Wednesday, June 16, 2010
So I hazard that's why the bailout is under discussion, because the ECB doesn't want all those Spanish bonds. Supposedly the Fed is going to be on the hook for some of this. Doesn't that just make the American taxpayer see red, white and blue stars! But never mind, the EU is "firmly"denying the reports. It does not appear that anyone believes the denial, perhaps because of stuff like this.
Obviously this will be some sort of special purpose vehicle (SPV) deal. So the big question is whether the countries participating will carry their guarantees on their Euro balance sheets or not. One guesses not, but that surely makes the Maastricht rules about deficits somewhat ridiculous.
As if it weren't ridiculous anyway that countries with debt larger than GDP are allowed to rack up 3% deficits under the rubric of "financial responsibility". The only way that would be financially responsible would be if trend growth were at 3% or above. This isn't happening in any of those economies. Germany can get by with 3% deficits (probably, as long as it limits its default guarantees), but don't tell me Italy and France can. This is not really about Portugal, Spain and Greece at all, although Spain's relative size and its recent disproportionate contribution to European growth does make Spain more of an issue.
We're not admitting this publicly. because it is so awful. Even Ackermann of DB was forced to come out and state that he had profound confidence that Greece would not default. I guess they threatened him with whatever happened to the German finance minister in the EuroFin Struggle meeting. This is reminding me more and more of the Cultural Revolution in China. Bankers are paraded onto the stage and forced to say whatever the crowd wants. It is true that instead of students in Mao suits the crowd consists of European politicians, but that's really not much of a difference.
US industrial production is very good, as was the last European IP reported. But that did not overcome the extremely bad US housing data. Also FedEx's profit statement is not helping US stocks.
Other matters not inducing optimism are:
- The situation in Japan. Kan is claiming they are going to stabilize Japan's funding needs, and the first estimates of what would be required to do so are coming in. There was a good Japanese services report, but the thought of such a large tax increase kind of offsets the good news. Nevertheless, the yen is rising for the same reason Treasuries are.
- A Nomura analyst announced that he sees the Chinese property bubble popping oh, right about now. In further Chinese news, Henderson was apparently faking some of its Hong Kong property sales, and has been forced to recant - or at least that's my interpretation. And yes, CICC is probably right about the jobs picture in China once the huge stimulus effect is gone. China has a plan, though. It is trying to build immense amounts of "affordable housing", which will both employ workers and ease the stress for locked-out would-be home buyers. We'll see.
- Italy has tried desperately to hold the line on its borrowing during this downturn, and is still trying to cut further. One of the proposals is to cut solar power incentives, but now Italian banks are claiming this would hurt them. Ooh, I feel interbank rates rising....
- German bankers DO NOT WANT the results of stress tests publicized. They fear "misinterpretation".Oooh, I feel interbank rates rising....
- Sarkozy is still struggling along trying to force fiscal responsibility on France. The latest proposal is to raise the retirement age to 62. I will be watching to see the French reaction, but if they burn enough cars it might be a net positive for Germany's auto manufacturers.
- European inflation is rising due mostly to higher import costs. Currency drops, prices on ex-Euro goods must increase.
- There's been little talk of this, but Canada is quietly experiencing a housing decline on its own. Canada's government finances are quite solvent, but this has been achieved by high taxation. One of the results is that Canadian household debt is quite high for an OECD country - reported at 145% debt-to-income - and late payments are rising in most consumer debt. According to the article, a recent survey found that 66% of Canadian households in the 18-34 range would get into trouble if they missed a paycheck for one week. In any case, Canadian savings rates were rising in 2009. So it is very important for the Canadian economy that the US economy stay in a growth cycle. I do not write about it much, but I do follow Canadian banking and NBFI news. Things like this have been a growing concern, as has the shift into riskier and less-qualified mortgage avenues. I am thinking that 2011 and 2012 will be bad years for Canadian housing. The effect of rising mortgage rates, high household debt income, and a spate of recent buying on variable rates indicate some rougher patches ahead for the Canadian economy as some households see their income fall due to higher debt repayments.
- The White House cleanup crew issued a statement saying that the president didn't really mean it about BP last night - perhaps because of stuff like this.
- Oh yeah - the Indian developments I was commenting on recently are getting wider notice. Inflation is up, there is a cash crunch due to the government frantically raising money, and the argument over rates continues. Tight money leads to higher market rates.
Loved the comparison between students in Mao suits and European politicians.
It would be absolutely, totally, and in all other ways inconceivable!!
September 18, 2007
David Taguas vs. Vizzini
public with the World Cup as a distraction.
Perhaps this is why the Swiss upset Spain today ?
their forecasts anyway ? They then get a nice
bump when they beat. FedEx ground is not
generating enough revenue yet and I think
that is where their future lies.
Anon - the analysts think they'll do better. The gap between the expected and the estimate was what startled folks.
Bob - there is a ghastly sort of humor in a lot of this.
Mark - We do not think they know what that word means. "Not mentioned in public" is not most people's definition of "inconceivable".
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