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  • Bloomberg calculations show Greece with a 58% participation rate for its PSI so far. Key levels to breach: 66% in order for any sort of debt swap (and subsequent bailout) to go through, 75% is the government's goal, 95% the level at which CACs may not have to be activated.   [View news story]
    I agree that naked CDS are bad news because they destabilise the markets (and are prohibited in the €-zone btw). But the original purpose of a CDS is to provide security for riskier bonds. Without the CDS instrument, how many peripheral bonds will be bought by private investors? I see the €-peripheral bond market jeopardised - or at the very least their rates make a significant jump should there be no form of protection available, especially after the behaviour of the ECB subordinating debt. I won't be buying Spanish bonds, will you?
    Mar 8, 2012. 10:42 AM | Likes Like |Link to Comment
  • Bloomberg calculations show Greece with a 58% participation rate for its PSI so far. Key levels to breach: 66% in order for any sort of debt swap (and subsequent bailout) to go through, 75% is the government's goal, 95% the level at which CACs may not have to be activated.   [View news story]
    I see it differently.

    Either they do not manage the 75% hurdle ( their offer specifically states, that they will not make the swap if less than 75% participate), then they don't get the bailout money -> bad news, though they are apparently liquid for some months yet,

    ...or they force a CAC and trigger a CDS -> bad news, should make plenty of banks nervous. CDS market lacks transparency. -> bad news

    ...or they somehow claim the haircut voluntary with a CAC, without CDS trigger, thereby killing the CDS as a viable financial instrument. Why hold default insurance, if their trigger is prevented by very dubious means. -> bad news.

    That small sell-off hardly constitutes pricing in the possible outcomes. At least not for Europe anyway.
    Mar 8, 2012. 01:52 AM | 1 Like Like |Link to Comment
  • 4 Trends That Could Derail This Bull Market  [View article]
    I'll give you a fifth (and sixth) reason:

    2% US growth fuelled by the double barrelled bazooka of QE and 10% deficit in an election year delivering dubious economic numbers. Imagine just one of these bazookas stops firing - and they will have to sooner or later and I logically predict post-election, then say bye bye bull.
    Mar 7, 2012. 06:35 PM | 1 Like Like |Link to Comment
  • Teutonic Tuesday: Italy, Germany, Goldman And Greece  [View article]
    The last time I checked, the Gini coefficient was much lower in Europe - including Greece than in the USA and the only tent cities I am aware of are in the US and in parts of Africa that are war torn. A bit rich really, for any US author to talk of war on the poor with the US as a quasi neutral observer. Ironic and laughable.

    The Greeks where just gifted billions and more will follow. This is just the prelude to a fiasco that I amongst other European taxpayers will have to bill with close to 50% personal income tax. Taxes I have to pay, so that they don't have to pay. Yes, I'm waging a terrible war on them, send me to a war crimes tribunal.

    Sadly, any comment coming from the US on equality and democracy carries little weight in Europe any more. Times really have changed dramatically in 75 years.
    Feb 21, 2012. 02:14 PM | 3 Likes Like |Link to Comment
  • Stocks: Blissfully Drifting Toward A Firestorm  [View article]
    Yes, ironic!

    €-skeptics have claimed the lacking possibility of depreciating or devaluation of their sovereign currency as the biggest weakness for the €-peripherals. These peripherals are now experiencing a similar effect through a weakening € (albeit to a lesser degree as much trade/current account movement happens within the €-zone).

    Granted, the €-zone is a mess, but it is not "getting worse by the day". We've been saying that for a year now and are just as far away from a collapse now as we were then. It's a constant worsening-improving cycle and should remain so for a long while.

    Otherwise I agree with the general sentiment. There are enough reasons to be bearish. Though North Korea or Iran hardly have black swan potential. It's the typical political posturing we have witnessed for many years now, China looks very well in control of its economy and BRICS like Brazil and Russia should continue to perform well given current and projected commodity prices.
    Jan 8, 2012. 12:07 PM | Likes Like |Link to Comment
  • A Stark Reminder Of The North-South Eurozone Divide  [View article]
    Yes, political decisions need a willing - or at least accepting populace. However with the economic outlook in Europe that dire, only the most delusional will believe that going on to the barricades may actually save their job. I believe the majority of Europeans have accepted the fact that austerity is needed. Higher taxes in conjunction with stagnant/falling wages and less public services will be accepted, because there are no savoury alternatives.

    I do suspect however, that this gives banks less leeway in dodging better regulation, avoiding higher taxation (financial transaction taxes) or ignoring curbs on bonus payments. Only a "we are in this together" environment will secure popular support for austerity.

    Political instability is a relative term. I cannot see any major political upheavals apart from fringe groups going on a rampage in front of the Greek parliament or larger mass demonstrations with little real economic or political impact. This is Europe after all. Imagine France implementing higher VAT and lower social security benefits. All that could possibly happen, is that the conservatives get replaced by the socialists at the next general election and who are just as obliged to implement austerity as its predecessors, because there are no viable political alternatives.

    In conclusion, there is very little political instability or social upheaval that needs to be priced in. There is however much financial and economic uncertainty that needs and already has been priced in.
    Jan 5, 2012. 07:47 AM | Likes Like |Link to Comment
  • In 2012, Buy EUR/USD As Reality Trumps Fear  [View article]
    Great article, thank you.

    It seems many Anglo-American investors find it difficult to differentiate in the Euro-zone. The performance differences in the Euro-zone are stark. Germany just announced its lowest year on year unemployment numbers since 20 years!! Those that are undifferentiated bearish on Europe, are doing so at their own peril. No one is claiming great years ahead, but constant talk of the imminent collapse of the Euro and the following calamitous global financial meltdown is becoming tedious and less believable.
    Jan 3, 2012. 05:45 AM | 1 Like Like |Link to Comment
  • The Markets Didn't Just Vote On The Euro Summit  [View article]
    Thank you for your interesting article.

    Yes, there was no resounding vote of confidence. But without a bazooka, there couldn't have been, nor is it likely for one to come. The €-zone has decided to take the German approach of fiscal consolidation and risking deflation and contraction, though accepting some concessions in regard to central bank intervention and autonomy. The ECB is likely to further provide liquidity on a relatively limited scale - relative to the Fed and BoE. Though I wouldn't underestimate the ECB role, who already seem to be the largest holder of peripheral debt. On the whole we can expect a series of steps, decisions, set-backs and months to pass before we can say we have safely stepped away from the abyss. Each one of these steps will have very short term market reactions. Only once markets have truly stabilised and we have seen some actual implementation of austerity and budgetary dicipline without collapsing economies, can we expect a major shift in market valuation.

    I think it is also important to note, that there are no quick fixes available, even the QE "bazooka" does not solve the underlying debt issues. The Fed hasn't and cannot fix public debt/deficits and neither can the ECB. And the debt issue needs to be resolved.

    As to the capital requirements of Santander, I wouldn't reach the same conclusion. As the largest Spanish bank, they hold the largest portion of Spanish bonds, which makes them vulnerable. It is on that position only, that the recommended capital requirements are so high. They are more much more a commercial bank than an investment bank, with strong participation in developing markets of South America. Their business practices makes them infinitely safer than pure investment banks. Their specific risk is tied into the € - and specifically the €-periphery solvency risk. Should Spain default, then Santander will be on very thin ice.

    Since Friday, it has become clear that € politicians will not let the € fail. A Spanish default would be such a scenario, that will be prevented at all costs. The €-zone can potentially use further tools to stabilize the money markets if need be. The € (or German) approach of not monetising debt (at least not on the US scale) is a different approach to the US&UK. Which one will eventually succeed (or be more successful) still remains to be seen and just because the finance industry would favour the Anglo-American approach, does not mean it is the right approach. Investment banks have consistently been proven wrong over the last years and even though their opinion is determining the market price and liquidity, the markets have often enough been proven wrong.
    Dec 11, 2011. 11:31 AM | 3 Likes Like |Link to Comment
  • Europe's Disastrous Summit  [View article]
    Yes, London is the financial centre, but London is just a location. I can move my offices to Paris or Berlin any time I want. There is little tying me to the city that other cities couldn't offer - apart from the Language. It has a very tenuous hold on that position.
    Dec 9, 2011. 02:22 PM | Likes Like |Link to Comment
  • Reuters reports 9 countries have joined the 17 eurozone countries in drafting a new treaty for fiscal union. That makes 26, leaving the U.K. as the only opt-out for now. It's important to realize 26 European parliaments/populaces have yet to have their say.   [View news story]
    Exactly who needs to listen to the 99%.
    Dec 9, 2011. 01:33 PM | Likes Like |Link to Comment
  • How To Invest In Europe  [View article]
    I agree in part with that analysis.

    I'd be careful with Germany though. In a € break-up scenario, you may profit from an increase in currency value a Deutsch Mark denoted equity investment may have, but I fear such a scenario would hurt German companies badly and affect their earning and therefore their share price.

    Germany has traditonally done well with a strong currency, but their export-oriented industry will surely take a nasty hit once the DM is seen as a safe-haven on par with the Swiss Franc.

    If could well be that the expected loss of currency advantage for their industry that they have enjoyed over the last ten years, will be priced into their stock to such a degree that the currency apreciation effect will be nullified.

    In conclusion, a €-breakup may not offer buying opportunities for German equity, though I agree in buying stock in peripheral € countries, once their currencies have markedly depreciated - with the caveat that I'm still wary of the belief that currency depreciation is the holy grail of export-fuelled growth. Its effect tends to get overrated in my opinion. (but that is worthy of its own chapter).
    Dec 7, 2011. 09:45 AM | Likes Like |Link to Comment
  • Weighing The Rest Of The Week Ahead: Eurozone Soap Opera, Summit Edition  [View article]
    Great article, thank you.

    As a central European, having lived and worked in various continents and countries, I am often astounded by the outright negative outlook Americans cultivate on Europe, the EU and the €-zone in particular.

    I feel your following paragraph will be dead on:

    "As regular readers know, by personal vote is for Sorkin. I do not expect a dramatic European solution --ever. I do expect gradual progress, which we are seeing on many fronts. When a reasonable solution has been achieved it will happen so gradually that it may not be recognized. The story will end and the series will fade away, leaving us to think about things like individual stocks and sectors and corporate earnings."

    Things in Europe tend to get done differently, slower, with more haggling, different voters back home that need tending, which is sub-optimal in the current circumstance and opposite to what the markets typically demand, but by no means a guarantee that no viable solutions can be found.

    The big bazooka might eventually come, but not in one big bang, nor in such a way as to alienate voters too much (especially in Germany), the S&P negative watch should even create a positive impetus for closer co-ordination and national interests should more likely play a subordinate role.

    The €-Zone stock markets have not recovered from the summer sell-off as much as the US stock markets have, yet they boast numerous companies as global, profitable and diversified as the Dow and therefore have more upward potential should the € crisis be solved. Obviously solving the crisis remains the big "if".

    Pricing in that risk correctly will be the deciding factor in the long run that determines whether an investment in European equity pays off or not. I personally feel the risk has been overpriced, as potential investors have fled the European markets en masse. Though one should not negate the effect austerity packages across Europe will have on growth and profitability for years to come. Key is to pick out those stocks that are less dependent on European markets.
    Dec 7, 2011. 08:33 AM | 3 Likes Like |Link to Comment
  • Markets Surge In Hopes Of Resolution - Inevitable Is Further Postponed  [View article]
    Which is nothing more than a survey. Without doubt valuable to interview those on the front lines, but without knowing the exact questions asked, I suspect the survey cannot prevent general European market sentiment to pollute the actual manufacturing picture.

    I prefer real numbers, especially if those greatly diverge from predicted numbers, as was the case with the lastest manufacturing orders, which where the largest increase since March 2010.

    Though their department for economics warned not to be euphoric and had this to say: "In der Tendenz bleibt die Nachfrage zurückhaltend", which means they expect further modest demands.

    So all in all a mixed picture, that is hardly anything to get exited about, but definitely not the forebearer of doom and desaster.
    Dec 6, 2011. 06:13 PM | Likes Like |Link to Comment
  • Markets Surge In Hopes Of Resolution - Inevitable Is Further Postponed  [View article]
    "While the markets are currently ignoring the fact that Europe is already in a recession and most likely a very bad one"

    at closer inspection you will find European economies to be growing at markedly different speeds. To speak of a very bad German recession is farcical.

    just in: "German factory orders +5.2% in October", growth in GDP estimated to be 2.9% for the year and a 200 billion current account surplus for the last 12 months and a govt. deficit of 1%.

    do those numbers tell us that Germany is in a "very bad recession", but the US isn't?

    Apart from the Euro and EU exposure, I must be missing something, because those numbers tell me a completely different story.
    Dec 6, 2011. 07:35 AM | Likes Like |Link to Comment
  • A Week Of Historic Economic Tragedy Ahead  [View article]
    Have a look at BASF trading at 8p/e. Siemens at under 10 p/e, VW looking good, ENI Italian oil very cheap. All in all much cheaper than comparable US companies, due to the € crisis markdown, yet just as global (if not more so) than comparable S&P companies. All those listed offer decent to excellent dividends too. Generally German DAX stocks have a strong global position and as an example, Siemens is the largest foreign employer in China, so for those not wanting to invest directly in China's growth, the DAX offers some alternative. Though those listed are hardly defensive and can be suseptible to cycles, especially companies like BASF.

    (yes, I am invested in these stocks)
    Dec 5, 2011. 07:45 AM | 1 Like Like |Link to Comment