- Your history
Wednesday's dry toast - A communication error
In our recent blog conversations, we were already alluding to this inevitable happening and I am afraid we have arrived at this point (already intra-day yesterday). The Spanish yield curve has inverted, meaning short term yields now being above the levels of of the longer part of the curve (7y+). Under normal conditions, this could point to business cycle peaking and/or short term inflationary pressures, but with the central bank being in control in raising short term rates and securing the fact that inflationary pressures will subside in the medium term (lower longer term yields). Under extraordinary conditions, such as is the case right now, it means that markets are not even willing to hold your short term paper any more and ask for a substantial risk premium and/or are pricing in a devaluation risk in the short term. It's no longer restricted to a liquidity issue, it has become a currency/solvency issue as well. And we saw this happening in the past with Ireland,Greece and Portugal and at each occasion it didn't bode well. The Spanish 2-5 year part has suffered a lot and has moved up across the 7% frontier :
So it's decision time for all the players involved. We have currently a stale mate with Spanish authorities in denial again, thinking that for the n-th occasion they can convince the audience by saying "all goes well, nothing to worry about". On the other side of the spectrum, we have an ECB which can't/won't intervene on the markets and a bazooka not strong enough to support the whole construction. A game of chicken being played to the end but what's left for short term survival ? Should we bank on some powerful sovereign wealth funds or reserve rich countries (eg China-Japan) to come to the rescue and buy up our debt ? In their framework of thinking - currency wars - it could fit the picture quite well. Unfortunately, we do not spot a lot of enthusiastic buyers out there .
A final communication yesterday evening, quickly withdrawn from the website from the Spanish Ministry of International Affairs, sounded as follows : Spain, France and Italy urgently demand the immediate execution of the agreements stemming from the latest EU summit. No, we are not in panic mode.
http://twitter.com/charlesforelle/status/227796836721770496/photo/1
44 Comments
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FV
On 25 Jul, 2012
"Only a rapid euro-fall could save Spain" : http://www.ft.com/intl/cms/s/63848d68-d578-11e1-af40-00144feabdc0,Authorised=false.html?_i_location=http%3A%2F%2Fwww.ft.com%2Fcms%2Fs%2F0%2F63848d68-d578-11e1-af40-00144feabdc0.html&_i_referer=http%3A%2F%2Fwww.ft.com%2Fhome%2Feurope#axzz21cThBhfZ (Feldstein, FT)
Ook Krasting was die mening al toegedaan : http://brucekrasting.blogspot.be/2012/06/devalue-euro.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed:+BruceKrasting+%28Bruce+Krasting%29
Quid ?-
Philippe
On 25 Jul, 2012
This is the point of view of Anglo Saxon finance. I suppose that they think that a rapid Euro fall / breakup would cure all problems on this earth. A rapid EUR crash would enable them to grasp cheap assets, maximising the value of their holdings in artificially inflated GBPs and USDs.
Please understand I may think that a revolution and the separation of both banking activities ( deposit& credit vs casino) and top bankers ( head vs body ) would provide an even better solution ?
Both are in fact unacceptable acts of violence. the first is actual and current, perpetrated against the peoples of Europe ( and don't tell me it is not orchestrated up to some point ). the second one of the possible outcomes of the first, if the states do not awake to their obligation to protect their citizens. For the moment thus a remotely unprobable one.-
christof Govaerts
On 25 Jul, 2012
@Philippe
Hence the current acceleration in the debate on banking supervision (and giving the ESM a banking licence asap)
http://www.bloomberg.com/news/2012-07-24/eu-rushes-to-make-ecb-single-bank-watchdog-in-race-to-save-spain.html
http://www.bloomberg.com/news/2012-07-25/ecb-s-nowotny-sees-some-arguments-for-esm-banking-license.html-
Philippe
On 25 Jul, 2012
@Cristof
Why does this remind me about Byzantine nobility discussing the nature of angels while the Turk armies were beseiging Constantople ?-
christof Govaerts
On 25 Jul, 2012
@Philippe,
Don't tell me, tell them !! :)
Like I responded to Theo (cfr infra), benign neglect and thinking that time is on your side has been a vital error in politics ever since this crisis broke out ; yesterday in Terzake - Van Overtvelt versus Bellet - the same old story : Herman's plan in visionary once it all works out ; problem is we need to have something NOW-
Philippe
On 25 Jul, 2012
Even if I tell them, they won't hear me. Does the (sacred) cow care about ants, even if the ants are more important for the ecosystem than she is ? ( and question : how do we make them learn to respect us ? )
My feeling is that Herman's grand plan is just a smoke screen. But once the smoke dissipates, there will be no battle line ready, nothing. Another smoke screen further away. In the short term, they might hope that the Greek make an honourable seppuku before the Troika has to communicate, or even hope to be able to find a way to conceal the situation, while the Greeks themselve just wonder how to milk some more money out of a vague semblance to honour those commitments they haven't really done.
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christof Govaerts
On 25 Jul, 2012
@FV
Depends : ik ken de handelsstromen van Spanje niet zo van buiten maar in het Griekse geval zou een mega devaluatie (exit) niet het wondermiddel zijn (export your way out). Indien de EUR snel deprecieert moeten we kijken naar de Spaanse handelspartners en het belang van internationale handel in het GDP van Spanje. Dus EUR crash of EUR break-up met nieuwe Spaanse drachmes is niet noodzakelijk een succesvolle strategie-
Theo
On 25 Jul, 2012
@ Christof
In the long term we might all very well be dead, but in the short term we are all pretty much screwed !
Welcome to the Euro Zone
Pain perdu... that's British for French toast
From Theo's "Cooking up Derivatives - Chapter on European Options "-
christof Govaerts
On 25 Jul, 2012
@Theo
Mind you I love lost bread ; when I was a small (correction young, I am still small) kid, my mother used to make this on a Wednesday afternoon after coming home from school.
It will be interesting to watch how our great leaders will fix this one in a race against the clock. They still believe that they can mend this taking their time, an error ever since this crisis started 3 years ago
PS : if you don't mind I would like to read one of these days your cookery book. May be I can add some spicy ingredients in one of the chapters
Cheers-
Philippe
On 25 Jul, 2012
Didn't Juncker say that they all knew what to do, but couldn't agree on how to be re-elected afterwards ?
AFter WW1, it took 10 years for the French to take the necessary measures to adapt the franc to the new economic reality. Not because they tought they could take their time, just because the situation had to rot sufficiently as to be able to pretend that a devaluation of 80% was actually a wealth preservation measure.
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Theo
On 25 Jul, 2012
@ christof
We loved it as kids too. We used to have them mostly on weekends. In UK they have toast bread which is perfect for making French toast
I just came up with the idea for the book. I'd love your help and cooperation
When the European Union gives you bread that goes stale overnight and overproduction of butter, milk and eggs... and no local labor to pick up apples and pears from the trees.... you just make French toast with baked apples and pears
Yes, they wasted too much time. Now the whole thing is out of control. And they will continue to do nothing because now it is too late to do anything. They simply don't know any other way in Europe.
If time = money then money = time
If you don't have money, you should not waste time
If you have time, you should not waste money
That's my common sense time value of money philosophy
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Kris Van der Plas
On 25 Jul, 2012
@christof
I made lost lost bread only 2 weeks ago. Mmmmmm (Weather was appalling on that Saturday so what better way to spend it than by cooking, eating and reading:)
If you guys write that cookery book, make sure you use local products as we may not have the economy anymore to sustain fresh kiwi's from New Zealand.
As to Europe's politicians working on a solution... it is awfully quiet here in the Brussels' European Quarter... I hope that is because they are so hard at work :-(-
christof Govaerts
On 25 Jul, 2012
@Kris
All quiet on the Western front usually implies something brewing underneath...
As for the lost bread, with sugar on top, if you please !!!
cheers-
Theo
On 25 Jul, 2012
@ Christof
Sugar, yes... the EU is still subsidising its production in former European colonies
Can you help with exotic spices ?-
christof Govaerts
On 25 Jul, 2012
@Theo
Before this discussion moves into the dangerous waters of strawberries and cream, I am not a herb or spice expert ; but if you wanna be my tutor, always feel free :)-
Theo
On 25 Jul, 2012
@ christof
NuN is the expert on the ins and outs of Belgian waffles :-)
I developed a taste for vanilla sugar during my time in the Indian Ocean... but sometimes I take the exotic option of adding cinnamon sugar on my lost bread-
Nacht Und Nebel
On 25 Jul, 2012
Theo,
Next time you could try cardamom:)Not bad at all
But there is nothing I wouldn't do for vanilla ice cream with strawberries and whipped cream.:)-
Nacht Und Nebel
On 25 Jul, 2012
Theo,
I knew it!A match made in heaven!
http://www.een.be/mediatheek/tag/6947?page=23-
Nacht Und Nebel
On 25 Jul, 2012
wrong link.It is this one.I hope :)
http://www.een.be/programmas/dagelijkse-kost/recepten/verloren-brood-met-aardbeien
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Theo
On 25 Jul, 2012
@ Kris
As a rule I am also only interested in cookery books which list ingredients I can actually find.
There will be a Chapter on Hedging your Veggies-
Kris Van der Plas
On 25 Jul, 2012
@ Theo
Got my own veggie garden so that should work out well :)
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christof Govaerts
On 25 Jul, 2012
@ Theo & Kris
Theo is right when saying hedging your veggies ; one of my ex colleagues working now at Fuchs , numismatician and fund award winning manager CLaude Roelandt, was visionary in 2006/7 when he said to me : when investing your money right now, buy a piece of land, plant your veggies and potatoes and build a fence around it. But most of all, buy your M16 or AK47
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incognito
On 25 Jul, 2012
to put things in perspective: Spain has defaulted (or rescheduled) on its debt 13 times, since its independence, it has also known several times hyperinflation (max. 40% per annum), the current crisis is peanuts, compared with what has happened in the past (and what could happen in the future)
we have become 'soft' because we have, in the past 4 decades, enjoyed an exceptional, epic inflationary credit boom, now we're faced with the consequences, we all know why they are so severe in certain countries of the emu (but they are also severe in certain states of the US, f. i. california)
the main problem is that most economists simply refuse to make this analysis (credit boom/bust), if only they could agree on the (severe) illness, we might have a chance of developing a cure (but only if we step outside the credit 'box'), quod non
even the euro-bashing UK is in serious trouble (with a budget deficit of 8% and QE): http://www.guardian.co.uk/business/2012/jul/25/britain-double-dip-recession-figures-catastrophic-
christof Govaerts
On 25 Jul, 2012
@incognito
This time it's (NOT) different ; and about the UK I have been saying the same thing in a lot of recent blog postings. Today's GDP number was blamed on the Jubilee, an extra holiday and bad weather (-0,7% quarterly vs -0,2% expected) ; my guess is that austerity in the short term is taking its toll
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Nacht Und Nebel
On 25 Jul, 2012
I cannot see why a weaker euro will help Europe.
1.Who will buy your bonds if the euro already weakend about 25 percent against the dollar,asian to the linked currencies and the britisch pond?
this means that -America
-Brittain
-Asia
Will be shorters of the European bonds
Pension funds and insurance companies can't buy them.The grade is to low.They are nett sellers too because they must.
What will be the grade of this Europen fund.It can't be AAA+ and anything below AAA won't solve anything.
The general public refuses to invest in zero bonds as the euro falls into the abyss.
Ben can't flatten the yield curve further .So he will print some more money.
If Ben prints it will not help Joe Sixpacks but it will be restart the Chinese and other asian economies.
Perhaps too soon but I will start to invest in China for the first time.I will double my other asian investments.After all Ben B is Asia's best friend.
In Europa the consumers will be hurt alot by this weaker euro as things like food and energy will go hrough the roof.He will also be hurt by higher taxes (,besparingen in correct politiek nederlands.)
With much less to spend Europe will lose his middle class and the crisis will continue on and on.
http://youtu.be/ayLFNFlc9hU-
Philippe
On 25 Jul, 2012
@NuN
Europe will lose its middle class.... mais c'est normal !
http://www.youtube.com/watch?v=v5IeoQrrZxA-
Nacht Und Nebel
On 25 Jul, 2012
Philippe,
:)
The one with the big hat looks alot like Ives de Blackberry:)
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Nacht Und Nebel
On 25 Jul, 2012
Spain mostly exports to other European partners but Afghanistan is on the up.:)
http://www.ine.es/jaxi/tabla.do-
Nacht Und Nebel
On 25 Jul, 2012
http://www.ine.es/en/welcome_en.htm:) this is a better link.:)
23 Jul 12. Mortgage Statistics (M). Total mortgaged. May 2012: -27.2%
The average value of the mortgages constituted in April decreases 7.2% in the interannual rate, standing at 112,320 euros.
A housing crisis is on average about 7 years long.Spain will bleed at least another 3 years.
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christof Govaerts
On 25 Jul, 2012
@NuN
Does Spain supply some kind of fertilizer for poppy ? And there must be some hope for exporting towards China as well-
Philippe
On 25 Jul, 2012
@Christof
Used motor cars and used motor parts is somehow likelier than pata negra, chorizo or red wine. Although there might be a sizeable market to serve the Westerm troops there with food.-
christof Govaerts
On 25 Jul, 2012
@Philippe
And soon in the desserts of Iran as well, who knows ; but their wines are still top quality, certainly price to quality-
Philippe
On 25 Jul, 2012
I don't want to know what an Iranian dessert looks like. Already tried Finish desserts, Lithuanian desserts and even Mongolian desserts and not that tempted by that type of culinary adventure anymore
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Theo
On 25 Jul, 2012
@ NuN & Christof
Yesterday I learned the US counts revenue from Asian and South American tourists as "Export"-
Philippe
On 25 Jul, 2012
@Theo
I wouldn't be surprised if you found out that "service exports" in some European countries use the same trick, or that , in fact, it is a common way to count tourism services.
http://ideas.repec.org/a/ris/ecoint/0603.html-
Theo
On 26 Jul, 2012
@ Philippe
That's the one - Service Export !
Maybe asylum seekers and not yet regularised immigrants also get counted as tourists in Europe... We give them money every month and book it as Service Export when they spent it
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Nacht Und Nebel
On 25 Jul, 2012
Theo;
we learn something new every day.Even a smart (sexy) ass like you.:)Yesterday I learned that the 'European" civil servant is the only civil servant in the world earning more net then gross.About 40 percent more for the lowest catergories and about 120 percent more for the highest catergories.And they pay taxes too.About 1.6 percent.-
Theo
On 26 Jul, 2012
@ NuN
And they use human rights conventions to justify reaping EU taxpayers off ! It's sick.
I met a Belgian guy at uni in Australia. His mother used to be just a secretary at the EU office in China and he got his entire private school education paid for by the EU.
On top of that the EU paid for his university education too any where in the world with housing, living expenses and a monthly allowance of + euro 1000.
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Nacht Und Nebel
On 25 Jul, 2012
Gold higher,Yes,Ben print print,start the presses.
http://www.ine.es/jaxi/tabla.do -
Nacht Und Nebel
On 25 Jul, 2012
Christof,
Spain’s top export and import partners are from the EU region. Key export commodities of the nation include motor vehicles, foodstuffs, medicines, machinery and pharmaceuticals. During 2009, Spain had net earnings of $215.7 billion from its exports. This represented a decline of $70.2 billion from the export earnings of 2008.
Yes,a weaker euro would help ,lol.:) Spain’s weak trade scenario is attributable to several factors, predominantly the nation’s increasing reliance on imported petrol and decreased market competitiveness.
And yes it exports to China but I always am laughing my ass off when De Tijd reporters say that a weak euro would help Spain.The question is how when almost all the stuff you are exporting is with EU partners.
http://www.economywatch.com/world_economy/spain/export-import.html
BTW Spain has a nice niche market .Chinese bikiniliners are going wild for spanish moustaches because they are very hairy :)
If your have about 3000.000 houses for sale next year and demand is max about 200.000 then roberto el constructor will not happy for a long time.With hotels only half during July (57 percent) turisme has seen better days and there third best product,cars.Peugeot will tell you about how it is like to be a car producer.
But like they say. De prijs van het graan heeft de spaanse financiele orkaan doorstaan..:)-
Nacht Und Nebel
On 25 Jul, 2012
ooouch,chinese imports are not exports.Blame it one Christof poppy :)
So they inly export moustaches to China :(
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incognito
On 25 Jul, 2012
the idea is gaining traction...
http://blogs.telegraph.co.uk/finance/ambroseevans-pritchard/100019130/the-collapse-in-us-manufacturing-and-services-shows-that-things-could-be-about-to-get-a-lot-worse/
We can also argue about another sneaky idea. If the central banks are able to buy fistfuls of bonds right now without a ripple effect on inflation – and investors are still rushing into the safe havens, Bunds, Gilts, Treasuries, JGBs, etc – why not just quietly write off those central bank holdings and seize the moment to slash public debt by non-inflationary fiat? -
Nacht Und Nebel
On 25 Jul, 2012
My God.Can you believe this?:)
http://blogs.wsj.com/economics/2012/07/25/consumers-unlikely-to-feel-drought-impact-on-food-prices-until-2013/
http://www.insidefutures.com/charts/?sym=ZWU12
http://www.insidefutures.com/chart/ZS/CBOT_Soybeans.html?sym=ZS
http://www.insidefutures.com/chart/ZC/CBOT_Corn.html?sym=ZC
