Greece, the IMF trojan Horse and the 67-year-old worker from Aaschen

Weekend is (generally) the perfect time to disconnect from the markets, to spend some time with family, friends and… to read tons of finance books, articles and magazines (I hope my wife won’t read this, otherwise I will need to make public apologies too…). Last Saturday, this is what I got in my mail box:


- One DVD from lovefilm.com, a DVD rental in the UK that sends you by post movies from your online selection. It reminds me that I was proposed a while ago to put some money in that company when it was seeking for investors, I just didn’t and the then small start-up has now a turn over of hundreds of millions… Ahh there are so many ways to make a small fortune but that's so difficult to just find ONE! No regret: the (sad) truth is I don’t know a thing about Venture Capital, neither about Capital Markets but at least I pretend to.

- The last release of “Bloomberg Markets”, their magazine. The cover says “the Richest Hedge funds – Top-ranked manager David Tepper returned 117% with bank stocks”. Pfff, this magazine is of no interest unless you want to see adverts for the latest Rolls-Royce, Aston Martin, the latest $40,000-watch that provides a better time, how to get the latest technical indicator developed by a Japanese guy with 25 centuries of experience based on 153 signals on your charts or found out whether David Tepper prefers vanilla or strawberries ice cream. Just put it on the pile of the unread “Bloomberg Markets”, all with their plastic wrap: to be recycled… I’ve asked recently to stop the home deliveries but I understood it takes several weeks…

- The latest release of “The Economist”, more interesting (actually maybe I find it more interesting because I ordered it…). One of their leaders this week is about Greece and the Euro-zone and follows last week’s articles that started showing a pretty Bearish view on the situation around. The point they have been raising since the “PIIGS” hits the news headlines is that the best solution would be an IMF intervention. I guess that for a lot of Europeans, the thing with an IMF intervention is not only the humiliation that the Euro-zone would then face (this said as I write, Greece 5Y CDS trades at around 360 bps while the ones on Mexico or Brazil trades around 130 bps showing the markets price less risk in the “Emerging” countries than in the old and “Developed” Europe, so where’s the pride?) but more the consequences of letting the American Trojan horse enters into the Hellenic republic : we all know what happened to Troy once they let it in … What an irony of History it would be : the revenge of Troy!

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Excellent post my dear friend Saurous,

"The cover says “the Richest Hedge funds – Top-ranked manager David Tepper returned 117% with bank stocks”. Pfff, this magazine is of no interest unless you want to see adverts for the latest Rolls-Royce, Aston Martin, the latest $40,000-watch that provides a better time, how to get the latest technical indicator developed by a Japanese guy with 25 centuries of experience based on 153 signals on your charts or found out whether David Tepper prefers vanilla or strawberries ice cream" -

got to love your cheeky blogsphere personality! it is definitely marketable.

On a more serious note. You bring up many worth points to the table. Indeed the Germans should be thanking countries like Greece for enabling a weaker currency. But really, is exporting a good model for long term economic growth? Well perhaps for countries that are resource scarce there is leeway for argument, but looking at the case of Japan indicates that being export biased for long periods can be quite detrimental to long term stable economic growth.

I also tend to think that the nature of the depend extends much deeper into the political/sociological realm. Economically it is in Germany's best interest to help Greece, but the Eurozone still lacks that one unifying factor that the States have (be it cultural, political, ideological, nationalistic differences etc...). Though if the Eurozone can come out of this alive together in one piece perhaps it will strengthen the legitimacy of the Eur. Though History has shown a unified Eurozone is not so easy to maintain.

Short term Im still bearish, longer term, from a contraian perspective I'm still not sure what the catalyst would be, unless you really think this is rock bottom despite the UK worries and all of Europe being downgraded... etc.

As you said, patience my freind! may the trade be with you

-snapman

Snapman wrote:

Excellent post my dear friend Saurous,

"The cover says “the Richest Hedge funds – Top-ranked manager David Tepper returned 117% with bank stocks”. Pfff, this magazine is of no interest unless you want to see adverts for the latest Rolls-Royce, Aston Martin, the latest $40,000-watch that provides a better time, how to get the latest technical indicator developed by a Japanese guy with 25 centuries of experience based on 153 signals on your charts or found out whether David Tepper prefers vanilla or strawberries ice cream" -

got to love your cheeky blogsphere personality! it is definitely marketable.

On a more serious note. You bring up many worth points to the table. Indeed the Germans should be thanking countries like Greece for enabling a weaker currency. But really, is exporting a good model for long term economic growth? Well perhaps for countries that are resource scarce there is leeway for argument, but looking at the case of Japan indicates that being export biased for long periods can be quite detrimental to long term stable economic growth.

I also tend to think that the nature of the depend extends much deeper into the political/sociological realm. Economically it is in Germany's best interest to help Greece, but the Eurozone still lacks that one unifying factor that the States have (be it cultural, political, ideological, nationalistic differences etc...). Though if the Eurozone can come out of this alive together in one piece perhaps it will strengthen the legitimacy of the Eur. Though History has shown a unified Eurozone is not so easy to maintain.

Short term Im still bearish, longer term, from a contraian perspective I'm still not sure what the catalyst would be, unless you really think this is rock bottom despite the UK worries and all of Europe being downgraded... etc.

As you said, patience my freind! may the trade be with you

-snapman

Hey Snapman, thanks for your comment. Agreed on the lack of an unifying factor in Europe but more than political/sociological factors, I'd raise a mere technical one : the Euro construction is flawed as the Eurozone lacks of a common Treasury to cope with the type of situation we are currently facing. A Central Bank only is not enough. Europe would need to be able to get funding though the issuance of an unified Government paper. I think George Soros has been arguing in that way for a while now.
Now regarding the exports vs the long term economic growth. I'm not sure at that stage this debate matters that much : the recovery is still fragile and we (well they) need to make sure we get out of the crisis in a sustainable way by any means, and this before thinking about the longer term. As you know, I strongly believe that the rally since march 09 we experienced was only due to the supported USD weakness and to it only. As I wrote in another thread, I'm curious to see what the US reaction to the strength of the USD will be if any.

Sauros wrote:

Snapman wrote:

Excellent post my dear friend Saurous,

"The cover says “the Richest Hedge funds – Top-ranked manager David Tepper returned 117% with bank stocks”. Pfff, this magazine is of no interest unless you want to see adverts for the latest Rolls-Royce, Aston Martin, the latest $40,000-watch that provides a better time, how to get the latest technical indicator developed by a Japanese guy with 25 centuries of experience based on 153 signals on your charts or found out whether David Tepper prefers vanilla or strawberries ice cream" -

got to love your cheeky blogsphere personality! it is definitely marketable.

On a more serious note. You bring up many worth points to the table. Indeed the Germans should be thanking countries like Greece for enabling a weaker currency. But really, is exporting a good model for long term economic growth? Well perhaps for countries that are resource scarce there is leeway for argument, but looking at the case of Japan indicates that being export biased for long periods can be quite detrimental to long term stable economic growth.

I also tend to think that the nature of the depend extends much deeper into the political/sociological realm. Economically it is in Germany's best interest to help Greece, but the Eurozone still lacks that one unifying factor that the States have (be it cultural, political, ideological, nationalistic differences etc...). Though if the Eurozone can come out of this alive together in one piece perhaps it will strengthen the legitimacy of the Eur. Though History has shown a unified Eurozone is not so easy to maintain.

Short term Im still bearish, longer term, from a contraian perspective I'm still not sure what the catalyst would be, unless you really think this is rock bottom despite the UK worries and all of Europe being downgraded... etc.

As you said, patience my freind! may the trade be with you

-snapman

Hey Snapman, thanks for your comment. Agreed on the lack of an unifying factor in Europe but more than political/sociological factors, I'd raise a mere technical one : the Euro construction is flawed as the Eurozone lacks of a common Treasury to cope with the type of situation we are currently facing. A Central Bank only is not enough. Europe would need to be able to get funding though the issuance of an unified Government paper. I think George Soros has been arguing in that way for a while now.
Now regarding the exports vs the long term economic growth. I'm not sure at that stage this debate matters that much : the recovery is still fragile and we (well they) need to make sure we get out of the crisis in a sustainable way by any means, and this before thinking about the longer term. As you know, I strongly believe that the rally since march 09 we experienced was only due to the supported USD weakness and to it only. As I wrote in another thread, I'm curious to see what the US reaction to the strength of the USD will be if any.

well like i said short term out export is fine, but long term growth its not a good idea. And if you keep up bad habits its hard to break them then again like you said, the Eurozone lacks proper tools to deal with this situation (aka unified treasury etc).

I also believe that Soros was a big proponent on the use of Special Drawing rights all through 08. I wonder if he still thinks thats a feasible option.

George Soros wrote:

The most effective solution would be to issue jointly and severally guaranteed eurobonds to refinance, say, 75 per cent of the maturing debt as long as Greece meets its targets, leaving Athens to finance the rest of its needs as best it can. This would significantly reduce the cost of financing and it would be the equivalent of the International
Monetary Fund disbursing conditional loans in tranches.

http://www.ft.com/cms/s/0/88790e8e-1f16-11df-9584-00144feab49a.html?ftcamp=rss&nclick_check=1

Snapman wrote:

On a more serious note. You bring up many worth points to the table. Indeed the Germans should be thanking countries like Greece for enabling a weaker currency. But really, is exporting a good model for long term economic growth? Well perhaps for countries that are resource scarce there is leeway for argument, but looking at the case of Japan indicates that being export biased for long periods can be quite detrimental to long term stable economic growth.

One more thing, as you know I'm not an economist but as far as I understood, Japan at its top in the 90s used to be considered as the champion of Long Term planning, right? Its system would allow the companies to forget about the short term profitability as they rarely needed to get funding through the issuance of stocks or bonds and could focus on "strategic industries" centrally target by the government.
I understand too that Japan has been experiencing during almost two decades a "growth recession" meaning there has been still growth... just not fast enough.