Saturday, February 25, 2012

What next ?

Iranian parliamentary elections on March 2nd . Will hardliners gain seats ? How will Israel respond ? Could Tehran cause trouble in Lebanon or the Straits ? Will I srael attack the enrichment facilities ? Oil price action and low equity volumes telling us this is the markets next fear . Greece and the upcoming LTRO forgotten - for the time being.

Tuesday, February 21, 2012

Kicking the can .

Supposedly an agreement in principle. More of a penultimate draft. No wonder Frau Merkel has so reticent in speaking out about it. All eyes now on the domestic German reaction and the way the polls swing . No doubting that this deal will be revisited after March 20th - probably sooner rather than later . €20,000 of bailout per capita and no final resolution in sight. Something in that number says this can't be right. To make it work three things need to fall into place . Greece has to return to growth. Without growth the agreement is meaningless. Then the Greeks have to accept the austerity the agreement stipulates . Finally, the next government has to stick by the agreement that has been hammereed out. In the absence of 1, 2 or 3 Greece will be back on the institutional radar screens by end Q2.

Sunday, February 19, 2012

Can kicking

The Dow close to 13,000 . Markets enjoying a rolling top. Most institutional investors in neutral , unsure what to do next . The positive momentum in indices driven by hope. Hope that Greece will avoid default, hope that Europe will avoid contagion, hope that the US is in the midst of a cyclical rebound and past the worst .

Dominating every investment decision is the question - Will Greece default ? The answer lies not only in Athens but in Berlin . In recent weeks a split has developed within the German cabinet over the strategy that should be adopted towards their southern € - partner. The Finance Minister , Wolfgang Schauble, despite being an ardent pro-European, has expressed open doubts about the Greeks commitment to reform . In this he reflects the views of a large percentage of the German population plus many in the Dutch and Finnish governments.

By contrast Frau Merkel is keeping her cards close to her chest. She wants to see how the domestic political landscape develops in the aftermath of President Wulff's resignation . Above all she is interested in retaining power at the next election. This , in the absence of her rapidly collapsing Liberal partners , might mean forming a grand CDU-SPD coalition. To this end she will adopt a ' bide my time ' strategy and avoid any grandiose gestures that might lose votes . It does no harm to have Germany talk tough .

As of today it is likely that Germany will back the €130 billion bail-out package for Greece. Euro scepticism remains a large, but still minority, view . The final vote within the cabinet will be taken on short term political advantage - German short term political advantage. For the time being no one wants to be held responsible for vetoing the expected bailout. Expect markets to rally further.

The real turmoil lies ahead, after the French Presidential elections in May.
Until then there are advantages for all concerned - Greeks, Germans, French, the EU Commission, Euroland banks - in preserving the status quo and kicking the can just a little further down the road . Even if , as expected, there is a debt swap , Greece , in the absence of growth, will be back at the centre of markets attention by the end of Q2. Default , but within the Eurozone , will be seen as an increasingly likely outcome .

Thursday, February 16, 2012

10 Questions

2012 is shaping up to be a year of big , performance defining, geopolitical calls . For portfolio managers, weightings in the greenback, the € , oil , gold and commodities will in large measure be determined by the following.
  • Will Greece default and trigger a Lehmann style event in the EU?
  • Will Iran create mischief in the run-up to the US Presidential election ?
  • Will the proxy war in Syria cause even more turmoil in the mid-East ?
  • Could unrest spread to the Saudi Eastern Provinces ?
  • What's the upside for oil - $120, $140, $160 ?
  • Will Hollande beat Sarkozy in the French Presidential election ?
  • Would a Socialist victory cause a rupture in Franco-German relations ?
  • Is it possible Germany will start to question its €-zone membership ?
  • How will the dispute between Argentina and the UK proceed ?
  • Amid defence cuts in the US and NATO. Is military weakness provocative ?

We'll start working through our take on each of these tomorrow.

Friday, February 3, 2012

Interesting .

Interesting 2011 number just released from Eurostat. 45% of all Greeks and 39% of Italians have never used the internet . This compares with 15% of Germans and 11% of Brits .

From Goldmans . The Chinese economy is growing so quickly that it adds on output equivalent to the GDP of Greece every 130 days.

McDonalds says that it plans to open a new outlet in China every day this year.

So far 59% of corporations reporting their Q4 numbers have beaten expectations. The average uplift has been 11.5%. Without Apple and AIG this would fall to just 1%.