d choose.

Keep an eye on oil. WTI closed last night a US$57.15, up 15 cents on the day. It is still below the May 19th level of US$57.26 and is now at risk of breaking through US$55.00 again. One way or the other, crude peaked on June 20th last year at US$107.26. From then and until it hit its low in January of this year at US$43.46 it had a significant disinflationary effect. That basis effect will drop out of the index as of now and we will have to begin to track its performance in detail at this lower level.

Thus, look for higher PPI and CPI readings across the industrialised world but don’t get spooked as they will not be reflecting rising prices as much as they will a decline in falling ones.

US closed tomorrow and Europe on hold until after the Greek referendum on Sunday. How they plan to do it is beyond me – I’m not sure of this but I was told that people can only vote in the place of their birth (that is in most cases a long way from Athens where half the population now lives) and that a 40% turn-out is required for it to provide a valid result – so all we can do is to continue to sit and wait in the knowledge that whatever the outcome, the thing is still far from over. Where are von Bluecher’s Prussians when they’re needed most?

Oh, and happy July 4th to all those transatlantic cousins. Enjoy the barbecue and if you fancy something a bit stronger than a can of Bud, why not try a glass of water?

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