Martin Fluck

Martin Fluck
Contributor since: 2010
Anyone who believes there is going to be a fiscally united federal Europe is delusional. Even if there was any political appetite for a federal Europe, it would take a couple of years of treaty negotiations, referendums etc. Ambrose Evans-Pritchard sums up things today:
The euro is not long for this world. We can only hope that the EU itself, also gets swept into the dustbin of history.
Seems like most people are on the same page. Of course, not all commodities have the same supply constraints. My gut feeling is that there are a lot of data suggesting that commodities will sell-off in the next year. Beyond that, let's hope that a break-up of the euro-zone provides some economic catharsis and the global economy can heal itself. Smash Finance raises an intriguing question - one which FT Alphaville reported on a lot last year. I believe they suggested that large Western banks were also warehousing lots of metal - to take advantage of the carry - and that this metal was therefore effectively off-market. What happens if all this metal also hits the market? Lower inflation for consumers in the US and Europe perhaps, and higher corporate profit margins?
Just to be clear, what I'm getting at is the risk of de-rating of Brazilian/emerging market equities, almost regardless of the profitability of the companies concerned (Brazil has clearly got enormous potential).
Aberdeen do their research rigorously, and place an enormous weight on the quality of management and strong balance sheets. But as they rarely make changes to their holdings, its up to their clients to take cyclical factors into account.
Richard, I look forward to hearing about technological advances in fusion. I think nuclear will make a comeback too, given that modern plants are a very different proposition to the older generation. Germany is now scrambling to fill the gap its nuclear power plants have left behind, with coal fired power plants!
Lots of great debate! I have to acknowledge that the economics for solar are better in sunny California than in Europe, and there will no doubt be some survivors in the industry. But why does anyone who disagrees with the environmentalist agenda always get accused of being a 'shill' for the fossil fuel industry? Gas Lands by the way is a totally discredited piece of junk propaganda, like Al Gore's an Inconvenient Truth. I sincerely hope technology can lead us to sunny uplands of economic prosperity, but in the meantime we in the West have to compete with Asian countries who are looking to coal for cheap power.
I'll have a look at Allianz. You'll enjoy Christopher Booker on the WWF:
Well, asking nicely is only one option. The easiest way to 'revalue' the Chinese currency is simply to impose tariffs on all Chinese imports into the US - forcing the EU would have to follow suit to avoid being inundated with dumped goods. Job done!
I'm visiting Dusseldorf right now, and I shall be doing some field studies in the Biergarten myself. You are, of course, right. Growth may merely slow a bit before surging again. Much has to do with confidence.
Thanks will look into the gold angle.
Also forgot to mention that the IMFs traditional remedy for countries in Greece's or Ireland's state would be devaluation as well as an organised debt restructuring.... Needless to say, the fact that there has been no mention of this from the IMF shows just how much it is now a politically correct subsidiary of the ECB.
I couldn't agree more. In the UK the media are debating whether the cuts are too much, and they haven't even been announced yet! Even then, they will not be enough to stop debt rising. If cutting national debt sensibly - i.e. by cutting taxes to stimulate growth while reducing spending - doesn't become a priority then you don't have to do much math to see that the public/state sectors will have to be done away with entirely just to pay the interest. Of course, the US can always cut its defence budget drastically....
Updating some of the aging infrastructure and creating smart grids is probably smart. And solar energy may one day be competitive, but offering absurdly inflated subsidies (“feed-in tariffs”) that force us all to pay solar producers between three and eight times the going rate for the tiny amount of power just doesn't seem to make sense right now. As Christopher Booker points out in his latest piece, solar’s contribution to the grid in the UK averaged 2.3 megawatts – so minuscule that it was barely a 1,000th of the output of one large coal-fired power station. There's more sunshine in California, but solar still amounts to little more than a token gesture.
I'm going to be doing a detailed analysis of Deutsche Bank shortly. Clearly Deutsche Bank are a giant in retail banking, but how big will their losses on sovereign debt be? I wouldn't invest in them because the risk are unknowable.
Once Greece or Ireland has to go to the IMF, restructures etc. - personally I think a German bail-out is a politcal impossibility - can there's going to be a chain reaction. Borrowing is going to become more costly for sovereigns across the board. Clearly the PIGS aren't going to be able to stay in the euro - but how long it takes for these countries to vote in governments that understand that is anyone's guess.
Not only do I live in Europe but I also speak fluent German and have lived in Germany for several years. Only 5% of Germany's exports go to China, whereas 11% go to Italy, Spain, and Portugal (exports to Europe are 40% in total). Austerity in Europe is not going to be offset by Chinese growth!
Where on earth do you get the idea that "the financial crisis appears to finally be subsiding?" If US banks were forced to mark to market their mortgage assets, most of the banks in the US would be insolvent. And in Europe nothing can stop a default on sovereign debt. Make short-term investment plays by all means, but right now technical chart patterns point to a sell-off in financials. Basel III is pretty much irrelevant right now.
The EU may have tripled its forecast for German economic growth to 3% for this year - but that's wishful thinking because they're scared the euro won't survive a double-dip - as they should be. Guess they're feeling a little silly now, as the ZEW index is a really reliable LEADING indicator. We now know that the record growth in the second quarter is well and truly over. "Signs are also growing that Germany’s economy, the engine of euro-region growth this year, is sputtering," writes Bloomberg today. German exports unexpectedly fell 1.5 percent in July, while factory orders slid, Federal Statistics Office and Economy Ministry reports showed last week.
Seems you're all as perplexed as I am about the lack of action. You'd think with an overheating economy that it might even be advantageous to revalue. It would reduce the cost of raw material for one thing, and improve the spending power of their citizens re Western imports!
Doing business in China profitably is really hard, because the Chinese government deliberately tilts the playing field against them in order to help Chinese firms. The European Council on Foreign Relations has now circulated a briefing paper to urge heads of state to take a more co-ordinated approach to dealing with China, in order to avoid the divide-and-conquer tactics practised by Beijiing. The paper suggests that China must be persuaded to finally drop the protectionist barriers that have remained in place despite the country's admittance to the World Trade Organisation in 2001.
The point I'm exploring here is that if the US wants a green economy, without destroying its economy, then imports from developing countries like China - that do not want to pursue a green agenda and pay for much higher electricity prices - will have to be made uncompetitive by imposing large tariffs on their exports.
After all, why is Spain shifting its energy subsidies from solar back to domestically mined coal? To create desperately needed jobs at home and not in China.
Thanks for pointing out hidden levers.
We'll see if my hunch is right. Hard to tell what Congress is going to do next these days! There are some good economic reasons why China is holding up an economic recovery - and distorting the global economic system. Going to do a summary of some very interesting research I've received from a leading UK economic research company on the subject. This is an excellent SA story on the same theme.
I'm all for free markets. And I'm sure ETFs on equities in big liquid stock markets do more good than harm. They do what they say on the tin. But the concerns about lending are genuine, involving as they do issues of counter-party risk etc that were brought home by the credit crunch. (I just wonder what is going on when the Bank of England which is usually pretty slow on the uptake decides to highlight the risks). And speculation can go too far. As an aluminium trader in the early 90s I remember the perennial squeezes that were attempted - and the Sumitomo scandal. All fair for the grown-ups in the biz. But when a couple of trading companies caused the spike in oil in 2000 and the truckers went on strike in the UK, and everyone ran out of gas - and you learn that panic buying means that sugar, toilet paper, milk, and bread are the first things to disappear from the shelves - that's another matter entirely. Markets are meant to bring prices into equilibrium not disequilibrium.
Thanks again for the comments. Wish I'd searched seekingalpha's database a bit harder. I don't think there's a risk for the Canadian banks at this stage, given the guarantees, but I imagine there could be some regulatory risk should thinks blow up.
Knowing Montreal and the Quebec market personally, there hasn't been a sense of wild speculation the last couple of years. Any overvaluation would have occurred before 2006/07. Given how depressed Montreal was, prices there may have just returned to where they should have been. Western Canada is an entirely different barrel of oil.
Moving onto a much bigger topic now... where have regulators, prosecutors etc got to holding Wall St to account, and where are they going?
I agree. What happens next in Canada hinges on global commodity prices. And whether growing demand from China will make up for any cyclical slowdown is anybody's guess. I do think that curbing the excessive amount of speculative money flowing into relatively small commodity markets may bring some prices down a bit.