Author Archives: plateaux
On Freedom
Japan to Follow Greece?
The debt laden U.S, U.K and Japan have one thing in common - their debts are denominated in their own currencies. Their currencies should depreciate in value, but it is unlikely they default on their debts anytime soon (that is, unless their central banks' printing machines are destroyed).
As their currencies depreciate in value (i.e. inflation), their ability to service their debts actually increases (while the peripheral countries of Europe cannot 'inflate away' their debts). So it is misguided to simply compare, for example, CDS spread of the UK Gilt with that of Italy or Spain (let alone comparing it with CDS spreads of corp. papers).
It makes sense to me when Faber says 'Rather than shorting JGBs, a better way to capitalize on Japan’s dismal future fiscal position could be to simply go long Japanese equities and short the Yen. As in the case of Mexican stocks between 1983 and 1988 the appreciation of Japanese equities should in future exceed the likely weakness in the Yen.'
Goldfarb on Obama
Let's be clear -- the Obama administration's position on Jerusalem is not clear. From the moment during the campaign that Obama declared "Jerusalem will remain the capital of Israel, and it must remain undivided," to the subsequent walkback, to the demand that all settlement construction in East Jerusalem come to an end, to the subsequent walkback on that -- nobody knows what this administration's position is on Jerusalem, least of all the parties involved in the peace process.
The only "achievement" this administration can claim is having driven the Israeli public into Bibi's arms, helping him solidify his support across party lines, and destroying President Obama's credibility with the Israeli public -- smart power.
While all this is very true, let's add one more thing -- the President's credibility with the palestinians has also been irreversibly destroyed.
The President’s yet another stimulus ?
While only 22% of the first stimulus (of USD 792B) has actually been disbursed, the President seems to be considering an another stimulus package. According to the remark made on last Friday in the Rose Garden, Mr Obama's economic team is looking at ideas such as -
- additional investments in roads and bridges
- incentives for making buildings more energy efficient
- additional tax cuts for businesses to create jobs
- additional steps to increase credit to small businesses
- an 'aggressive agenda' to promote exports.
1. Investments for roads and bridges should have been maximized in the first stimulus. See 2..
2. NO MORE ENERGY EFFICIENCY. It is too much already. The President should consider re-allocating money in the first stimulus away from Mr Chu to roads and bridges.
3. Is this new hire tax credits/benefit? I think the economists in the administration are smart enough to advice how difficult it is to implement an effective tax credits for new hires.
4. This might be sensible thing to consider, if the administration does not care financial institutions' health.
5. Exports promotion... Good, if the President promotes trade in general - and if so, is this stimulus? and if not, White House might be thinking that the trade war can be stimulus.
The biggest question, however, is why the President had to talk about all these NOW. These measures will not do much for the economy in the short term other than adding to already-huge national debt. With the two defeats in the elections and unemployment data above 10%, the President might have thought that Congress might come up with something which would be difficult for him to oppose, further undermining his control (if any is left) on Congress, and that he needed to be ahead of the curve. Alas, he is already behind the curve, had he not thought about the possibility of this situation coming.
Sheriff Merkel fired the blanks into the air and the Markets rattled
There was an uproar in the markets, following Germany's announcement to ban "naked short-selling" of stocks of certain financial institutions, bonds and CDS. The response, however, seems to be overdone.
For equities, "naked short-selling" has been banned in the US for quite sometime now, though its enforcement has not been entirely effective (it is obvious that it's very hard to enforce, if not impossible - even in Germany). One can still short sell the securities in question, or even should be able to short sell them naked if they are reasonably confident that they can borrow the securities (although I am not sure, at this point, how Bafin will implement and enforce the rules). The ban in Germany seems to be far less comprehensive than the restriction in the U.S.
As for the government bonds, the targets are limited to "debt securities that are traded on a regulated market". Derivatives, such as bund futures seem to be excluded from the restriction. Thus, the securities affected should be limited primarily to German and Austrian bonds listed on German exchanges. Big deal? No, not at all.
Also, CDS transaction volume in Germany is quite limited, so the ban should have little impact, if any. Most European CDS trades are taking place in the UK, and it is very unlikely that the UK FSA will follow suit. Even subsidiaries of German banks/funds in the UK should be able to trade "naked" CDS in the UK without restrictions. Given these, the "ban" is obviously a -- deliberately ineffective -- blank shot in the air and has little substance, if any.
So what's the buzz? It seems to me that -
I believe Merkel's move is just a symbolic one and directed toward the angry voters and legislators in Germany, for now. Also, I doubt if the German leaders really expected other EU members to follow (no one actually needs to, if it is a mere warning shot and nothing significant). I cannot think of any other credible explanation for the lack of prior "formal" consultations with other member nations or the Commission. Other version of explanation, given by Mr Wolfgang Münchau is that the German leadership is criminally incompetent, which I disagree. No sane person would expect French or Briton to follow German Blitzkrieg without significant negotiation.
Merkel is cautious and far from rash. She showed that she would play "sovereign" hardball as, for instance, Chinese government would do, if she so chooses. This time, it was just a symbolic move but another one might follow and if so, it might point to more direct conflicts between sovereign nations and the markets. If this is the case, the markets feared, quite rightly.