Markets can remain irrational longer than we can remain solvent…
Mint – Bill Blain’s Morning Porridge October 25 2012
Markets can remain irrational longer than we can remain
solvent…
There were moments yesterday when it felt we stood at the
edge of the abyss preparing to take a giant leap forwards. The morning’s fears
were palpable – the lack of market direction and escalating concerns setting us
up for a tumultuous slide. By the afternoon everything rosy again! Despite
miserable German confidence numbers the feared sell-off has not developed. Fear
is still there though! Fed keeping long-term rates low should not be a surprise.
In Europe, we’re watching how the news flow develops.
Spain – more of the same. Will they, won’t they take the OMT
bailout? Rumours this morning say a limited €60bn is being discussed for the
banks and regions, but who knows. Spain has completed 2012 funding – so what’s
the rush or the need asks the Spain DMO? Perhaps Spain signing up for reasons
of “prudence” could provide the market with the kind of leg up it needs to
rejuvenate the rally?
Greece is being touted as a crisis averted. If you believe
all the guff from yesterday’s list of items on which there is apparent
agreement: labour reforms, privatisation, new loans, etc. I shall say it
quietly… we’ve heard it all before. Greece is not solved. Just delayed.
Germany saying it’s waiting for Troika report and IMF considering outstanding
issues sounds like noise designed for domestic electoral consumption. It’s
quite clear Europe is not going to let Greece go – so it’s a question of paying
the minimum to keep them in the family photographs.
Apparently Drahgi did a great job meeting German legislators
yesterday – persuading them that far from bailing out profligate southern
spendthrifts, the ECB is acting in German’s best interest by protecting them as
Europe’s largest creditor. High circus I’m told! I can just imagine him as a snake
oil salesman.. or worse.. a bond broker! After all.. didn’t he work for…
However, it does feel the crisis is developing in some new
directions. Until recently it’s been about sovereigns and banks – but now we’re
seeing corporates struggle. That’s a new dimension when corporate credit
spreads are so tight, but names from Peugeot, Iberdrolla, Telefonica, Nokia are
now France Telecom all have doubts notched against them. S&P’s warning of
further Sovereign and Corporate downgrades to come summed up the mood. As we
said yesterday – global recession is a fact and its bound to increasingly
impact markets. I suspect a fair amount of the new corporate supply launched
over the last two months new issue feeding frenzy could end up back in
circulation – we’re seeing it already!
Changing tack for a moment, I’ve not seen that much critical
comment on the recent French bank bailouts – they seem to have been pushed
under the carpet. But they have important implications for the basis of the Europe
crisis.
There is a general consensus France had no choice but to
bail out Peugeot’s finance arm PSA. Auto manufacturing is a critical part of
the French State’s Industrial-Complex in terms of employment, and without a
financing arm it’s questionable if it could remain so. As it is, French autos
account for a tiny proportion of global auto demand. So compare and contrast
French Auto Inc with Volkswagen.
Volkswagen managed to flog seven million new cars between
January and September making €145bn in sales with 80% outside Germany. In the
same period Peugeot managed to put only two million bagnoles on the roads making €45bn in sales. Moreover while VW is
watching profits soar (up 40% this year, and its increased global market share
to 12%... well when was the last time your neighbour showed off his new French
car?) And watch what happens when VW launches its new Golf in a few weeks time.
€200bn in 2013 sales looks nailed on. I ain’t hearing similar Va Va Voom
numbers…
So why are the problems of the French car industry so
important for the Euro? If French industrial policy is founded on preserving
the country’s manufacturing base is that really something German/Finish/Dutch
taxpayers could have been bailing out through a single European banking union?
Perhaps not! From this perspective there is little difference in making
political decisions to allow hairdressers to retire at 50 and political
decisions to preserve manufacturing capacity to placate unions. These are
national choices that illustrate sovereign self-interest not European hegemony.
I simply ask the question how is Europe supposed to move towards closer Union
when national interest remains paramount?
Markets can remain irrational longer than we can remain solvent…
Mint – Bill Blain’s Morning Porridge October 25 2012
Markets can remain irrational longer than we can remain
solvent…
There were moments yesterday when it felt we stood at the
edge of the abyss preparing to take a giant leap forwards. The morning’s fears
were palpable – the lack of market direction and escalating concerns setting us
up for a tumultuous slide. By the afternoon everything rosy again! Despite
miserable German confidence numbers the feared sell-off has not developed. Fear
is still there though! Fed keeping long-term rates low should not be a surprise.
In Europe, we’re watching how the news flow develops.
Spain – more of the same. Will they, won’t they take the OMT
bailout? Rumours this morning say a limited €60bn is being discussed for the
banks and regions, but who knows. Spain has completed 2012 funding – so what’s
the rush or the need asks the Spain DMO? Perhaps Spain signing up for reasons
of “prudence” could provide the market with the kind of leg up it needs to
rejuvenate the rally?
Markets can remain irrational longer than we can remain solvent…
Mint – Bill Blain’s Morning Porridge October 25 2012
Markets can remain irrational longer than we can remain solvent…
There were moments yesterday when it felt we stood at the edge of the abyss preparing to take a giant leap forwards. The morning’s fears were palpable – the lack of market direction and escalating concerns setting us up for a tumultuous slide. By the afternoon everything rosy again! Despite miserable German confidence numbers the feared sell-off has not developed. Fear is still there though! Fed keeping long-term rates low should not be a surprise. In Europe, we’re watching how the news flow develops.
Spain – more of the same. Will they, won’t they take the OMT bailout? Rumours this morning say a limited €60bn is being discussed for the banks and regions, but who knows. Spain has completed 2012 funding – so what’s the rush or the need asks the Spain DMO? Perhaps Spain signing up for reasons of “prudence” could provide the market with the kind of leg up it needs to rejuvenate the rally?
Apparently Drahgi did a great job meeting German legislators yesterday – persuading them that far from bailing out profligate southern spendthrifts, the ECB is acting in German’s best interest by protecting them as Europe’s largest creditor. High circus I’m told! I can just imagine him as a snake oil salesman.. or worse.. a bond broker! After all.. didn’t he work for…
However, it does feel the crisis is developing in some new directions. Until recently it’s been about sovereigns and banks – but now we’re seeing corporates struggle. That’s a new dimension when corporate credit spreads are so tight, but names from Peugeot, Iberdrolla, Telefonica, Nokia are now France Telecom all have doubts notched against them. S&P’s warning of further Sovereign and Corporate downgrades to come summed up the mood. As we said yesterday – global recession is a fact and its bound to increasingly impact markets. I suspect a fair amount of the new corporate supply launched over the last two months new issue feeding frenzy could end up back in circulation – we’re seeing it already!
Changing tack for a moment, I’ve not seen that much critical comment on the recent French bank bailouts – they seem to have been pushed under the carpet. But they have important implications for the basis of the Europe crisis.
There is a general consensus France had no choice but to bail out Peugeot’s finance arm PSA. Auto manufacturing is a critical part of the French State’s Industrial-Complex in terms of employment, and without a financing arm it’s questionable if it could remain so. As it is, French autos account for a tiny proportion of global auto demand. So compare and contrast French Auto Inc with Volkswagen.
Volkswagen managed to flog seven million new cars between January and September making €145bn in sales with 80% outside Germany. In the same period Peugeot managed to put only two million bagnoles on the roads making €45bn in sales. Moreover while VW is watching profits soar (up 40% this year, and its increased global market share to 12%... well when was the last time your neighbour showed off his new French car?) And watch what happens when VW launches its new Golf in a few weeks time. €200bn in 2013 sales looks nailed on. I ain’t hearing similar Va Va Voom numbers…
So why are the problems of the French car industry so important for the Euro? If French industrial policy is founded on preserving the country’s manufacturing base is that really something German/Finish/Dutch taxpayers could have been bailing out through a single European banking union? Perhaps not! From this perspective there is little difference in making political decisions to allow hairdressers to retire at 50 and political decisions to preserve manufacturing capacity to placate unions. These are national choices that illustrate sovereign self-interest not European hegemony. I simply ask the question how is Europe supposed to move towards closer Union when national interest remains paramount?
Out of time..
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Posted at 11:06 AM in News & Comment | Permalink