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Tuesday's comedy capers
Just when you thought you were safe, a last minute move from our dear friends in the US are spoiling the party. Moody's lowered the outlook to"negative" for the AAA ratings of Germany, the Netherlands and Luxembourg (!). Yes,you read this well, even our friends over in Luxembourg - with only 3 government bond emissions totalling a mere EUR 5 bio or a 15% debt/GDP ratio - can no longer enjoy the sympathy from the credit rators.
And also, those with negative short term yields are now being put on negative watch, contrarian to what the majority of safe players are thinking right now. No, excuse me, not all, because some are being sheltered by our American friends. And with the exception of Norway/Sweden, those which are sheltered right now are engaged in programs of mass quantitative easing an/or of Anglo Saxon nature: US, UK, Switzerland, Japan, Denmark. So the message seems to be print and shore up government bonds or print and weaken your currency in order to retain your credit rating. And if you play by the books, you will get punished, ma-ke no mis-ta-ke.
Once upon a time in the Far West, just before it was won, a conversation took place in the small town of Centennial. And it was a pretty straightforward dialogue amongst cattle farmers :
Amos : "Jim, Pettis boys shot Nate Pearsons and Bufe Coker"
Jim : "I know"
Amos: "Jim, they were our friends"
Jim : "I'll get my gun"
Or may be I would advise our southern neighbors to dig up some inspiration from the following movie trailer
10 Comments
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Philippe
On 24 Jul, 2012
Because you felt safe ? I didn't. I can't feel safe in a monetarized world.
You are, of course, right. US and UK should have been downgraded for quite a time. Switzerland should be on negative watch because of its financial sector and Japan for its slowly dying society.
Yet, Germany and the Netherlands are not the safe heavens their negative interest rates indicate they are. And the size of its financial sector is a real threat for Luxembourg's financial stability.
The time has come. The seals are being broken one by one. -
incognito
On 24 Jul, 2012
"So the message seems to be print and shore up government bonds or print and weaken your currency in order to retain your credit rating. "
Indeed, but tell me, what's wrong with this: (from the telegraph blog I posted yesterday):
"Secondly, both have the option of cancelling the bond issues purchased by their central banks using Quantitative Easing. In a stroke, this would reduce public debt back to less than 50pc of GDP."
Will such a drastic reduction of public debt , in se, lead to high inflation? Don't think so. Are there other strings attached to it? I don't see any. Do you? So what's the problem with it? Keynes said in the 1930s that mankind shouldn't be crucified on a cross of gold. Why should it be crucified on a cross of debt? So let central banks buy up government debt and subsequently cancel it. Problem solved:) However - and this is a real string - this should be a temporary measure and it should also be accompanied by measures to 'cure' the economy (higher interest rates). Otherwise, we will end up with a different kind of economy (and, in the end, maybe hyperinflation).-
incognito
On 24 Jul, 2012
http://www.financialsense.com/contributors/chris-puplava/global-qe-coming-let-gold-mania-begin
It is my belief that global central banks will be the buyers of last resort and will be monetizing the debt in massive quantities over the next two and half years.
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christof Govaerts
On 24 Jul, 2012
@incognito
I was just trying to make the point that in the eyes of international investors and certainly in the eyes of credit rators, you seem to be rewarded if you play star trek tactics. Conventional monetary policy is not rewarded any more, without being judgemental on this. This is just an observation. But have a look on Friday on my blog, it will all come clear-
incognito
On 24 Jul, 2012
I had and have the impression that you are a bit judgemental ('star trek tactics'), maybe you're right, maybe not; I believe that those who were against the 'cross of gold' in the 1930s, were right, however, it should have been a temporary measure, quod non (the closing of the gold window in the early 1970s launched the credit boom that is now turning into a bust of epic proportions)
idem dito, imo, for the 'cross of credit': we shouldn't be crucified on it, but be released from it (temporarily)
so, maybe the reason why conventional monetary policy is not rewarded any more, is that it is, in the current environment, contra-productive (the equivalent of sticking to the gold standard in the 1930s), survival of the 'fittest' (= best adapted)-
christof Govaerts
On 24 Jul, 2012
@incognito
with star trek I refer to boldly go where no one has gone before, the big unknown. I have other pre-occupations right now when all this would fail (I am not an advocate of chaotic dismanteling of the euro-zone, rest asure) but as I have said, you will discover this next Friday
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Will
On 24 Jul, 2012
Look at this, an eye-opener:
http://www.forbes.com/sites/karlwhelan/2012/07/22/the-secret-tool-draghi-uses-to-run-europe/-
Christof
On 25 Jul, 2012
@will
Yep, and we have been posting on the ecb forcing through monti the berlusconi fall as a quid pro quo for LTRO 1 and 2, also serving spanish banks. And the deal for Spain probablybaltersvthe conditions as well for ireland and rightfullyvso, see our blog some weeks ago same game , different rules.
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incognito
On 24 Jul, 2012
hoisington predicts even lower yields:
http://www.hoisingtonmgt.com/pdf/HIM2012Q2NP.pdf
confer:
http://advisorperspectives.com/dshort/charts/markets/international/N225-charts.html?Japan-10-year-bond.gif
