Posts Tagged ‘Europe’

The Greeks said NO to the referendum.

Two other times they said NO – in 1940 against the Axis powers (German, Italy and Turkey) and in 480 BC in the Battle of Thermopylae (the famous 300) against the overwhelming Persian force.


Markets logically will react badly. The first back stop for the ASX is 5,150 and then 5,000 and 4,800. SP500 1,970, 1950 and 1,870. At the moment 5,150 and and 1,970 are the most logic.

So A 10% drop is the worst case scenario. At the moment there is no sign of contagion. Gold and currency moved, but not in an alarming way.

US future (n a illiquid market since the holidays and the time) are down 1.35% at 2,035


Well everybody is scrambling. Already European Parliament President announced that there is no intention to immediately cut assistance to Greece.

The Greek banks are already running out of money (apparently they have just Euro 500 million of cash).

If money really runs out….or there is a bail-in Cyprus style (the Government seizing money) or a New Drachma (already it has forecasts to lose at least 40% of its value)

There are already emergency meetings scheduled all over Europe.

The Greeks will ask for debt forgiveness – which Germany will oppose. If it is a referendum is all it takes to have better conditions Portugal (election in October, Spain (election in November/December) will follow suit. And probably Italy too. Already the anti Euro parties in France, Spain and Italy are cheering.

Syriza will have its own problems as the extremist wing of the party will be emboldened and a closure of banks and riots could make the Government fall, even with a chance for the military to take over.

The two most likely scenario are

–  Syriza will need to cut off the most extremist left wingers and form a new Government and agree with the Euro creditors on a new deal

– A Grexit.  Probably starting with a “suspension” until something is formalized (at the moment there is no legislation in regards to a Eurozone exit”

– The ECB will expand its QE program


Usually I try to keep personal opinions to myself. But not today.

Logically I am not happy about the market reaction, even if we took precautionary measures since April and our portfolios are in better position than ever to withstand this storm.

But this is the fair conclusion of a mad Greek debt binge sponsored by money crazy German lenders.

Disclosed and intercepted calls (from Reserve Banks speeches and Wikileaks) made it clear that the first Greek bailout was to transfer the Greece debt from the German banks to the European Central bank – so in reality was a German bank bailout.

Also other conversation pointed that since 2011 the EU leaders were aware that further austerity would not save Greece. As Marie Le Pens (Front Nationale, France) says it shows that that Europe is now dominated by a Financial Oligarchy that has very little in common with the concept of democracy.

Moreover, even in  economic theory (Fischer, 1933) austerity in a debt/deflation environment cannot work.

So why they did it? It was a easy way to keep the Euro down and help German exports, while kicking the can forever.

Until Syriza came into power which is not part of the Euro Financial Oligarchy.

As the  Game Theory (police versus 2 accomplishes) teaches….the game is successful for the police, unless the rules are changed. And the referendum changed the rule.

Europe will try to keep them in, as a Grexit could open the Gates of Hell for Europe, but now is just RED ALERT


Did anyone noticed?

All the Greek saga is not Europe versus Greece, but Germany versus Greece (the names kind of give it away…Schauble, Junker.

The only non German involved is LaGarde (IMF – so American sponsored).

As I posted long time ago, (not politically correct but true and definitely Machiavellian) Germany tried to take over Europe two times with armies. Now with economics.

The other 2 time they look like winning for a long time (practically from 1933 to 1942, last time – stopped in their tracks by the Soviet Russia in Stalingrad).

Let’s see if history repeats itself (1990 -2015 stopped by Putin Russia in Greece) or if we really will have the 1000 years Reich!

In the speech of Mario Draghi there is a subtle, but terrible message.

Since 1951, the year where the first embryo of the European Union, every political/economical decision was a sequence of small steps towards an European Integration.

The fact that QE will be principally enacted by the National Central Bank it is actually the first step in reverting the trend.

As the debt is national, each country will have to deal with it and could cut (or be cut) ties with the European Union much more easily.

Germany showed that, when pressed, “Because the needs of the one… outweigh the needs of the many” (Star Trek quote, Search of Spock).

Due to political factors, this trend will be hard to reverse.

Please note – this is not a market forecast (equity markets probably will be very happy as in the US). It is a political forecast.

The European Quantitative Easing (QE) has been announced and the market cheered has it is Euro 60bn per monthtill 2016 (just over E1 trillion) versus the expected 50-60.

Markets cheered at the surprise (the real reaction will be in a few days, after digestion).

So let’s focus on some details.

It starts in March 15, some details still to be unveiled.

The ECB, to make the Germans agree, had to put some conditions.

In theory the purchase will be shared 20% by the ECB and 80% by the national Central Banks. But also there is a conditions that limits the amount that the ECB can hold of a single nation. As the ECB helped already a lot the likes of Greece, Italy, Spain, Portugal….it means that the risk sharing for these countries will be 8% ECB – 92% Single Country. Practically if ECB buys 70 the National Central Bank buys 730!

This goes against the idea and pattern of European integration.

Greece comes even worst. As the various bailouts have already filled the ECB quota of Greek debt….no purchases of Greek debt until the first tranche of the bailout expires (conveniently in July/August, when the outcome of the elections will be very clear).

So we will need to see how Syriza (probable winner in Greek elections) will behave – but they are already toning down their requests. Similar situation for Cyprus.

The ECB can buy a maximum of 25% of single issuance (and 30% top of issuernot to distort the price- it looks like a nice clause, but it is actually the market distortion that helped the US Fed to do what it did. Plus it is not clear if there are enough bonds to buy at 25% of single issuances  which sums makes Euro 60 bn per month.

Take out:

– It is consistent with the “disintegration” (not economical, but political) of Europe in the long term

-it could be positive for the market (some more details in March)

-it probably will not effect the real economy  – to 2016 the real effect will be 0.2/0.8% on the GDP. So to bring the GDP growth to 2-3% you will need European QE2 and European QE3 like the Americans.

If you have the questions…..since they could see the US, why the ECB did not do immediately a QE1,2,3 of Eu3 trillions. They are not stupid – they simply cannot do it as the Germans say NEIN NEIN NEIN!! In reality Europe is in a worst position than US, so it should do like the Bank of Japan that is now compelled to buy everything – including shares.

European elections

Posted: May 20, 2014 in Uncategorized

The 25 May there are the European election (also a vast arrays of local elections (28 national one for the EU, One Europe wide plus the Ukrainian election).

The polls indicate a big rise of the “anti” party (against Euro, against immigration, against Europe…but not very constructive).

Economically Europe is improving, but normal people are still struggling. Specially the fiscal pressure in South Europe is unbearable.

Also Draghi (EU Central bank) of ECB will look closely.

He (backed by the French) wants a Quantitative Easing also for Europe, but Germany, as usual, is recalcitrant. But in a sense is looking at the strength of the Euro and could start otherwise. But QE for Europe, due to the Germans, will always be a weapon of last resort in case of risk of deflation

The deflation threat

Posted: February 17, 2014 in Uncategorized
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Everybody says that there is no contagion effect between the issues in the Emerging Markets and the developed economy.

In reality there is a potential deflationary effect – but nobody will alert you as nobody knows the cure.

Japan went in deflation in the early 1990s and it is trying now to get out of it. Still the stock market index overs around 60% less of what it was in the ’90s (40,000 points!).

Deflation essentially occurs when you do not spend today, as you know that items will be cheaper tomorrow.

Europe is naturally the place at deflation risk. The main issue, in my opinion, is that while billions of euros have been pumped into the banks by the ECB and government…the banks definitely forgot to pump it into the real economy!

At an inflation rate of 0.7% it is in disinflation (prices are still growing, but at a lower rate) and could be easily tilted into deflation…by the Emerging Markets. That is the real potential contagion effect.

In deflation protection is very hard to come by. The classic (real estate, commodities, gold) do  not work. Cash, long term bonds, guaranteed investment certificates, US Dollars.

Short equities (unless with growing dividends or technology), real estate. Avoid debt at all cost.

A very bad scenario indeed

Just one more things to worry about….

Ok …it is not called KGB anymore….it is FSB.

First the Syrian operation crippled the image of the US  in the Russian ex Soviet Republic and in part of the Middle East.

Now some leaks are seeding distrust between the European allies (Germany, France, Spain…also with Brasil) and the US.

And the escaped contractor Snowden was granted asylum by Russia.

This is a KGB (ops sorry FSB) master operation. It almost feels “cold war”. In reality Russia is very far from what it was, but sometimes perception works even better than reality.

And the US needs really to step up its collective brain

Europe is apparently out of the crisis as long as the markets are concerned.

Yes the European Central Bank clearly saved the financial and bond markets…so the financial crisis of Europe has been averted.

In 2014 the BCE will do another stress test of the banks. And the stress test will reveal that the banks are not lending out money (in Europe 75% of all corporate lending is done by banks – only 30% in the USA and above all they do not lend to the small enterprise which, in Southern Europe employs 75% of the workforce…see a problem there?))

But what in 2014 will start to appear clear is what, in 2012, I called Europe: DOA (Dead on Arrival). And by this I mean that Europe will be financially “saved”, but nationalistic parties (of right and left ideology) will start to grow asking who is really benefiting the Euro/Europe structure. Low interest, low Euro and free money/goods flow definitely is benefiting a lot Germany


For sure not the “average Joe” (who is by the way, the voter) nor the Southern Europe Countries.

So as soon as the financial European crisis is finished a political European crisis will start. Quiet a bit overdue, I must admit.