February 25, 2010
‘Don’t mention the war’. Greek Deputy Prime Minister Theodoros Pangalos should have heeded Basil Fawlty’s words instead of indulging in a ...
February 24, 2010
“Greece is just the beginning,” says Harvard’s Kenneth Rogoff. “A bunch of sovereign defaults” is coming.
Hyperbole? Another polemicist “not given to understatement”, as Martin Wolf said of Niall Ferguson last week? A recent Ferguson piece in the FT, headlined ‘A Greek Crisis is coming to America’, proclaimed that what was unfolding was nothing less than “a fiscal crisis of the western world” and that American government debt was “a safe haven the way Pearl Harbor was a safe haven in 1941", assertions that Wolf dismissed as “hysteria”.
As for Rogoff, he was one of the 20 economists who recently cautioned that the UK needed to waste no further time in cutting the mounting deficit. Of course, many disagree – 67 economists, including Nobel economists Joseph Stiglitz and Robert Solow, signed their names to a letter warning that premature tightening risked endangering the fragile recovery.
These conflicting sentiments make it easy to dismiss such contributions, to see such economists as political partisans and to see the entire debate as just another spat between conflicted freshwater and saltwater economists.
However, Rogoff, a former chief adviser to the IMF, is not given to Ferguson-type hyperbole and is hugely respected by economists from across the political spectrum (Paul Krugman, for example, has hailed him as “one of the world’s best macroeconomists”). He is one of the world’s foremost experts on financial crises. His studies of financial crises throughout history led him to correctly predict the collapse of “major” investment banks in 2008 while he has been pointing out for some time now that banking crises are typically followed by deep and painful recessions as well as government debt crises (the latter realisation seems to have only recently dawned on markets). His 2009 book, ‘This Time is Different’, examines financial crises in a myriad of different countries over the last eight centuries.
February 23, 2010
Inaccurate analysis of the state’s taking of a 15.7% shareholding in Bank of Ireland is riling Karl Whelan.
He notes that Fianna Fail’s Frank Fahey is assertin...
February 18, 2010
Gold is the “ultimate asset bubble”, George Soros told attendees at Davos last month, sparking fears that the precious metal might “tumble”, as the Telegraph put it. So what to make of the revelation that Soros Fund Management actually doubled its stake in gold in the last quarter?
February 16, 2010
Data regarding BofA Merrill Lynch’s latest monthly survey of global fund managers has just landed in my inbox and it's clear that risk aversion is back, with Europe the biggest source of concern to spooked investors.
Europe is the region most investors would like to underweight. Economic weakness means that 45% now expect no increase in interest rates this year, up from 19% last month. 51% of fund managers expect the Europe’s economy to grow in the next 12 months, down from 74% in January. 53% are underweight European bank stocks, a massive swing of 37% from last month, making it the largest fall ever seen in a single month. That collapse ensures the largest underweight reading since last March and it means that banks are once again the most hated sector among money managers. Financials’ exposure to Greece and other troubled peripheral economies is a concern, as is the fear that banks’ cost of capital will rise.
Further euro weakness is envisaged, a net 30% of respondents now seeing the Euro as the most likely currency to decline in 2010. The dollar, so unloved just a few months ago, is now the currency of choice – a net 57% are optimistic towards the greenback, the highest reading in 10 years.
Besides Greece, the other main story in recent weeks has been China and fears that reining in excessive bank lending will choke off the economic recovery. A net 7% expect China’s economy to strengthen this year, a huge plunge from January’s reading (a net 51%).
Other stats? Hedge funds have scaled back their leverage to less than one times from 1.33 times. A net 12% of managers are overweight cash. That’s up from a net 8% underweight in January and the highest reading since June 2009, when markets last corrected. And the UK, too, is a turn-off to investors. 31% are underweight the UK, almost double January’s 16% reading and within touching distance of the -33% recorded near the market bottom in February 2009.
"This month reversed, almost totally, excess optimism seen in January”, remarked Gary Baker, European equity strategist at BofA Merrill Lynch. “It’s a very fickle environment”.
Indeed it is. An accompanying research note from Merrill said that contrarians should be on the lookout for “US dollar depreciation, yen or Euro appreciation, global bank outperformance, tech sector underperformance, UK equity outperformance, lower bond yields”. However, while the about-turn in sentiment should be enough to “steady” markets, Merrill noted that two-thirds of respondents believed a Greek default was unlikely, with a last minute bailout viewed as the most likely course of events. In other words, the survey was “not yet pessimistic enough for an unambiguous contrarian buy signal.”
February 15, 2010
When markets go up, it’s because the government is doing such a great job at running the economy. When things go south, however, it’s all the fault of those horrid speculators.
The ‘blame the speculators’ line has been doing the rounds of late, nowhe...
February 11, 2010
One might not think it possible to beat the S&P 500 15 years in a row and still be an awful fund manager. It is though - Bill Miller has proved that, finally getting his comeuppance during the financial crisis as his dubious bets went awry and he confirms that he’s just another ...
February 10, 2010
Who are the most accurate and inaccurate market gurus? What have been the most historically reliable investing strategies? Do calendar-based market strategies really stack up? What works and what doesn’t in the stock market?
These and other question...
February 09, 2010
The S&P 500 is not yet in an official correction, having fallen by approximately 9% since the bears came out of hibernation a fortnight ago, but quants and technicians think that the selling is likely drawing to a close rather than the precursor to steeper drops still.
February 05, 2010
The PIIGS name (Portugal, Ireland, Italy, Greece and Spain) is a “somewhat unfortunate association for the countries involved”, Goodbody stockbrokers note this morning, given that contagion in a fiscal crisis leads to countries being convicted by association.
So unfortunate, in fact, that the FT is not allowed to use the acronym. Neither is Barclays, FT Alphaville adds, citing an internal bank memo asking managers to “please alert your teams not to use the acronym PIIGS in any written communication. Rather, they should spell out the acronym and say: Portugal, Italy, Ireland, Greece and Spain. Research Production globally have been informed to take out any reference to the acronym in question.”
What about Club Med as an alternative, suggests Alphaville blogger Tracy Holloway? Doubtless, Irish analysts would be happy with that one, given that it would seem to exclude Ireland from this most dubious of clubs.
February 04, 2010
With current debt burdens at near war-time levels “from Dubai to Iceland, Ireland, Greece, Hungary, Italy, Portugal, Spain, Japan, France, the UK and the USA”, as Willem Buiter warned, 2010 may be the year when sovereign financial concerns hit centre stage and bond markets compete with stock markets for headlines.
That was the conclusion in the last B&F Markets column of 2010. If anything, it’s looking like something of an understatement, given that upbeat corporate news from Cisco last night has been completely overshadowed by continuing concerns over sovereign difficulties in the Eurozone.
The Markit SovX Western Europe index tracks the cost of insuring against sovereign debt default in a various European states and, having yesterday exceeded 0.90% for the first time, topped the 1 percentage point mark today. Concerns are focused on the PIIGS - Portugal, Ireland, Italy, Greece and Spain. The cost of insuring €10 million worth of Greek debt rose to €417,000 this morning, up from €396,000 yesterday and almost touching last week’s record high of $422,000. Portugal’s insurance rose to €210,000, up from €196,000 yesterday, while Spain’s rose to over €164,000 from €152,000 and Italy’s to €137,000 from €131,000.
Sovereign debt crises are normal in the aftermath of financial crises, as Harvard’s Kenneth Rogoff has shown, and while Greece’s woes are well-known, Portugese and Spanish difficulties were highlighted this week after the former’s bond auction was scaled back and Spain admitted that its budget deficits for the next three years would be higher than forecast.
The FT’s John Authers notes that “once markets begin to lose confidence in a borrower’s ability to repay, it can become a self-fulfilling prophecy”, a lesson learned during the credit crisis and one that also applies to countries. The Wall Street Journal's MarketBeat blog makes the same point, saying that movements in the sovereign debt markets are “reminiscent” of the way the market reacted during the financial crisis, with the “spotlight of anxiety” moving onto other investment houses in the aftermath of the Bear Stearns rescue. That makes it “worrisome” for those who hope that a resolution of Greek issues would calm wider sovereign fears. “If Greece is supported, investors may strike until Portugal is treated in a similar fashion”, one analyst warns. “And then who is next–Spain?”
Of the aforementioned PIIGS states, Ireland has slipped down the worry list of late, courtesy of the perception that the government is ahead of its European counterparts in dealing with the situation. The cost of insuring 10 million of Irish debt has fallen from around 400,000 last year to approximately 150,000 this year. However, many continue to bet against Irish chances. A report from Data Explorers, a firm that specialises in tracking short selling activity, says that shorts in the sovereign debt market continue to target Ireland, even more so than Portugal and Greece.
February 03, 2010
“As goes January, so goes the year”. The so-called January Barometer is an old Wall Street theory that argues that the movement of the market in January predicts the movement for the year as a whole. With the S&P 500 tumbling by 3.7 % last month, are further falls in...